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The Ultimate Guide to Paid Time Off

PTO Guide
Business
By Michelle Kruse | Read time: 6 minutes

You need time off. Whether it’s for an illness, appointment, or a well-deserved vacation: we all need time off.

But did you know, that only 39% of non-managers surveyed in 2016 felt supported in taking time off? The United States has a lack of legislation around paid time off. Thankfully for employees, paid time off policies are becoming the norm. If you’re not offering any paid time off you might be trying to make sense of the different offerings and calculations. We’ve put together the ultimate guide for understanding paid time off policies.

Contents:

  • What is PTO?
  • How does PTO Work
  • Benefits of PTO
  • Disadvantages of PTO
  • Examples and Types
  • Laws and Resources
  • What Is PTO?

    PTO meaning Paid Time Off is, to put it simply, exactly what the name implies. Paid time for employees when they are not working. It sounds like a pretty straight-forward concept, but paid time off can be daunting to tackle.

    Some companies choose to offer categories for time off such as sick, vacation, and personal time off. Others offer a more popular PTO Bank style of time off that combines all categories into one. Recently, some employers are offering Unlimited PTO which doesn’t require employees to accrue time off while working. Sound confusing? It can be, which is why you can find detailed information on each different type of PTO below!

    How Does PTO Work?

    The most common way employees earn PTO is through accrual. Typical PTO policies will allow employees to earn time off hours per week. For most policies, this works out to a set number per year but requires employees to earn the time off.

    Other employers will offer a Lump Sum PTO balance. This is popularly given at the beginning of the calendar or fiscal year for the company. Employees receive their paid time off hours once per year to use as they like. This option is more common with salaried employees but has become less popular with the introduction of newer policies. 

    Regardless of how PTO is given out by the employer, they will almost always have a cap in place. Most policies (except unlimited) will cap hours out at 80, 100, or 200 hours depending on the employer.

    Nearly all PTO policies will include guidelines to keep employees from all leaving at once or using too much time on short notice. We’ll touch on this more in the Examples and Types section, but it’s important to set rules with each PTO policy. But for now, let’s take a look at if a PTO policy is the right fit for you.

    Paid time off

    PTO Benefits

    Paid time off is a collective win for employers and employees alike. A majority of employees prefer having paid time off options even if they don’t use them completely. But what makes having a PTO policy a good idea? 

    1. Morale

    Companies can increase morale by providing employees with paid time off option. Employees feel valued and appreciated when given the option to take time off with payment. Morale will also rise when employees can take a break from work and get refreshed on vacation.

    2. Attract Employees

    As PTO benefits become more popular, prospective employees will be looking for them. In 2018 a survey found 26% of workers claimed vacation and PTO were the most important factors when considering a job offer. You can bet that the top talent you’re recruiting is a portion of that 26%. 

    3. Productivity

    At a glance, paying people to not work might seem counter-productive. But studies and surveys show that the positive impacts of time off increase the productivity of employees. 70% of employees that take a week or more of vacation per year say they want to contribute to company success. Showing your employees that your investment in them results in their commitment to your company.

    Disadvantages of Paid Time Off

    Paid time off is a net positive for everyone in a company. However, there are some disadvantages or issues that can pop up with your paid time off policy. It’s important to make sure that you are proactively planning for PTO to ensure these aren’t issues. 

    1. Illness

    Some paid time off policies does not appropriately plan for sick time or unexpected illnesses. This is usually an issue with PTO bank policies as opposed to unlimited and categorized options.

    Occasionally, employees will find themselves ill for longer than expected. Or at an inconvenient time such as right after a vacation. This will cause employees to run out of sick time and many of them will feel forced to come back into work. When this happens they can infect the office and cause massive call-outs at a time. One easy way to avoid this issue is the use of unlimited PTO, which we will touch on later in this article.

    2. Frequent or Unexpected Absences

    Unregulated paid time off can result in abuse of the policy. Without the appropriate structure, employees may call out too often or too close to their required shifts. This can leave you without employees to do their work, while they still get paid. With the right guidelines in place, abuse of a policy is more likely to be prevented.

    Types and Examples of Paid Time Off

    As mentioned earlier in this post, there are a few different options available for policy types. These policies have their advantages and disadvantages, but one of them may be your perfect fit. Let’s take a look at how each of these could work for you:

    Categorized PTO

    This type of policy involves what the name implies: Categorization. Each type of paid time off you want to offer will go into its own bank of time. The most common categories for this particular option are sick, vacation, and personal time off. Regardless of how your employees earn their time off (accrual vs lump sum) the time is categorized. This policy could look something like this:

    Example for Categorized Paid Time Off:

    • 24 hours of sick time given annually
    • Vacation time accrual of 2.08 hours for each workweek in a calendar year
    • Personal time off accrual of 1.58 hours for each workweek in a calendar year
    • Other time accrued for X amount of hours for each workweek in a calendar year

    With a categorized policy for PTO, your employees will also need to request time off categorically. This tends to be where this type of policy gets complicated. It can even cause dishonesty with employees when they run out of hours in a specific category. You will also need to track each category on an administrative level. Which can be easier with the help of a tracking service for ease of use. Overall, this policy model is being left behind as more companies are embracing PTO banks as well as Unlimited policies.  

    PTO Bank

    These policies are like the one above with one large exception: categories. With a PTO, bank employees will earn all their hours into one set bank of hours. There are not any differences in the type of hours accrued either as they are all for the same purpose. Here’s what a PTO bank policy could look like:

    Example for Categorized Paid Time Off:

    • X number of hours given (in relation to years worked) annually
    • PTO accrual of 3.28 hours for each workweek in a calendar year

    One of the major differences when using a PTO bank is how easy they are to keep track of. You’ll still want a program to help with that tracking, but you won’t need to decode three to five different rates and types of time off. You’ll also notice more employee honesty when requesting or utilizing time off. This model is currently the most common type used, but that may be changing with the introduction of Unlimited PTO models.

    Unlimited Paid Time Off

    This style of policy is new but has been resulting in positive impacts for employers and employees alike. With Unlimited PTO there aren’t any earnings that need tracking. A well structured unlimited policy will have guidelines in place to make sure time off is managed responsibly. And that employees are supported when they do take time off. Many employees feel trusted and happy when given an Unlimited plan and some companies have found it to increase productivity. 

    Laws and Resources

    When looking at paid time off it is important to understand the laws of your state as some states will have requirements with time off. For example, some states have a leave of absence law in place that will need to be followed within your policy. Make sure to check with your local laws before finishing up your policy and guidelines.

    If you’re ready to put in place a paid time off policy then we hope this guide helps you pick the right fit for your company. If you want to learn more about how to use a PTO policy, tools to track time earned, or other information then check out the resources linked in this post!

    Conclusion

    Paid time off is collectively a positive benefit within companies. It helps keep and attract employees and makes them feel valued while working. Taking time away from work helps increase productivity and morale as well. It’s important to value your employee’s time as well as your own, so we hope this guide has helped you get started on that. Now tell us in the comments below, what will you be doing with your next vacation?

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