What Does PTO Mean?
PTO (Paid Time Off) is a term describing the benefits employers provide to their full-time employees. It enables employees to still receive full payment for taking time off work.
In most European countries, PTO is defined under law, and employers are required to provide between 20 and 30 days of paid time off. In the United States, PTO isn’t regulated by federal law.
While each state can regulate PTO under law, most choose to let businesses craft their own PTO policies without a predefined legal framework.
As a result, PTO for employees in the US typically ranges between 5 and 10 days per year of work. That said, the US workers are entitled to up to 12 weeks of unpaid time off under the Family and Medical Leave Act.
How Does PTO Work?
We’ve covered what PTO is in general, but to give you a bit more insight that will help you create your PTO policy, let’s discuss how paid time off works in practice.
PTO is most often accrued on a monthly basis. The employer can define the number of paid days off every employee is awarded per month, and this can vary depending on the role and the time spent with the company.
Employees may submit PTO requests, either in person or through the company’s HRIS. The request is typically approved by either the employee’s manager (team lead/department head) or the head HR representative.
That said, there are four different types of PTO policies companies can implement. Here’s a quick breakdown of each:
1. Traditional PTO
A traditional paid time off is what we’ve described above. Essentially, employers provide their workers with a set amount of paid days they can use for different purposes, such as vacations, sick leave, and personal days.
In practice, this can be anywhere from one day per month to two and a half days per month. Alternatively, employers can offer hours instead of full days, which is often a better deal for freelancers and part-timers who don’t work full 8-hour shifts.
As we mentioned, the PTO doesn’t necessarily have to be the same for every person working in the company. In other words, the organization is free to allot more PTO days to team members who have been with the company for several years or distribute different amounts based on roles within the team.
2. The PTO Bank System
This system is similar to traditional PTO, with one important distinction — the company doesn’t differentiate between different purposes for taking time off. Employees still have a “pool” of paid days per year but are free to spend them as they see fit.
On the one hand, this eases the burden on your HR department since they don’t have to track different types of paid leave. On the other hand, it provides employees with more flexibility since they don’t have to worry about spending all their sick days and having to take unpaid leave if they get sick again.
3. Unlimited PTO
As the name suggests, unlimited PTO policies allow employees to take paid time off whenever they need to, for whatever reason. This is most often the case in tech companies, startups, and SMBs that do not have an HR infrastructure to track and report on PTO. It’s also a growing trend among hybrid and fully remote companies.
Typically, the approval method for unlimited PTO isn’t tied to a strict policy but is rather handled through the discussion and negotiation between the employee requesting PTO and their direct superior (manager).
While this might sound like the worst option from the employer’s perspective, in practice, it has shown to be one of the more cost-effective ways for companies to approach PTO. The main reason for this is peer pressure.
Nobody wants to feel like they’re “abusing” the unlimited PTO policy, especially since the work still needs to get done on time, so it will likely fall on other team members when a person is absent.
As a result, employees in companies with unlimited PTO tend to only utilize their paid days off when they actually need them — when they’re sick, have a family emergency, or feel the need to take a week or two off once a year for a vacation.
4. PTO Donations
With most PTO policies, employees are required to use their accrued PTO days within the calendar year. Otherwise, the PTO is wasted, and they’ll need to start accruing it again the following calendar year, starting from scratch.
While some employees may choose to pay out unused PTO days at the end of the year, some opt to implement PTO donations. Essentially, this approach allows team members to share their unused PTO days with their coworkers.
So, if someone is struck with a serious illness, their coworkers can pitch in and “donate” their own PTO days to ensure that the person receives a full paycheck until they are able to come back to work.
Types of PTO
Now that you understand the different PTO systems that companies may have in place, let’s take a closer look at different PTO examples — the reasons why employees might opt to take paid time off.
Vacation leave is the time allotted to employees that they can use to travel or take time off from work. Typically, vacation PTO policies detail how often and when employees can take vacations. In most cases, employees are required to be with the company for at least six months before they’re able to take a week-long vacation.
Sick leave, as the name suggests, involves taking time off from work when the employee is unable to perform their work tasks due to a sickness or an injury. The number of sick days per work year is typically limited, but employees can use them whenever they need to, whether it’s just one day in a week or several days in a row.
After using up paid sick leave, employees can take unpaid time off, provided that they provide the employer with a signed doctor’s note confirming their inability to get back to work.
Personal time is a broad category that covers a multitude of reasons for skipping work. It usually involves taking care of other obligations that coincide with someone’s work hours, such as doctor’s appointments, attending events, picking up friends from the airport, or any other reason that doesn’t fall under vacation or sick leave.
In recent years, personal time also includes mental health leave, where people feel the need to take a day or a few days off from work to deal with the stress and prevent burnout. Whether or not an employer provides personal time off is solely at their discretion.
Bereavement is a special PTO category that covers paid days off when a worker’s family member or a close friend passes away. It can involve funeral preparations, attending funeral services, and taking a few days to grieve.
Holidays are typically a time when most companies take collective time off. Employees are compensated fully for the holidays as if they have spent the time working.
In some multicultural companies, employees get a set amount of days for holidays and are allowed to choose which holidays they celebrate. This is typically the case in hybrid or remote companies that practice asynchronous work, meaning one team member’s work isn’t dependent on other people being in the office (or online) at the same time.
Parental leave details paid time off a person can take in the event of childbirth or adoption. Traditionally, this type of PTO was only granted to mothers, but it has been adapted to include paternal leave as well.
Federal law details both unpaid and paid parental leave that employers are required to provide, with the key difference being the size of the organization. Additionally, some state laws might require employers to provide a specified time of paid days off for parental leave.
Jury duty is a civic responsibility, so employers are encouraged to provide paid time off in the event that their workers are called to serve on a jury. The employee must provide a court notice summoning them for jury duty to receive paid time off.
There are other types of PTO that companies may choose to offer to their employees as benefits, such as military leave, voting time, and compensatory time (in lieu of overtime pay).
The more flexible your PTO policy is and the more generous you’re willing to be, the more attractive your company will look to job seekers. So, rather than viewing PTO as an expense, look at it as a long-term investment into the overall job satisfaction in your company. After all, satisfied employees are far more likely to achieve peak performance, which more than pays off in the long run.