What is PTO: Everything You Need to Know
Paid time off (PTO) is time that an employee is paid for while they are not working.6 min read
What is PTO?
Paid time off (PTO) is time that an employee is paid for while they are not working. PTO could refer to vacation, sick time or other personal time. Employees that are offered PTO can save and use this time off at their discretion under most policies.
Usually, employees are credited with a certain number of PTO days each year. Some policies are structured so that a certain number of PTO days accrue with each pay period. PTO can sometimes be carried over to the next year, but not under all plans. In the public sector, PTO is generally referred to as “annual leave.”
PTO can be used when an employee is ill or needs to take a day off to handle a personal issue. It can also be used to take a vacation of several days or just have a day off. Most United States employers have plans for workers that annually include:
- Two weeks of paid vacation
- 10 paid holidays
- 10 paid sick/personal days
This amounts to about one month PTO per year.
It is common for employers to make no real distinction between vacation, personal, or sick days – all are simply treated as PTO. However, employees should still be honest about how they are using their time off. And employees should request PTO ahead of time whenever possible.
PTO plans can be tailored to meet the demands of a business, and also to meet the demands of individual employees. There is no reason, legally or practically, that every employee needs to have an identical PTO plan. Offering extended PTO to employees that need it could make sense if it allows them to keep providing good work for the company.
Unlike the rest of the world, there are no federal laws or regulations in the United States mandating that companies offer PTO.
Why PTO Is Good?
PTO ensures that employees are maintaining a healthy work-life balance. Aside from the obvious benefit this has to employees, this is also something that is good for business. Study after study has confirmed that when employees have ample time off, they are more productive when they are working. Moreover, offering PTO helps businesses attract the best talent. Employees with marketable skills are not likely to stay at a company that offers no PTO.
Having a PTO plan in place also means that employees simply need to request the time they want off ahead of time according to the plan. In other words, there is no need for employees to meet with managers to discuss having time off each and every time they wish to do so. When there is an established PTO plan, managers don’t need to monitor and assess the situation every time an employee takes time off.
Why Paid Time Off PTO Is Bad
It is easy for employees to abuse a PTO plan. It is easy for employees to use days off for whatever reason they want. Employees can use a sick day when they aren’t sick, for instance. Managers in a company should communicate to employees what the expectations of using PTO are. However, if an employer plans ahead of time for each employee to use their full PTO, this isn’t usually much of a problem. The problem of abuse is further mitigated by the fact that most Americans don’t use their full PTO.
Because PTO is a benefit offered at the individual level, employees may choose by coincidence to use PTO at the same time. When multiple employees are all using PTO at the same time, it can put stress on a company.
A plan should also account for what happens when an employee has used all of their PTO and is ill or gets sick again. Under restrictive PTO plans, this situation encourages employees to come to work while they are sick, which can be bad for both the employee and the company.
Sick Employees Not Using Sick Leave
Sometimes employees don’t even use sick days that they have available when they get sick. They want to save all of their PTO to be used as vacation time instead. Permitting sick employees to work in an office when they have a contagious disease is a terrible practice. There are few things more costly to a business than for a flu virus or some other illness to spread through the workforce at once. Not only is it bad for business, but when an employer knows that they have a contagious employee, they have an obligation to safeguard the rest of their employees from harm. When there is a PTO plan in place, make sure employees know that coming to work while sick is not an option.
Manage PTO Program
Make sure that your PTO program suits your company. Build in flexibility, but also establish clear guidelines and make expectations clear to prevent abuse. Remember that how employees use PTO is largely up to them, but that the entire program still needs to be managed.
Paid Time Off Policy Averages
One study found that American companies offered between two weeks and one month of PTO on average depending on how long an employee had worked at the company.
Vacation versus PTO
Some companies account for vacation and sick days separately, but many have eliminated the distinction. There are benefits and disadvantages to both systems. The main benefit to pooling both together into a single PTO group is that is streamlines and simplifies the system.
But by pooling both types of PTO days together, employers are essentially granting additional vacation days to anyone that doesn’t use sick days. And sick days cannot usually be carried over to the next year, while vacation days can be. When they are pooled together, they can typically always be carried over.
An advantage of separating sick and vacation days is that each can then have separate rules for how they are requested and scheduled. For instance, vacation days could need to be requested in advance whereas sick days could be used immediately.
However, using separate pools of days can be a problem when employees use all of their sick days and get sick again, or when they want to have a four-day weekend but have already used all of their vacation days. In these cases, employees are incentivized to lie about why they are taking time off. At the very least, managers are forced to decide whether they should allow the employee to bend the rules of the PTO plan.
Layoffs and Severance
Employers need to remember that when they layoff employees that PTO can be cashed in by the employee on top of any severance that is to be paid. When a PTO policy allows for days to be carried over from year to year, paying out all of the PTO for an employee that has saved up days for years can be a large cost.
Fair Labor Standards Act of 1938
The Fair Labor Standards Act (FLSA) is a federal law passed in 1938. The FLSA establishes basic worker rights, including setting the minimum wage, the 40-hour workweek, mandating overtime pay, and forcing employers to classify employees as exempt or nonexempt. However, the FLSA notably does not require employers to provide PTO.
The McNamara-O’Hara Service Contract Act is a federal law that does mandate PTO for some types of government jobs. This law does not apply to any non-federal jobs or contracts.
Employer PTO Policy
Employees should be provided with the guidelines of a PTO plan upon being hired. The precise terms and conditions of a PTO plan can be tailored to the specific needs of a business. Although there are no federal laws requiring companies to provide PTO, some states have labor protections that regulate how employers must handle PTO issues with employees.
State Laws on PTO
State laws do not mandate that employers offer PTO, but some state laws do regulate how employers carry out a PTO program. For instance:
- Most states mandate that when an employee is laid-off that the employer must pay them their outstanding PTO.
- A few states also mandate that when vacation time is offered, it is able to be carried over from year to year.
- Companies should always be aware of their state’s employment laws.
Purpose of PTO
PTO is good for employees and ensures that a business has a healthy and productive workforce. It can also be used as a tool to recruit good talent into a company. Most employers recognize the value of offering PTO.
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