Common Questions Answered About Paid Time Off

Published October 2009

Paid time off can be a tricky benefit to deal with, especially when employers have to adhere to federal, state and even sometimes local laws. Answered below are some common questions about PTO.

1. Traditional or PTO? No federal or state law exists that requires an employer to offer the benefit of paying employees to take time off from work. While tempting not to provide such a benefit, many employers often are compelled to offer such programs in order to remain competitive as an employer of choice and since most employees have an expectation of being paid for time off. So, it comes down to determining what you are willing to provide and having it outlined in your company’s written Employee Handbook policies.

At this point, the popular question employers would ask involve whether to establish a traditional paid vacation / sick program or a paid time off (PTO) program.

2. Traditional Paid Vacation / Sick Program This traditional program maintains separate vacation and sick time “banks” and policies. “Employee Jack” then would request and take any approved vacation time directly from his vacation bank, for example, of 10 days. If Jack calls in sick, however, he would use sick time from his sick bank, for example, of five (5) days. This program gives the employee an annual total of 15 days for respective purposes.

By company policy, vacation time rolls over into the next year. Be careful, however, as certain states may consider vacation time as a “vested” benefit that needs to be paid if unused. As for sick time in this case, the company does need to pay it out or roll it into the following year. When Jack’s employment relationship with the company ends, any remaining vacation time would be paid out to the employee unless specific state law allows otherwise.

3. Paid Time Off (PTO) Program A PTO program replaces traditionally separate time off programs – vacation, sick, as well as personal days, salary continuation benefits, bereavement, jury duty, and even holidays – with a single bank of time. In fact, the employer may design the program such that the total amount of bank time (i.e. days or hours) is less than the sum total of traditionally separate bank time programs. Employers also gain much more administrative ease in the process of tracking time off for multiple employees.

PTO programs are especially favorable among some companies since there is simply one bucket of time for vacation and sick time (as well as for any other designated use, like personal days as noted earlier). In transforming the traditional vacation / sick program example above into a PTO program, a company may simplify by offering 15 PTO days (or 120 hours) for “Employee Jill” to use practically for any purpose. Once Jill uses up her the PTO bank time, the employee would have no further paid leave until she accrues more PTO over time.

In general, employees who do not use their sick time would get more time to use under a PTO program allowing employees to take time off based on hours instead of days. Employees have greater control and thus accountability of their time (which also eliminates the temptation for employees to lie and say they are sick when they just want or need some time off).

4. Final Thoughts Keep in mind, however, that state laws generally do not differentiate among the types of leave within a PTO program and essentially consider the entire PTO balance as a vested benefit. Using the examples here, instead of perhaps paying out only 10 vacation days under a traditional program, an employer under a PTO program would be required to pay the full 15 PTO days. Many other factors need to be considered as well. So, be sure to weigh the benefits and costs with your business needs in mind and consult an HR Professional as you see fit.

For whichever program you choose, it is crucial to establish clearly defined Employee Handbook policies appropriate for your state (and / or those your employees are in) and to communicate the information to all of your employees, especially if your company transitions from one program to another.