How Does PTO Work? A Comprehensive Guide

Offering Paid Time Off (PTO) is one of the important factors in creating a healthy workplace and employee benefits. It also intensifies the organization’s productivity and operation.

About 70% of companies offer PTO to employees, and per year, average employees take around 10 days off.

From the above data, you can measure the value of PTO in employment. However, it is crucial to set up a clear PTO policy to keep the confusion and disputes at bay. Many employers pass through a perplexing situation when dealing with PTO. To eliminate this, we are introducing you to a guide on how PTO works.

What Is paid time off, or PTO?

PTO stands for Paid Time Off is a kind of leave benefit under which the employer pays even in the employee’s absence on a particular day. PTO covers personal or family emergencies, vacations, or medical leave.

Employers must define time off policies for specific categories like personal days, sick leave, family leave, etc.
Under the Paid Time Off concept, a company grants a designated amount of leave to the employee. Additionally, they can also acquire more time off based on their tenure and commitment to the company. Few companies still follow a traditional leave policy, but PTO offers more flexibility.

Some Key Points to note:

• PTO policies vary according to state, city, country, and company. Employers must abide by the federal laws.
• The PTO payout rule always changes according to the state.
• PTO covers various categories of leave such as family leave, medical leave, holiday leave, etc.

Let’s take one of the PTO policy examples. Suppose company A has implemented a PTO policy that combines sick leave, family leave, and vacation leave. The company has 8 working hours and the candidates’ employment starts from the day of his joining the company.

The company uses HR software to manage all leaves. Now the employer has the following rules for employees to avail of PTO –

• Employees need to submit their leave request one week in advance for planned leaves.
• All requested leaves must be approved by their supervisor and HR department.
• In case of a medical emergency, employees need to notify their supervisors in the morning.
• Employees can carry forward the remaining PTO balances to the next employment year.
• If an employee leaves the organization then he will get encash with the remaining unused PTO.

In this form, an organization will have proper management of the PTO and meanwhile, employees will have a proper work life balance.

How Does PTO Work?

Let’s understand how unlimited PTO works. PTO plans vary from employer to employer. Usually, 30 paid days off are applicable in a year. There are 10 days of paid vacation, 10 paid holidays, 2 personal days, and 8 sick days. By keeping an employment tenures with the company, employees can easily earn extra PTO.

You can explore various methods to calculate PTO –

On the Basis of Hours Worked

If an employee earns 1 hour of PTO for every 20 hours worked, If he works for 1600 hours annually, the number of hours of PTO will be as follows –
1600 hours/20 hours = 80 hours PTO

On the Basis of Years of Service

In this case, employers can set their PTO accrual policy as per the number of years of service. For example, suppose an employee earns 15 days of PTO in the first employment year and 20 days of PTO in the second employment year. In this case, the total PTO earnings will be 35 days.

On the Basis of Hours Worked and Years of Service

For instance, an employee earns 1 hour of PTO for every 40 hours worked and 3 days of PTO for each year of service.

Based on the Set Number of Days

For instance, if an employee receives 20 days of PTO regardless of employment year as per the company’s leave policy. In this kind of condition, the employee will utilize 20 days of PTO.

What Are the Common Types of PTO?

Different kinds of PTO exist and each of them has its own set of rules. Here we explain 8 common types of leaves.

1. Paid Sick Leave

Paid sick leave is applicable when an employee is under medical treatment (illness or injury) and needs time off to rest and recover. It is not mandatory to offer paid sick leave for their sick time at the federal level. Still, many employers offer sick leave in some particular states.

2. Paid vacation

Paid vacation is often confused with the term PTO and people use it as synonymous with that. PTO refers to the time when employees are paid even though they are not working. It doesn’t necessarily mean it’s vacation time.

While vacation time is a type of PTO, not all PTO is for vacations. Employees typically schedule their paid vacation days in advance.

3. Paid Jury Duty

Some states need employers to pay employees during their leave of jurisdiction work. Some states need employers to pay employees. However, some states do not allow employers to provide paid jury duty.

4. Paid Military Leave

Military leave is applicable when employees need to attend military training. However, an employee needs to inform them in advance of taking time off. This can be provided either in writing or verbally.

According to federal military leave policy, it is not necessary to make a payment to employees. Employees can utilize this PTO for military-related absences.

5. Paid Family leave

Under the Family Medical Leave Act (FMLA), employers need to allot 12 weeks of unpaid job protected leave to employees. It is regulated by the Federal government if there are 50+ employees.

In some cases, employers of any size offer this leave beyond FMLA. Maternity and paternity leave also come under this kind of leave.

6. Paid Bereavement Leave

Bereavement leave is a kind of time off that an employee can utilize during the death of any family member.

Employers do not have to make any payment in this kind of situation. Instead, they can grant a few days each year. You can provide a specific number of days of paid bereavement leave.

There are five states where bereavement leave is applicable –

• Illinois (for a company with 50 or more employees)
• California (for a company with 5 or more employees)
• Oregon (for a company with 25 or more employees)
• Washington (in case of child death)
• Maryland (for a company with 15 or more employees)

7. Paid Holidays

This kind of PTO is observed by all employees of an organization. It is a national holiday and employees do not have to generate time off requests. If a paid holiday comes on weekends, the previous Friday or next Monday is available for employees to consider as a holiday.

8. Paid Personal time

Personal time is given to employees to complete their personal tasks. It can be anything like visiting a hospital, banking at work, or going to see a child.

What Are the Benefits of Providing PTO at Your Organization?

Offering PTO at your organization is beneficial for employers in the following ways.

Simplify HR Work

The HR department has lots of tasks including hiring, payroll, company events, and making the exit process for an employee. In such a case, crafting a well-defined PTO is good for the organization. The human resources staff track and manage leaves in an easy way.

Enhance Productivity

Offering PTO enhances productivity because it enables employees to take a break and come back with a refreshed mind. It boosts effectiveness and improves employee well-being.

Employee Satisfaction

PTO enhances job satisfaction. It allows employees to maintain an optimal work-life balance. Thus keeping employees bound for their jobs and the company successfully retains employees for a long time.

Transparency

Employers receive more notice of scheduled vacations. When employees can allocate their PTO days accordingly without sick days, with well-defined PTO, there is high transparency between employees and the company.

Cut Down on Absenteeism

Absenteeism refers to the practice of being absent from the job without a legitimate reason. With a proper PTO policy, employers can reduce it. This is because PTO helps manage unscheduled absences, which could otherwise cost the company thousands of dollars.

How Does PTO Apply to Hourly and Salaried Employees?

Hourly employees get payment based on hours worked, whereas salaried employees get payment regardless of time worked (usually monthly). PTO laws are applicable to both hourly employees and salaried employees.

Let’s understand how PTO works while considering scenarios at a time. Here we first take the salary of employees –
For Salary Employees

You need to make payment for a full work week regardless of PTO. The typical workweek is 40 hours. In case you don’t have unlimited PTO, you can deduct the used hours from the balance. However, the total pay rate is always the same.

According to the Fair Labor Standards Act (FLSA), there is a need to pay a fixed weekly salary to your exempt employees. Any modification to this is not allowed.

In a specific situation like exhausting the PTO benefits, you can make payment of a deduction. You can also outline these situations in your employment contract.

For Hourly Employees

Let’s understand how PTO works for hourly employees. Employers must choose an accrual method to allot PTO to hourly employees. The core reason behind this is high employee turnover exists in those companies that have a significant amount of hourly workers.

For hourly employees you can consider the following points –

1. PTO will accrue every biweekly pay period for hourly employees.
2. For every 30 hours, employees can earn an hour of PTO. However, companies can extend this and offer more time off hours to employees staying in the company.
3. The standard hourly rate defines time off payment to employees. The reason behind this is employees are bound to use only accrued amounts when they request PTO.

Here the thing to note is PTO is not applicable to independent contractors, part-time employees, interns, and temporary workers.

Wrapping Up

Hope you have a satisfactory answer on how PTO works. PTO policy plays a vital role in determining the healthy work life balance. It is highly important for enhancing productivity and creating a positive workflow. The PTO structure may vary from organization to organization. It doesn’t matter what structure you adopt, it adds value to your company.

Frequently Asked Questions