What is PTO?

Paid time off leave, or PTO is an employee leave policy under which the company sanctions a pool of leaves for its employees, for which there will be no loss of pay. PTO leave means that the employees will get paid, even when they are away from work for a specific time period. 

PTO accounts for a variety of reasons - sickness, marriage, bereavement, vacation, or personal time. Employees can avail them at their discretion as and when required.

PTO is one of the primary benefits offered by a company to its employees. Attractive Time-off policies act as a significant plus point for companies looking to hire great talent.

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How does PTO work?

PTO functions by allowing employees to accrue leaves over a time period. When employees works for a month, a certain number of PTO leaves get accrued to their leave balance. It works similar to a savings bank account - the more they invest in it, the more they earn in interests.

For example, salaried employees get 1.5 PTO leaves for every month they work, their accrued PTO will be of 18 days, collected over the span of 12 months.

Alternatively, employers can allot a fixed number of paid time off days and hours per employee based on their policy. In that case, PTO is not accrued but stays constant throughout the year. That's how PTO works for traditional setups.

It this system, PTO leaves are packaged as per company policy. Suppose a company offers 30 leaves per year - 10 vacation days + 10 casual leave days + 8 sick leave days + 2 personal leave days. PTO provides employees with all those 30 days under one category - Time-off. The company can further sanction all leaves at once, or split the days into 7 per quarter, or 15 days for every six months.

Finally, companies may choose an unlimited PTO model. This flexible PTO system works by eliminating any limit on the number of leaves and employee can take through the year. It places complete control on how employees want to take time offs.

What are the Different Types of Paid Time Off?

It is important to categorize time offs based on the reasons your employee avail them. Clear classification makes it easy for employee to apply for PTO and help you track the which category registers the most number of PTO requests.

Here are the 12 types of PTO that your employees may avail:

Sick Leave 

Including sick leaves in your PTO policy helps your employees avail time off from work to recover from an illness or an injury. Based on your company policy and federal laws, you can assign a fixed number of sick leaves per year.

You can also ask for their medical certificates in the attachments section in case the plan for a long leave.

Vacation Leave

Employees can apply for vacation leaves when they want to take a break from work. They can apply for one or more days of paid time off to go on a vacation, spend time wih family, pursue a hobby, etc. The employee intent for availing vacation leaves is often to relax and recharge.

Since the definition of vacation leave is fluid, your PTO policy must include clear guidelines on when your employees can avail this type of paid time off, how early they must notify the management, and how to manage work in their absense.

Personal Leave

The type of PTO your employees may avail to take care of short-term activities like doctor's appointment, visiting the bank, vehicle repairs, attending events, etc. fall under the Personal Leave category.

Optional Leave 

A set of days that are commonly celebrated or recognized as public leave when is not officially granted by the company but is an optional day that the employee can use as time off.
Usually, employees are allowed to avail a few days from the exhaustive list. For example, a company's PTO policy may allow for five optional leaves which can be chosen from a predetermined list of ten occasions. 

Military Leave

If an employee is required to serve active duty or training, they can avail miltary leave to meet their obligations assigned without a loss of pay. This PTO category needs to be a part of your policy based on government guidelines.

Parental Leave

Your employee can avail these leaves when they become a parent. Maternity leave is a long duration PTO that is supposed to be used in one go. Paternity leave is commonly allowed to be split up and used by the new father as per his convenience. These leaves can be availed even if your employee apopts a child.

Based on the law of land, you can put a cap on the number of times that each employee can avail parental PTO.

Earned Leave

A few days allocated for one financial year that can be used when all other leave types are used up, when not used, the leave day salary gets encashed with the year-end salary or as a bonus for the employee. 

Sabbatical Leave

Paid leave provided to an employee while they are on their sabbatical that is a short period of time away from work, mostly 6 months to 1 year. 

Study Leave

Study leave is the paid time off given to an employee to pursue education related to the current job. Employees can also avail this PTO category to attend their graduation ceremonies while accounting for the days of travel.

You can collect proof for details on the ceremony before sactioning the leave.

Bereavement Leave 

Your employees can avail bereavement leave in the unfortunate event of death of a family member or a loved one. They can use the paid time off to arrange for a funeral and to come to terms with their loss.

Jury Leave

Your employees can avail the jury leave to fulfill their civic duty of serving as a juror or witness in a legal proceeding. You can include Jury leave in your PTO policy if your state law makes it mandatory.

You can check summon notice from the court before sanctioning a jury leave to your employees.

Leave to Cast Vote

This PTO type accounts for payment of hours when an employee is away from work to cast their vote during national or state elections. You can sanction hourly time-offs under this category because employees often need only a few hours for the task.

What are the benefits of Paid Time Offs?

You employees love paid time offs. In fact, an attractive time off policy act as a significant plus point for companies looking to hire great talent - it's a solid deal maker. But PTO is not just good for your employees, it's has something in store for employers too. Here are 8 benefits of paid time off:

Reduced Employee Burnout


Employee burnout is a major reason for low productivity and unplanned time offs. They negatively impact work satisfaction - even of your high performing workers.

Paid time offs make it convenient to employees to take a break from work  without affecting their paycheck. A good vacation will recharge their batteries and they will be rejuvenated to resume their duties.

Instead of waiting for the Christmas eve, if your employees can take short breaks every few months, they will unload stress and be more focused at work.

Diverse Workforce

You need to hire people who can do the job for you, irrespective of their culture. The best way to do that is by making your work culture inclusive of everyone. A well planned PTO policy can convey openness of your organization to citizens of all cultures. 

Policies like optional time offs will give your employees from the minority communities to observe special days with their family. This gives them an incentive to work with you over a competitor.

Enhanced Organizational Awareness

If you setup a leave management system, employees can notify their managers and teams about their planned leaves. This helps managers foresee upcoming leaves and plan their work weeks accordingly.
Additionally, employees are aware of the absent employees backup. They can reach out to them directly, thus reducing impact on timelines and workflow.

 

Improved Workplace Relationship

By using different PTO types to choose from, you pave way for employees to be honest about the reason for leave. It also allows managers to understand the gravity of a situation better.

This mutual appreciation fosters stronger relationship across the organizational hierarchy. When employees confide more in the management, they are more open in expressing business concerns and voicing less popular opinions.

 

Competitive Edge

Many major companies provide PTO to their employees. We have come to a stage where PTO is a common place. Your current and future employess have come to expect that from you.

With this background, it's easy to see how a employee friendly PTO policy can attract talent to your company. With same job roles, perks and salaries offered to a candidate by you and a competitors, a favorable paid time off policy can tilt the needle in your favor.

 

Enhanced Talent Retention

PTOs provide flexibility and convey a clear message to your employees that you understand their requirements. They help you engender trust which is the basis of long-lasting employee relationships.

It helps you meet the basic human need to feeling valued and recognized which helps you retain talent for longer.

Enhanced Brand Value

Though your product and services have the biggest impact on your brand value among clients, you can't ignore building a brand within your organization.
Your employees and potential candidates should see you as a trusted brand to want to join you and stay with you for years to come. An employee friendly paid time off policy can build your brand internally.

It also avoids lawsuits which can negatively impact your brand value. Most top companies that are know for their culture have an effective PTO policy.

Better Understanding of Your Workforce

With the help of an effective time off manager, you can track which type of PTO records the most number of leaves. It will help you identify a trend of when a specific category of time offs gets the most numbers.

If, for example, you see a high vacation PTO requests in the month of April, you might want to look into what causes that. You can then fix any glaring issue before it becomes a threat.

Paid Time Offs FAQs

Is it legal not to pay out PTO?

Unless you mentioned in the contract with employee, it is not illegal to not pay for time offs. However, paying PTO to employee can bring a hots of benefits as stated above.

Can employers deny PTO requests?

Employers are within their legal rights to deny PTO. Even if employees have available time offs, based on business requirements and workload, managers can ask employees to avail paid time offs at a later date. 

How can a PTO tracking platform help?

good PTO tracking software can help you manage organization’s time-off policies, allows employees to request time-offs, automates approval workflows, and keeps track of who’s in and out of the office at any given time. It minimizes human effort while streamlining the PTO workflow.

How does paid time off for hourly employees work?

Depending on the law of land, it may not be mandatory to provide PTO for hourly employees. But if employers choose to, they can offer PTO on a pro-rata basis. For instance, if the company policy can include 1 hour of paid time off for every 80 hours of work.

How much PTO is good?

As per a CNBC report, average American gets 10 days of PTO per year.

Is it legal not to pay out PTO?

As such, it is not mandatory for companies to provide Paid time off to employees, except for certain job-protected leaves listed under FMLA. That said, companies choose to provide the benefit of paid time off, since it has proven to improve employee productivity by 31 percent, with a simultaneous increase in sales and a 3X increase in revenue.


Working of types of pto policies Working of types of pto policies

ACCRUED DAYS

BANK OF PTO/LUMPSUM PTO

UNLIMITED PTO

The leaves are sanctioned into the employees' accounts daily/weekly or on a monthly basis. In PTO accrual policy, the number of days an employee can avail leave depends on or is directly proportional to the number of days the employee has worked.

Bank of PTO is the most popular type of PTO policy there is. In this type of policy, the employee is offered a fixed number of leaves, all at once, at the beginning of the work year, or at each quarter, or once in six months.

When an organization adopts an unlimited PTO policy, it means that it leaves... leaves to the discretion of its employees.

How many days they earn for each day/week/month they have worked is up to you to decide and define in your company’s time-off policy. For example, working 40 hours a week can earn an employee 5 hours of PTO. Some firms allow their employees to avail time off in advance and compensate by working for it later to avoid loss of pay.

The employee can use his/her time off as and when required, there is no categorical separation (Sick, Vacation, Personal) of the days provided as Time-off. Some companies allow their employees to carry over unused leaves from one year to another.

Employees can apply for leave or vacation whenever they think it’s best. The company does not interfere in the process and there is no cap on the number of leaves.

Should your company give employees unlimited PTO?

Very few companies in the world have Unlimited PTO as their employee leave system. It is a relatively new concept that some companies are trying to implement successfully.

Although most organizations are skeptical about Unlimited PTO, most employers who shifted to the Unlimited PTO system say that their employees took fewer days off after the switch.

So, is Unlimited Time Off the correct type of PTO policy for your company?

Not all companies are suitable for the Unlimited PTO system, not yet. For example, the Healthcare Industry would need its employees to work regularly as their role affects people who depend on them for critical reasons. On the other hand, organizations that thrive on creativity and productivity of its employees to run its business can implement unlimited PTO as a way of encouraging its employees to focus on the results rather than on the number of work hours. Let's look at the pros and cons of Unlimited PTO to make a better-informed decision. Contemplating an unlimited PTO policy? Find out how to ensure that your flexible PTO (Paid Time Off) benefits your employee while not denting you.

Pros and Cons of Unlimited PTO

 

PROS

CONS

Employees feel the company trusts them with their choices and become more responsible in using their PTO.

The fear of being judged, measured or valued based on Time-off history may haunt the Employee.

Improves the employee-employer relationship and the loyalty of the employee towards the organization.

Employees may start comparing each other subconsciously based on their Time off Record and not take time off at all, and get burned out easily.

The employer need not cash out for the unused PTO when an employee quits.

Chances of overlapped Time offs among team members can occur leaving work pending.

Employees come to work at their best, are more productive and active.

If the Leader or Manager does not take enough Time off, it can affect the employee’s Time off decision-making process.

Unlimited PTO serves as a great selling point while recruiting top talent.

Tracking employee leave frequency or spotting absenteeism might be difficult without a proper system in place.

Employees would no longer find the workplace stressful.

Some employees may abuse the policy by taking off frequently.

Improves communication and collaboration among employees as they will try to plan their Time off without affecting the team’s work.

Unlimited PTO can cause conflicts if trust and transparency are not part of the team/company culture or values.

Why should Freshteam be your Time Off Software?

Freshteam enables you to create policies, implement workflows, track, and manage all employee time off in one place. Its simple and intuitive UI makes it easy to learn and use for everyone in the organization.

 

Multiple Time off Policies

Creating a policy is the most crucial step while setting up a PTO system. With holidays, calendars, and workweeks of around 18 countries built-in, building a policy becomes less a hassle and more an easy checklist item.

Freshteam allows you to create multiple custom policies for different regions, shifts, or teams when necessary.

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Implementing an approval workflow

Setup Approval Workflows for your different policies and automate the process. Employees can use Freshteam’s self-service portal to raise leave requests. The leave requests are forwarded to their managers and HR partners who can approve or decline them.

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A powerful time off dashboard

The Freshteam Time off dashboard eliminates the need to toggle between emails, calendars, and sheets for Time off. You can access new and pending requests, approve or decline a request, apply your own Time-off, monitor your team/company’s Time off Trend - all in one place.

A quick glance at the dashboard will help you comfortably plan your team’s work for the day/week based on the availability of employees.

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Creating a time off policy

The first step to implement a PTO policy in an organization is to draft a PTO policy.

A PTO policy communicates the organization’s time off guidelines, procedures, and restrictions to the employees. It is everything employees, and managers should know before applying or approving leave.

Questions to ask before drafting your PTO policy

The Guidelines

Guidelines communicate the PTO policy to your employees and need to be drafted carefully after analyzing your company, its culture, and your State Employment Laws.

Surprise! Laws are different for each state/country, so you need to analyze what is applicable in your state before drafting your policy. Some states require employers to carry over unused time off of their employees or have a minimum of 40 working hours to avail PTO and so on. Your guidelines must abide by the state laws to avoid any legal trouble.

A guideline should solve all your employee’s doubts concerning Time off.

Some common doubts covered under guidelines are:

Guidelines form a major part of a PTO policy directly affecting the working of your PTO system.

The Procedure

It is easy to implement a Time off policy in your company. Getting your employees to use it adequately and correctly is the real challenge. Step one is equipping them with clear knowledge of how your PTO system works. This includes,

The employee's complete knowledge of the procedure can make the system smooth and hassle-free.

The Restrictions

Any type of PTO policy comes with restrictions to make sure employees do not misuse the system and to help managers know when and what action to take. Some basic restrictions that need to be part of your policy include,

Frame your restrictions based on your company, its needs, and the requirements of employees. For example, a hospital and digital marketing agency cannot have the same restrictions, the requirement of people round the clock on the former is something to consider.

A smarter way to approach your Timeoff Policy and setup would be to get onboard a time-off software that comes in-built with these features and procedures, all you would then do is enable or disable them based on your company's requirements. This way you don't have to break your head trying to come up with the perfect and error-free time-off policy. 

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