What is PTO?

Paid time off 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. It considers a variety of reasons - sickness, marriage, bereavement, vacation, or sometimes, even personal time. The employee can avail them at his/her discretion as and when required.


How does PTO work?

The company grants an employee a pool of leaves which combines the different kinds of leaves. The average number of leaves given to an employee in a year depends on the company. Let’s assume 30 as the number - 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.

How the employee avails and uses these days differs from company to company. Some companies sanction them at once, while some split the days into 7 for each quarter, and others unlock 15 days every six months. The individual PTO policy of each company determines how the PTO is put to use.


Advantages of PTO

Apart from the fact that it gives employees the freedom to choose their time-off, there are other advantages to PTO for the employer and employee.

  • Employees can choose when to take time off and decide on their own. This empowers the employees to make responsible leave decisions.
  • A well considered paid time off policy also makes employees feel valuable which contributes to better workplace engagement and retention rates.
  • With a leave management system in place, employees can notify their managers and teams about their planned leaves. This helps managers foresee upcoming leaves and plan their work weeks accordingly.
  • The policy becomes a common point of reference for employees and managers to keep track of leave consumption.
  • Including thoughtful categories (like vacation, mental health, pet sitting, bereavement, etc) helps employees be honest with their managers about the reason for leave, leading to a good workplace relationship.
  • An attractive PTO policy can be used as a recruitment differentiator to attract the best candidates in the market.
  • Paid time off helps sustain the productivity curve because it gives employees a chance to take a break from work when necessary and come back refreshed, and at their best.


The different types of paid time off policies

Accrued Days

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

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 later working for it to avoid loss of pay.

Bank of PTO

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. 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.

Unlimited PTO

When an organization adopts an unlimited PTO policy, it means that it leaves...leaves to the discretion of its employees. 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 Unlimited PTO system say that their employees took less number of days off after the switch.

So, is Unlimited Time Off the right 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 the 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.


Pros and Cons of Unlimited PTO

Consider the Pros and Cons of an Unlimited Time Off policy before implementing it as the Time off policy for your organization.

Pros vs Cons


  • Employees feel the company trusts them with their choices and become more responsible in using their PTO.
  • Improves the employee-employer relationship and the loyalty of the employee towards the organization.
  • The employer need not cash out for the unused PTO when an employee quits.
  • Employees come to work at their best, are more productive and active.
  • Unlimited PTO serves as a great selling point while recruiting top talent.
  • Employees would no longer find the workplace stressful.
  • Improves communication and collaboration among employees as they will try to plan their Time off without affecting the team’s work.


  • The fear of being judged, measured or valued based on Time-off history may haunt the Employee.
  • 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.
  • Chances of overlapped Time offs among team members can occur leaving work pending.
  • If the Leader or Manager does not take enough Time off, it can affect the employee’s Time off decision-making process.
  • Tracking employee leave frequency or spotting absenteeism might be difficult without a proper system in place.
  • Some employees may abuse the policy by taking off frequently.
  • Unlimited PTO can cause conflicts if trust and transparency are not part of the team/company culture or values.

Creating a time off policy

The first step to implementing a PTO system in an organization is drafting 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

  • Should you choose a Limited PTO policy or an Unlimited PTO policy?
  • Should your PTO have different categories of leaves?
  • How long should a new employee wait before applying for Time-off?
  • Will National/Regional Holidays fall under PTO?
  • Will your company follow one common PTO policy or have multiple PTO policies?
  • How often will you renew the PTO policy?
  • How will you handle unused PTO?
  • What is the minimum number of work hours required to avail PTO?
  • What emergencies can be considered as PTO after the employee uses all of his/her PTO?
  • What type of time off policies are competitors using?


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. It is important your guidelines abide by the state laws to avoid any kind of legal trouble.

A guideline should solve all your employee’s doubts with regard to Time off.

Some common doubts covered under guidelines are:

  • Would the company accept Time-off requests an hour before the workday begins?
  • Should an employee send the Time-off request via mail/ chat/ or request on the app/software you use?
  • How many days of Time-off can an employee take at a stretch?
  • Does Government sanctioned time-offs like Maternity and Paternity leave come as part of PTO?
  • Would work on a holiday get compensated in their PTO?

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


The Procedure

It is easy to implement a Time-off system 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,

  • Who can see their request?
  • Who can approve or decline it?
  • On what grounds do their requests get declined?
  • How many times can they escalate the same time-off request after a decline
  • How many days are left in their PTO
  • How to cancel time off request
  • How to apply for leaves that come under the Federal Law
  • What days are part of the floating holidays?
  • The company’s Holiday Calendar and Work Week.

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,

  • Terms of Priority when two or more people from the same team apply to time off at the same time.
  • Kinds of time-off that require proof submission to avail PTO.
  • Days during which they cannot take Time-off.
  • The special or immediate circumstances where the employer can restrict Time-off.
  • Consequential actions for Violations.

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.



How to encourage employees to take time off?

Most employees fear that time off can negatively impact their career so they end up not taking time off, as much as possible. As a result, they burn out or might not deliver their best at work. However, you can encourage employees to take a break or go on a vacation by emphasizing it enough.

Highlight it in your policy

When you announce your PTO policy, add in a line that says, “We encourage employees to take at least 15 days off using PTO by end of the year,” It assures employees that the company would not mind or judge them based on the days they take off.


Plan lighter work weeks

Ask your managers to fix their team’s Work calendar in a way there is not much work for your employees during the Summer or Holiday Season. Instruct your managers to arrange all meetings, releases and check runs before the vacation period to make sure the office does not come back to a load of pending work.


Give them a vacation

Announce a company/team surprise holiday after a major release goes out or a shut down of the company during the holidays. Make sure to do it without affecting your clients and customers. Have few people from each team who have already taken a vacation come to the office to take calls and attend to work that develops.


Talk one-on-one

If an employee really needs a vacation, ask them personally to take off. As an employer, it would put you in a good place among the employees showing you care about them and you get back your employee refreshed and productive.


Go for a Vacation

If you want your employees to take a vacation, take one yourself and set an example. Encourage your managers to take time off to inspire the employees and also clear their fear of taking Time offs.



Implementing a time off policy with Freshteam

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.

Creating a time off policy

Creating a policy is the most crucial step while setting up a PTO system. With holidays, calendar and work weeks of over 10 countries built-in, building a policy becomes less a hassle and more an easy checklist item.

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

Implementing an approval workflow

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.

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

Bonus: Freshteam offers data export options to feed your payroll systems.

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