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. 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. It becomes highly essential for a company to provide its employees with a good time off policy that complies with all the laws, rules, and regulations of the country or state. 


Types of PTO


There are different reasons why your employees would like to take time off from work. It ranges from sickness, vacation, maternity, bereavement, to personal time. If you do not follow an unlimited time-off policy, then it is intelligent to classify the number of days provided to your employee as time off into categories for accurate tracking. Allocation of time off for different reasons also becomes easy when categories are present, for example, if your country gives 180 days for maternity leave, it helps to bucket that inside the category maternity leave. This way no discrepancies and confusion will happen while your employees apply for time off and in the tracking process. So, what are the common types of PTO/ Leave that are probably best to have in an organization? Let's see. 

Sick Leave 

The standard kind of leave provided to employees for them to avail when they are sick. Adding attachments is a common behavior associated with this type as sick leave sometimes requires Medical Certificate by the organization.

Vacation Leave

A set number of days provided to employees for them to avail of vacation time when they want a couple of days for holidays or trips. It is usually set to avail in bulk and informed prior to the team. 

Personal Leave

Leave that is assigned to take for personal works of the employee like functions to attend, meet-ups, and other personal works in their life. 

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. 

Jury/ Military Leave

When an employee has a call of duty from the jury or the military, provisions are made for them to miss work to meet the obligations assigned by the jury/military without losing their financial support. 

Maternity / Paternity Leave

Leave assigned to a woman/man for when they become mother/father respectively. Maternity leave is a long set of days that are supposed to be used in one go when a woman gives birth. Paternity is commonly allowed to be split up and used by the new father as per his convenience. 

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

Paid leave given to an employee to pursue education related to the current job. 

Bereavement Leave 

Leave that is allocated to employees for them to avail during grieving periods like the death of a close person in their life. 


How does PTO work?

The company grants an employee a pool of leaves that combines different types 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.

Types of PTO Policies





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




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.


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.


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.


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. 

Advantages of PTO

A PTO benefits not just the employee but there are also major advantages that a PTO for the employer as well.

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.


Including thoughtful categories (like a 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.


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.


An attractive PTO policy can be used as a recruitment differentiator to attract the best candidates in the market.


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