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paid time off (PTO)

Contributor(s): Matthew Haughn

Paid time off (PTO) is a work policy that provides employees with a pool of bankable hours that can be used for all purposes. Also known as personal time off, PTO can also refer to any period of time that an employee is paid while taking leave from work. 

A PTO policy includes employees’ personal days off, sick days and vacation time in a single block of hours rather than specifying separate numbers of days allowable for each. PTO can differ from one employee to the next and may be supplemented, for example, by time in lieu if an employee works overtime. The agreement with a given employee specifies an individual’s number of paid hours, including what yearly rollover (if any) is allowed. When leaving a job, an employee may cash out PTO, assuming all requirements have been met.

Some benefits of PTO:

  • It can provide more vacation time if an employee doesn’t need to use banked time for other things.
  • Employees can use the hours as needed when unforeseen situations arise, as long as the time is available.
  • Good PTO policy can serve as a recruitment incentive to attract employees.
  • The policy can help retain desirable employees by offering living wages when they are unable to work.
  • Undifferentiated time off is simpler to track than multiple blocks of time for separate purposes.
  • More frequent, shorter vacations as desired can help maintain work-life balance.

Some disadvantages of PTO:

  • No direct perceivable advantage to employers.
  • Employees may tend to use all of the available hours, which might not be the case when some are specified as sick days, for example.
  • Multiple employees may end up trying to take days off all at the same time at the end of a year to avoid losing PTO hours.
  • Employees may run out of PTO and be required to work while sick or lose pay.
  • The larger pooled number of hours can look like more time than it actually is to those employees who fail to consider that it covers all purposes.

PTO plans are mostly only used in the United States, where there are no laws for minimum vacation time. In U.S. human resources management, PTO planning is becoming more common. However, employers must be aware of state laws to ensure that the PTO policy is enforceable.

This was last updated in May 2017

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