Paid time off (PTO) is a human resource management (HRM) policy that provides employees with a pool of bankable hours that can be used for any purpose. Also known as personal time off, the acronym PTO is generally used to describe any period of time that an employee is paid while taking leave from work.
In a large corporation, a PTO policy typically bundles 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 reason. PTO plans are used primarily in the United States, where there are no laws for minimum vacation time.
In addition to documenting the number of paid hours for an individual employee, a PTO policy might include what yearly rollover (if any) is allowed and whether or not time can be taken off in lieu of overtime. The policy should also specify whether or not an employee can cash out unused PTO when leaving the company. In the U.S., PTO policies are becoming more common, but employers must be aware of state laws to ensure that their PTO policy is enforceable.
Some benefits of PTO:
- Provide more vacation time for employees who don't use banked time for other things.
- Employees can use the hours as needed when unforeseen situations arise, as long as the time is available.
- PTO policy enforcement can serve as a recruitment incentive to attract employees.
- More frequent, shorter vacations as desired can help maintain work-life balance.
Some disadvantages of PTO:
- When an employee quits, management still has to honor paid time off commitments.
- Multiple employees may want to take the same days off at the end of a year to avoid losing paid time off 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.