What’s the Difference Between PTO, Vacation and Sick Leave?

19th August 2021

PTO Policies are becoming more popular amongst employers. But how can you ensure it is fairly paid? And is PTO better than vacation and sick leave? Read here.

PTO Policies are becoming more popular amongst employers. But how can you ensure it is fairly paid? And is PTO better than vacation and sick leave? Read here.

PTO, or Paid Time Off, is a more recent style of vacation policy that is becoming popular in North America. As employers choose to give their employees more flexibility, a PTO policy can help employees have time off that better reflects their needs and requirements.

As there isn’t currently a compulsory minimum requirement in the US for timeoff, policies regarding holiday leave tends to vary greatly between employers 

PTO is becoming a popular choice, especially with tech start-ups and younger firms choosing to make their employment offerings more flexible. It’s also an attractive proposition for new and potential employees, as it means that they can have more control over the type of holiday they take and aren’t restricted to the way they must take it.  

What is Paid Time Off and How Is It Different?

Although used interchangeably, PTO and other types of holiday leave are different.

PTO is, simply, paid leave while an employee is away from work, or not working. This could include anything from sick days, personal days or vacation.

PTO policies can be delivered in quotas depending on days or hours. For example, based on working hours, an employee could nominate to deduct leave either hourly or daily.  

Counting PTO Days

You could either issue PTO days annually, such as at the beginning of the year, or you could calculate leave on a per pay-check basis. For example, if employees are paid monthly, every month they could accrue a certain number of PTO days until meeting the threshold. Alternatively, leave allowance can roll over, but must be used by a certain deadline.

There is, however, no universal rule for how a business structures and delivers a PTO policy. It is worth consulting with an expert, such as an HR professional, to ensure that your policy is effective and productive for your business.

PTO for Variable Hours Employees

If you wanted to deliver a PTO policy in a company with either part-time employees or seasonal workers, you could calculate it based around their pay period.

For example, if a business is on a biweekly pay schedule, which amounts to 26 pay days (or paychecks) per year, you could credit your employee with a quota of PTO every two weeks based on their working hours.

If an employee were to work full time, you could also do it based on a ratio of hours worked. This calculation works by multiplying the pay periods an employee has worked against the accrual of PTO per period.

What are the Benefits of PTO?

Rather than a restrictive leave policy, which specifies limited time-off including sick-leave days;, paid time off allows for more flexibility in how employees take paid absence. This can feel less intrusive for your employees, who gain greater freedoms with their holiday.

Many employees may not use their full allocation of sick days. A flexible PTO policy, however, might allow employees to use unspent days as time off.

Office meeting

What are the Disadvantages of PTO?

Flexibility can actually become a disadvantage of a PTO policy that isn’t delivered properly. For example, employees might refuse to take sick days because they want more paid holiday leave. This can be managed by requiring that any employees who are ill do not come into the office. If an employee arrives unwell at the office, an employer should send them home promptly, especially as you have a duty of care towards other staff members.

The other common issue which some companies have struggled with is last-minute bookings of PTO. A quick resolution for late bookings:, employers can stipulate a certain number of days’ notice before holiday requests can be accepted, unless there is an emergency.

For example, if an employee requests leave and it isn’t covered under compassionate leave or a similar policy, then PTO can be used. However, holidays should be booked in advance and a manager notified within a reasonable timeframe. This could be someone in HR or your admin team to allow for coordination of bookings and managing expectations when it comes to work.

Remember to…

When delivering an effective PTO policy in your workplace, consider how you can best support your employees. This means being open and transparent.

  • Be clear with your employees by establishing expectations along with guidance on how paid holiday can be used.
  • Request feedback if you’re unsure about the effectiveness of your policy.
  • Benchmark how your policy impacts your employees and track how effective your policy is.

Is PTO Better than Vacation and Sick Leave?

If your company is able to accommodate a more flexible approach to time off, then it’s likely PTO will benefit your company, its staff and managers.

PTO puts employees back in control of their time off, and removes restrictions around how vacation, including sick days, must be used. However, it’s important to ensure you have the infrastructure in place to manage and run such a program, as without this, the downsides of a PTO policy outweigh the benefits.

The Payroll Implications of PTO

The main payroll implications of PTO occur when an employee leaves your business. Under certain state labor boards, employers are required to pay out for accrued PTO.

It can be tricky to calculate, especially if you do it on an hourly basis. You must add the accrued hourly number based on the employee’s time left in service, the length of your PTO policy, and expiry time of the policy.

It is worth checking with your state labor board before you amend this your PTO policy, as changes could affect your pay-out upon an employee leaving.

Currently, the states without pay-outs written into law include:

Alabama, Alaska, Arizona, Arkansas, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Iowa, Kansas, Maine, Michigan, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Oklahoma, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington

And the states with required pay-outs include:

California, Colorado, Illinois, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Montana, Nebraska, New York, North Carolina, North Dakota, Ohio, Rhode Island, South Carolina, Washington D.C., West Virginia, Wisconsin, Wyoming

The calculation of PTO also depends on whether or not your state requires you to do it for future earned time or only currently earned time off.

However, a state labor board could require you to pay -out for all the potentially earned days for the rest of that year. If an employee gets 30 days of PTO leave but has only earned 10 days, then you may need to pay them out for the remaining 20 days remaining not yet accrued. The outcome of pay-outs after an employee exit depends on your policy and any state legislation, along with contract stipulations.

Therefore, hiring a payroll company to assist you in this process can mean that you avoid any mistakes, as an expert can handle all your PTO pay-outs. Ensure your employees are paid correctly and on-time with IRIS FMP, no matter the complications. We can help to ensure your business is compliant. Get in touch today.