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It’s “What’s Up? Wednesday”. Time to answer your question about Paid Time Off policies . . .

By November 7, 2012July 23rd, 2018Human Resources

You asked: “We’d like to revise our vacation and sick time policies. Can you tell me about how PTOs work? 

The answer:

More and more companies are doing away with the old system of differentiating between “vacation time” and “sick time” in favor of a Paid Time Off (PTO) plan. And for good reason. PTO plans offer advantages to employee and employer alike.

Advantages to employees:

  1. Greater flexibility. PTOs give employees the opportunity to allocate their time off as they choose, without the need to designate a reason. Whether it’s for vacation, illness, school activities, child’s illness, personal business or medical and dental appointments, the employee can take time off if they still have time in their personal PTO account.
  2. More privacy. Employees don’t always want to tell their supervisor why they need time off. Sometimes those details are just too personal.
  3. Better morale: Giving the employee room to manage his time as he sees best is a show of respect. It goes a long way toward improving morale.

Advantages to the employer:

  1. Less administrative cost: PTOs require much less time be spent tracking reasons for an employee’s absences. All days off fall under the same category.
  2. Less information: With ADA and GINA, the less you know the better.
  3. Less absenteeism: PTOs allow employees to take a half day for appointments, errands, etc. Given that flexibility, employees are more likely to take only the time they need.

The details:

These accounts can be set up to allow eligible employees to accumulate a specified amount of PTO each pay period worked. PTO is not accrued during unworked time, such as a leave of absence or a suspension. The amount of PTO earned usually depends on length of service with the company. Many companies allow the time to be broken down into half days or hours to give their employees even greater flexibility.

If you decide to establish a PTO policy for your company, you will need to create an accrual schedule. That is just a simple table showing years of service and the related time earned. For example:

Months of Service Time accrued Total PTO days
Up to 24 months 1.0 days/month 12
25-36 months 1.25 days/month 15
37-48 months 1.5 days/month 18
More than 49 months 1.75 days/month 21

PTO days are typically not bought back at the end of the year. Instead they can be accrued from one year to the next. However, you can establish a maximum number of days that can be accrued.


Employees who view their PTO as “vacation time” may forget to save a few days for sick time. These employees may end up either coming to work when they are ill or staying home and taking the loss as an unpaid day.

Another drawback is that the PTO system makes it difficult to determine when an employee is taking time off for a serious illness that is covered by the Family and Medical Leave Act (FMLA). You will want to be sure your employees understand their rights under FMLA and that they know how to notify the company should they qualify for FMLA time.

Another consideration before you implement the plan is how it will impact pay outs of unused PTO time upon termination of employment. Best to check your state’s laws for those requirements.

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