Paid time off, or PTO, is time that an employee gets paid for even though they’re not working. At many companies, employees accrue PTO hours while they work. Once earned, PTO can be used as either vacation time, sick leave, or personal time off.
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What’s the difference between PTO and vacation?
While vacation is one of the ways employees can spend their time away from work, PTO can refer to various types of time off. PTO typically buckets together vacation days, sick days, and personal days in one package, and employees have the flexibility to use the time any way they want. However, some employers choose to treat vacation, sick, and personal time separately.
Companies also have the option to offer “unlimited” PTO, or unlimited vacation. In this case, employees don’t need to earn or accrue PTO in order to take time off. Since it is unlimited, they have already “accrued” the time off before they need to take it.
Exactly how you define and accrue PTO at your company is up to you. Just be sure to follow your local requirements.
Are employers required to offer PTO as an employee benefit?
Nope. At the federal level, employers are not required to offer paid time off to their employees. That being said, your state, county, and even city might have certain requirements on vacation and sick time.
Can I offer different PTO policies to different employees?
Yes, you can offer different PTO policies to different employees, as long as the reasons for the different policies aren’t due to discrimination. Keep in mind that each state may set limitations or not allow certain policies.
Below are common scenarios for offering different policies to different employees:
- Tenure: A company might choose to offer more PTO to employees who have worked longer at the company. For example, a company could offer employees 14 days of vacation for their first two years of working with the company, and then start offering 21 days of vacation when an employee hits their three-year anniversary.
- Promotions: A company might choose to offer more PTO to more senior employees, or to employees who were recently promoted.
- Full-time vs. part-time employees: Some companies might offer different amounts of PTO for full- or part-time employees. For example, a company might offer 14 days for full-time employees, and 10 days per year for their part-time employees.
Can I cap the number of PTO days an employee can earn?
Yes, you can cap the number of PTO days an employee can earn.
In states that forbid “use it or lose it” vacation policies, you can do so by stopping the accrual of PTO when it hits a cap or limit, and then restarting accrual once an employee uses some of it. Note that while no state prohibits capping the number of PTO days an employee can earn, some states require that the cap be “reasonable.”
As always, be sure to check your state’s Department of Labor website for restrictions on this policy.
How does PTO rollover work? Can I cap the number of days rolled over?
At the end of the year, many employees may still have unused PTO time. You can choose to let employees “roll over” or carry forward some or all of that time into the next year in addition to the PTO they’ll get in the new year. This is called PTO rollover. You can also choose to pay out those days at the end of the year.
Alternatively, depending on your state’s requirements, you can let unused PTO days expire.
How do I choose the right PTO rollover option for my company?
It depends if your state allows or forbids “use it or lose it” policies.
- If your state allows “use it or lose it” policies, you can mandate that unused PTO days expire at the end of the year or within a set period of time.
- If your state does not allow “use it or lose it” policies, then you have to let employees roll over accrued PTO into the next year or pay them out.
In those states, such as California, Montana, and Nebraska, PTO is treated similarly to earned wages and can’t be taken away from employees under any circumstances. If you want to limit the number of days an employee can take in a given year, you can choose to pay out unused vacation at the end of the year.
Do I have to show employees their PTO on a pay stub?
Unless you live in California, no, you do not have to include accrued PTO on your employees’ pay stub.
However in California, both accrued sick time and vacation need to be shown on the pay stub.
What are the state laws on PTO and vacation time?
There are a number of state laws around vacation time. State laws tend to cover:
- Earned wages: Some states treat accrued vacation time as an earned wage, and therefore require employers to pay it out when an employee is terminated.
- Use it or lose it: Some states allow vacation policies to have an “expiration date,” whereas other states do not.
Depending on your state’s policies, you can choose how to treat employees’ unused days.
Many states treat an employee’s entire PTO pool as vacation. So, if your state requires you to pay out accrued vacation days when employees leave your company, you might have to pay out all of their PTO (sick time and personal time), not just vacation.
As vacation and sick time laws differ from state-to-state, be sure to check your state’s Department of Labor website.