Most self-employed individuals will give you a handful of reasons why they’re better off professionally than somebody who works for someone else. (Sometimes accompanied by a brief discourse on how they broke free from the corporate jungle.)
However, they will often admit that they miss the employee benefits package they had at their former employers, including group health insurance, group disability insurance, group life insurance, and paid time off (PTO).
PTO can be a bit confusing if your company offers it. Is accrued PTO better than unlimited PTO? Why did companies move away from the standard vacation/sick days? Can I donate my PTO to someone else?
This article will answer those questions and more about PTO. But let’s start at the beginning and define it first.
What is paid time off (PTO)?
PTO stands for “paid time off,” which is a catch-all term for the bank of hours employers provide to employees. These hours consist of sick days, holidays, vacation days, and personal days-all rolled into one. Employees have the freedom to use these days as they see fit.
Companies not offering PTO usually offer employees a more traditional arrangement by treating holidays, vacation days, personal days, and sick days separately. There are no federal laws stipulating that an organization must offer PTO or a traditional “days off” arrangement to their employees, but most do. According to the United States Bureau of Labor Statistics, 76% of civilian workers in the US had access to paid vacation leave and paid sick leave in 2020.
How does paid time off (PTO) work?
Different companies offer different types of PTO; there is no set or mandatory type they must select. Here are three types they have to choose from.
Set number of days
In this case, the employer selects the number of days each employee has off, with pay, each year. Many companies start new employees off with ten days of PTO when they start, increasing to 15 days after a period of 3-5 years.
Some employers will have a 90-day waiting period before PTO is available to a new employee, during which time the employee is considered to be “on probation.”
Accrued time off
You accrue a certain amount of time for each pay period with PTO accrual. For example, if you receive 15 days off per year and work 8 hours per day, you’ll earn 120 hours per year. Divide those hours by 52 (the number of weeks in a year) to calculate the number of PTO hours you accumulate each week. In this example, that number would be 2.31 hours per week.
Unlimited time off
“Unlimited time off” sounds very appealing when you’re interviewing for a job, but it’s estimated that over 60% of the American workforce combined to leave nearly a billion days of PTO on the table in 2019.
Why?
Many people are afraid that they’ll be terminated for taking too much PTO and that they’ll be poorly perceived by their employer. However, employers also make it abundantly clear that when they offer unlimited time off, the employee’s job performance must be satisfactory to enjoy that benefit.
Not only is unlimited PTO a nice benefit, but it’s also a financial boon for employers for a couple of reasons.
First, as we’ve seen, most employees just don’t take advantage of the benefit. And second, when an employee leaves the company, unlimited PTO can’t be calculated and “paid out” to the departing employee, as it can with either the set number of days or accrued time-off types.
Frequently asked questions about PTO
PTO is one of the most sought-after benefits by employees but is often misunderstood. Here are some FAQs that employers and employees often need to be clarified.
How generous are employers when it comes to PTO?
QuickBooks reports that in 2019, almost 70% of workers get paid time off at their job, with the highest percentage of days given falling between eleven and fifteen.
Does a company need to pay out unused vacation days to employees that leave the company?
In most states, paying out is left to the company's discretion, but it must be clearly stated what the policy is in an employee handbook or other document provided by the employer.
Are employers required to provide paid federal holidays or PTO?
In most states, employers aren’t required to provide either; it’s optional, though most companies will pay employees for time not worked on a federal holiday.
Do employees receive credit for paid holidays that occur during their vacation?
It is generally considered a “best practice,” and most employers grant credit in that situation.
What are some of the differences between a PTO system and a traditional leave program?
PTO leave plans generally encompass both sick and vacation leave (and sometimes other leave categories as well), offering more flexibility in how employees use leave. However, while PTO has become quite popular in the last couple of decades, not all employees or employers favor it. Detractors have said PTO programs typically offer less time off overall than a traditional vacation/sick leave program and can result in employees coming to work when they are sick to avoid using a PTO day that could later be used as vacation.
What are PTO donation programs?
These programs allow employees to donate hours to other employees facing a serious illness or other tragedy in their lives who otherwise would not have the leave to cover their absences.
What is the difference between a paid sick leave policy and a PTO policy?
PTO programs encompass both vacation and sick leave. However, with a PTO system, a set number of paid days can be used as sick leave or vacation leave, whereas a paid sick leave policy only addresses time off for illness or injury.
Can employers enforce PTO blackout dates?
Yes.
Vacation blackouts are specific dates when employees cannot schedule time off due to an expected increase in volume or special events such as product releases or the holidays. PTO blackout periods are common in industries with seasonal businesses such as retail and vacation destinations.
Since paid time off is offered optionally and at employers’ discretion, employers can block off periods when no PTO requests will be approved as long as the policy does not conflict with any state or local laws or union employee contracts.
PTO as a recruitment & retention tool
It’s estimated that two-thirds of people have stated that they wouldn’t consider working for a company that doesn’t offer some form of PTO. In these waning days of the pandemic, competition for quality employees is high. Qualified applicants are commonly weighing more than one job opportunity or offer. Companies would do well to offer a competitive PTO program to attract and retain talented employees.
Having grown up in upstate New York, Bob Phillips spent over 15 years in the financial services world and has been making freelance writing contributions to blogs and websites since 2007. He resides in North Texas with his wife and Doberman puppy.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.
