This article was contributed by Kat Boogaard and originally posted on Hourly.io. It is being republished here with permission.
You want your employees to love working for you. But, no matter how much they enjoy their jobs, you know that they’re still going to desire (and deserve) some time off.
That’s where paid time off (PTO) comes into play. This is a benefit that many companies and organizations offer their employees, with a reported 66% of wage and salary workers receiving PTO.
When it comes to attracting top talent and keeping them on your staff, paid time off matters. However, working out the logistics of offering this time to your employees can feel daunting. That’s why we’re breaking down the answers to some common questions here.
What is paid time off?
Here’s the simplest paid time off meaning we can give you: paid time off is an umbrella term used to describe any time that an employee is away from work, but is still being compensated. Most small and medium-sized businesses nowadays use holiday calendar software to manage employees’ leave in a better way.
There are some companies that break paid leave into different categories, such as vacation days, sick leave, personal time, and more than employees will subtract from.
But, a PTO policy lumps all of those together into a single bank of days that an employee can use to cover a variety of absences—and still get paid.
How does paid time off work?
Because paid time off refers to a lump sum of days, it’s actually fairly straightforward to keep track of—especially when compared with needing to log different sick days or vacation days.
As an employer, you’d grant a certain amount of PTO days for the year to an employee, which they either get at the start of the year or earn overtime. Every absence, whether it’s for an illness, a trip, or something else, will then get subtracted from that total.
PTO and vacation days are two terms that are often used interchangeably, but that’s actually a misconception. When you look at PTO vs. vacation, there’s a distinct difference. Vacation days are a subset of the broader PTO policy. Remember, paid time off covers a bunch of different types of absences (including travel and vacations).
As far as how employees are granted days, most employers use one of two systems: available paid time off or accrued paid time off. Here’s how those work:
- Accrued paid time off: You’ll also hear this referred to as “earned paid time off,” because employees earn paid days based on things like hours worked, pay periods, or any other time-based criteria. So, maybe your PTO policy is set up so that employees earn 1.5 PTO hours for each week of work. As they work, they add to their bank of PTO (also known as paid time off accrual) that can be used to cover their absences.
- Annual paid time off: With this system, employees are given a number of days right at the start of the year, without needing to earn them. Instead of them earning 1.5 hours each week, they’d start the year out with 10 days of PTO that they can tap into. Some employers use this sort of system, but base it on seniority as well. That could mean that employees with one year of service get 10 days, but employees with two years of service get 15 days, for example.
Is paid time off mandatory?
There isn’t a federal statute or regulation that applies to paid time off and requires employers to offer this benefit. The Fair Labor Standards Act (FLSA) doesn’t require payment for time not worked.
However, each state has PTO laws that dictate how these policies should be managed.
For example, California paid time off is far more regulated than in other states in order to ensure that employees are treated fairly. Under California’s laws, vacation time is earned (meaning employees will receive a certain amount of vacation time for a certain amount of hours worked), and that earned time can’t be forfeited—even if employment is terminated.
Again, that’s true for California, but that doesn’t mean it holds water everywhere. If you’re curious about your own state law about PTO, check out this helpful resource.
Here’s another question you might have: can an employer deny PTO? In short, yes. While companies might offer paid days to their employees, that isn’t a guarantee that they can use them whenever they want.
There are business needs to take care of, and employers need to ensure proper staffing. That means they’re well within their right to deny employees’ paid time off requests for legitimate reasons (meaning they aren’t discriminating based on a legally protected category).
It’s important to note, though, that this possibility of rejection can understandably be frustrating for employees.
That’s why it’s imperative to familiarize yourself with the laws in your state and then create a clearly-documented paid time off policy that breaks down things like how far in advance employees should request paid time off, how you’ll decide which requests are granted and which are denied, and how many paid days employees are allowed to accrue or rollover.
Do part-time employees get paid time off?
This is another area where there aren’t cut and dried laws and regulations. Ultimately, it’s up to the discretion of the employer to decide who gets paid time off benefits and how much time they’re entitled to.
There are plenty of employers who grant paid time off to their full-time employees but not to their part-time workers. In fact, the Bureau of Labor Statistics reports that while 77% of full-time employees receive PTO, only 23% of part-time employees do.
Employers who do opt to extend PTO benefits to their part-time staff often treat it as prorated based on their scheduled hours.
The same holds true when it comes to paid time off for hourly employees. Again, PTO isn’t required (that’s true for hourly or salaried employees), but many employers choose to offer this benefit to all of their employees in order to maintain high engagement levels and boost employee retention.
How much paid time off is normal?
Paid time off benefits carries a lot of weight for employees. In fact, 63% of people said they’d turn down a job offer if it didn’t include PTO. But, how much time are your employees expecting?
The average PTO in the US is 15 days per year (not including paid holidays, which actually aren’t guaranteed in the US), according to the Center for Economic and Policy Research. That’s far behind a number of other countries, and also makes the US the only advanced economy that doesn’t guarantee paid leave to workers.
Despite the fact that it isn’t mandated, many employers are standing out by offering generous leave to their employees—with some even offering unlimited vacation or an unlimited PTO policy, where there’s no cap on the amount of time employees can take. However, this is still way more the exception than the rule, with only 3% of companies boasting this sort of progressive PTO policy.
But remember, you’re in the driver’s seat, and it’s up to you to decide how much time you should grant to your own employees.
How should you calculate paid time off?
It’s not just about offering PTO—you need to be prepared to keep track of it and ensure that days are being accrued correctly, employees are staying within their limits, and you’re not paying out days that weren’t actually granted or earned.
The easiest way to do this is to use a PTO tracker or a paid time off calculator that will take care of all of the legwork for you.
Hourly takes all of the guessings and hassle out of running your payroll, including keeping track of paid time off for your employees. That means you’ll all be on the same page about how much time an employee has available, and avoid any nasty surprises down the line.