Paid Time Off (PTO)

What is Paid Time Off (PTO)?

Paid time off (also known as PTO or personal time off) is compensated time away from work, provided by an employer to employees for them to use as they see fit. PTO is often measured in hours and classified for different types of absences like sickness, vacation time, and personal time.

Paid time off is not the same as maternity leave, FMLA leave, furlough, unpaid leave, or any other government- or state-mandated leave.

Paid time off policies generally fall into two categories:

  • Traditional
  • Unlimited (or discretionary).

Traditional PTO policies are usually issued at intervals (e.g., monthly or quarterly) to new employees, with a limit that may increase as an employee spends more time with an organization. PTO balances are then tracked by a manager or administrator, either manually on paper or in spreadsheets, or with software designed for the purpose of vacation tracking or time tracking (see: Time Tracking).

Unlike traditional PTO, unlimited or discretionary PTO policies generally do not involve issuing trackable hours to an employee; rather, they usually state that time off is available at the discretion of the employer (often the employee’s manager), who is expected to approve requests if they determine the employee is in good standing and has no conflicts that would interfere with their absence.

Some organizations using unlimited PTO policies still track the number of hours or days an employee takes off for accounting or approval reasons; this, plus the fact that personal time off requires manager approval, leads some people to prefer “discretionary” as a more accurate name for this type of PTO policy, as “unlimited” can be misleading.

Research suggests employees of organizations with unlimited PTO policies actually use less vacation time, on average, than employees with limited PTO; this may be due to peer pressure or self-imposed pressure to appear dedicated. While some organizations may view a reduction in time off used as a benefit of an unlimited PTO policy, others believe that PTO is critical to employees’ mental and physical health, and state this as a reason for instituting a limited PTO policy

Related: HRMS, HRIS, Employee Benefits

Additional Resources
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