How PTO Works: Use Cases, Calculations, & More!

Do you know how to accurately calculate Paid Time Off (PTO) works for different types of employees?

PTO is an important aspect of any employee benefits package, but it can be difficult for employers to navigate. 

First, let’s define PTO.

PTO is a benefit provided by employers that enables their employees to take time off while still receiving their regular compensation. It can be used for vacation time, sick days, personal days, or any other reason that requires time away from work.

In this blog post, we will provide a general overview of how PTO works and discuss the different types of PTO, how to calculate PTO, and provide you with a better understanding of policies.

Understanding this information can have a significant impact on your business. It can lead to improved performance, better employee morale, fewer accidents and errors, and higher employee retention rates. 

By the end of this article, you’ll have a comprehensive understanding of PTO works and what you need to know as an employer. 

So, sit back, relax, and get ready to become a PTO pro.

What Is PTO?

As an employer, you know that happy and satisfied employees are the cornerstone of a successful business. 

In addition to competitive salaries and a positive work environment, providing PTO is one of the best ways to show your employees that you value their well-being and work-life balance.

Here are the key elements of PTO.

• There are three main PTO strategies: accrual, allotment, and unlimited.
• Allotted PTO can be a flat annual amount for all employees or based on years of service, and PTO accrual is time off that an employee has earned over a given amount of time, typically over a certain number of hours, days, weeks, or months worked.
• Unlimited PTO allows employees to utilize PTO at their discretion, and there is no tracking involved.
• PTO policies most often include national and floating holidays, paid vacation days, paid family leave, and paid sick leave

Benefits of PTO

PTO is one of the primary benefits offered by a company to its employees, and a robust PTO policy can make an employer more appealing to current and potential employees, enhancing the likelihood of hiring and retaining top-notch candidates.

Ultimately, providing employees PTO is a way to combat employee burnout, increase productivity, and boost morale.

PTO Policy Compliance and Audit

It is essential to audit your PTO policy as part of ongoing HR compliance. 

Although there are no federal laws mandating employers to pay out PTO when an employee departs, an employer would still have to pay out PTO if they made such a promise in an employment contract or operated in a state that regulated PTO payout.

A well-structured PTO policy is vital for any company that wants to stay competitive in today’s recruitment market. 

How PTO Works

PTO is a combination of vacation, sick, and personal time that employers provide to their employees as paid time off from work. With that in mind, here’s how PTO works for employers in the US.

Accrual and Allocation

PTO is accumulated over time, and usually, employers credit it to an employee’s pool of hours each pay period.

Employers may also assign a set amount of days per year for accrued time off, which can increase based on an employee’s tenure with the company.

PTO can roll over from year to year or expire at the end of the year, depending on the employer’s policies.

Types of PTO Systems

There are several types of PTO systems, each with its own guidelines and requirements. 

We’ll discuss how calculating PTO works a bit later, but here is a brief overview of the different types of systems.

Traditional PTO Systems

In this system, employers provide employees with a set number of days they can use for specific reasons, such as vacation, sick days, and personal leave.

Traditional paid time off systems give employees less flexibility in determining how they use their time off.

PTO Bank Systems

In this system, all the days that an employer would provide to an employee for vacation, personal leave, sick days, and sometimes holidays combine into a pool of total paid time off hours.

Employees can use time from their available hours for any reason, providing more flexibility than traditional paid time off systems.

Unlimited PTO Systems

In this system, there’s no limit to the number of days or hours an employee can take off. Employees can take time off when they need to for any reason, as long as their time off does not impact their work or disrupt the business.

Unlimited PTO systems give employees the greatest amount of flexibility in managing their time off and require the least amount of administrative oversight from the employer.

Understanding Company PTO Policies

Helping employees gain a thorough understanding of how your company’s PTO policies work can help them maximize their benefits, plan time off, and improve job performance.

It’s essential for employees to know how PTO works: the amount they have, how they earn or accrue that time, and the rules they have to follow to use it.

PTO policies are a key element of the employee experience and play a vital role in enhancing employees’ work-life balance.

How PTO Is Used

Now that we’ve covered some of the most common PTO systems, here are some of the most common ways PTO is used.

Vacation Time

Vacation time is perhaps the most common use of PTO. 

It allows employees to take time off work for a vacation, to relax, travel, or spend time with family and friends. 

Employers may have diverse policies on when employees can use vacation time, such as making it obligatory to utilize it during specific periods of the year or mandating a specific amount of advance notice before taking time off.

Sick Time

Sick time is another common use of PTO. 

It allows employees to take time off work when they are sick or need to care for a sick family member. 

Some employers require a doctor’s note if an employee is out for more than a certain number of days.

Personal Days

Personal days are another use of PTO that allow employees to take time off work for personal reasons that are not related to illness or vacation. 

This could include attending a child’s school event, a doctor’s appointment, or taking care of personal business. 

Bereavement Leave

Bereavement leave is a type of PTO that allows employees to take time off work when a family member or close friend dies. 

Employers establish the eligibility criteria for bereavement leave and the duration of leave permitted.

Paid Holidays

In addition to vacation time, sick time, personal days, and bereavement leave, many employers also provide paid holidays as part of their PTO policy. 

Paid holidays typically include national holidays, such as Christmas, Thanksgiving, and Independence Day. 

Floating Holidays

Floating holidays are a set number of days that an employee can use for any reason they choose. 

Employers decide how floating holidays can be utilized and can mandate a specific duration of notice before taking time off.

Parental Leave

Parental leave is a type of PTO that allows new parents to take time off work when a child is born or adopted. 

The amount of time off allowed can vary depending on the employer and the employee’s role within the organization. 

Jury Duty

Jury duty is a type of civic duty that requires individuals to serve on a jury when called upon. 

Although employers are not always obligated to compensate employees for the time, the law usually mandates them to grant employees time off for jury duty.

Community Service

Some employers provide PTO for employees who want to volunteer in their local community. This can be a great way for employees to give back and for employers to demonstrate their commitment to corporate social responsibility.

PTO is a valuable benefit that provides employees with the flexibility to take time off work for a variety of reasons. Employers may have varied regulations around PTO usage, but it’s crucial for them to communicate these rules transparently to employees to prevent confusion and ensure appropriate usage of PTO.

How PTO Is Calculated

Employers can calculate Paid Time Off (PTO) in different ways, depending on their policy.

Here are some of the most common ways.

PTO Bank

A PTO bank is a fixed amount of PTO that employees receive at the beginning of each year.

This means that the employee receives a lump sum of PTO at the beginning of the year and can use it throughout the year as they see fit. Here’s how to calculate PTO for a PTO bank.

• Determine the amount of PTO the employee is entitled to for the year.
• Divide the total number of hours by the number of pay periods in the year.
• The result is the amount of PTO that the employee will accrue each pay period.

Example: An employee is given 80 hours of PTO per year, which is added to their PTO bank on a yearly basis. If their pay period is one month long, they accrue 6.67 hours per month. 

PTO Accrual

PTO accrual is a method of calculating PTO based on the number of hours worked by the employee. This means that the employee earns PTO as they work and can use it throughout the year. Here’s how to calculate PTO for PTO accrual.

• Determine the employee’s PTO accrual rate. This is typically based on the employee’s length of service with the company.
• Multiply the employee’s accrual rate by the number of hours worked during the pay period.
• The result is the amount of PTO that the employee has earned during that pay period.

Example: An employee’s accrual rate is 0.06 hours PTO for every hour worked. They work 40 hours per week, and their pay period is two weeks long. They would earn 4.8 hours of PTO per pay period, 9.6 hours per month, and approximately 125 hours per year.

Daily PTO

Daily PTO is a type of PTO where employees receive a set number of days off each year that they can use at their discretion. Here’s how to calculate daily PTO.

• Determine the number of days of PTO the employee is entitled to for the year.
• Divide the total number of hours by the number of working days in the year.
• The result is the number of hours of PTO that the employee is entitled to per day.

Example: An employee is given 10 days of PTO per year. If they work a standard 8-hour day for 260 days a year, their accrual rate is 0.31 PTO hours for each day worked or 6.67 hours per month.

Weekly PTO

Weekly PTO is a type of PTO where employees receive a set number of weeks off each year that they can utilize at their discretion. Here’s how to calculate weekly PTO.

• Determine the number of weeks of PTO the employee is entitled to for the year.
• Divide the total number of hours by the number of working weeks in the year.
• The result is the number of hours of PTO that the employee is entitled to per week.

Example: An employee is given 3 weeks of PTO per year. If they work a standard 40-hour week, this equates to 120 hours of PTO per year. 120 hours / 52 working weeks is 2.31 hours accrued every week.

Unlimited PTO

Unlimited PTO is a PTO type where employees can take as much time off as they need, subject to manager approval and completing their work responsibilities. Because there is no fixed amount of PTO for this type of policy, there is no need to calculate PTO.

Understanding PTO is Essential

A clear understanding of how PTO is calculated helps employees plan their time off and helps employers ensure that their PTO policies are consistent and equitable. Although various PTO types may have different calculation methods, the crucial aspect is to communicate the PTO policy clearly to all employees.

PTO Policy Must-Haves

A well-crafted PTO policy is essential for both employers and employees. 

It outlines the guidelines and expectations for requesting, using, and accruing PTO. Here are some must-haves that every PTO policy should include the following.

1. PTO Laws Relevant to Your State

PTO laws vary by state, so make sure that your policy complies with any applicable state and local laws governing PTO. 

This includes minimum requirements for accrual and payout. Check with your state’s labor department or an employment lawyer to keep your policy up to date and compliant with the law.

2. Accrual and Usage Guidelines

The policy should specify: 

• How PTO accrues
• How much PTO an employee is eligible for
• How they can use it

This may vary based on factors such as job title, seniority, or hours worked. As an employer, you should communicate this information to employees so that they understand how much time off they have available and how to request it.

3. Request and Approval Procedures

The policy should describe how employees can request PTO, how much notice they need to provide, and how their requests will be approved or denied.

Whether it’s a formal request process, like submitting a request through an online system, or an informal process, it’s essential to have clear guidelines in place so that everyone knows what to expect.

4. Holidays and Other Paid Time Off

The policy should specify the company’s holiday schedule and whether employees are eligible for other types of paid time off, like sick leave or personal days. 

This helps employees plan their time off and keeps everyone on the same page when it comes to time off policies.

5. Flexibility Options

The policy should address whether employees have the flexibility to adjust their work schedule to accommodate PTO requests, like taking a half-day off. 

This can help employees balance their personal and professional obligations and make it easier to take time off when they need it.

6. Types of Employees Eligible to Receive PTO

The policy should specify which types of employees are eligible to receive PTO, such as full-time employees, part-time employees, or contractors. 

By doing so, everyone can be treated fairly, and there will be no misunderstandings regarding who is eligible for time off.

7. Restrictions and Limitations

The policy should also outline any restrictions or limitations on PTO, like blackout dates during busy periods or limits on the number of consecutive days off. 

With restrictions in place, employees will not take time off at times when it would be detrimental to the business. Also, you can make sure that there is adequate staffing in place at all times.

8. Communication

The policy should be communicated clearly to employees and provide them with resources to address any questions they may have.

This can include an employee handbook, online resources, or regular meetings to discuss time off policies.

9. How PTO Works for Hourly Employees

The policy should provide specific details on how hourly employees accrue PTO based on their hours worked and how they can use it without affecting their pay.

10. Carryover and Payout Provisions

The policy should address whether unused PTO can be carried over to the next year, the maximum amount that can be carried over, and whether it will be paid out upon termination.

This is so employees can use their time off effectively without losing out on time off they have earned.

11. Tracking and Reporting

The policy should outline how PTO is tracked and reported, such as through a time and attendance system or PTO tracking app.

The Benefits of Understanding How PTO Works

Understanding how PTO works can benefit both employers and employees in several ways. Let’s explore some of those benefits together.

Improved Performance

When employees understand how PTO works, they can plan their time off more effectively and communicate their needs to their managers. This can lead to:

• Fewer unplanned absences and disruptions to workflow
• Improved time management and productivity
• Increased job satisfaction and engagement

Employees who feel confident in their ability to take time off when needed are less likely to burn out or become overworked. They can better manage their workload, prioritize tasks, and avoid the stress and anxiety that can lead to absenteeism or poor performance.

Moreover, when employees perceive that their employer values their well-being and work-life balance, they tend to be more engaged and committed to their work.

Better Employee Morale

A fair and transparent PTO policy can improve employee morale by:

• Building trust and transparency between employers and employees
• Providing a clear understanding of employee entitlements and expectations
• Demonstrating that the employer values employee work-life balance

When employees feel that their employer prioritizes their well-being, they tend to be more motivated, engaged, and committed to their work.

A PTO policy that is fair and transparent can help build trust and transparency between employers and employees, leading to a more positive and productive work environment.

Fewer Accidents and Errors

Overworked or burnt-out employees may be more susceptible to accidents or errors. Understanding how to use PTO effectively can help employees:

• Manage their workload and avoid burnout
• Take time off when needed to recharge and refocus
• Reduce the risk of accidents or errors

Stressed, tired, or overworked employees are more prone to making mistakes or having accidents on the job.

However, by using their PTO effectively, employees can manage their workload, avoid burnout, and return to work refreshed and focused. 

Employee Retention

A strong PTO policy can help employers retain their top talent by:

• Demonstrating that the employer values employee well-being and work-life balance
• Providing employees with a sense of security and stability
• Encouraging employees to stay with the company longer by rewarding tenure with more PTO or other benefits

Employees who feel valued and supported by their employer are more likely to stay with the company longer. A strong PTO policy can demonstrate that the employer values employee well-being and work-life balance, providing employees with a sense of security and stability. 

Additionally, by rewarding tenure with more PTO or other benefits, employers can encourage employees to stay with the company longer, reducing turnover and improving employee retention.

How to Accurately Track PTO

Accurately tracking time off is essential for employers to ensure compliance with state and federal laws and manage employee entitlements effectively. Here are some best practices for tracking PTO.

1. Use a centralized system to track PTO for all employees.
2. Train managers and employees on how to use the PTO tracking system effectively.
3. Ensure consistent and fair tracking of PTO across all employees and departments.
4. Regularly audit and update PTO balances to ensure accuracy.
5. Communicate PTO balances to employees regularly, so they are aware of how much time they have available.

Here are two common ways that your business can accurately track PTO.

1. Traditional PTO Tracking Software

Traditional PTO tracking software manages PTO for office workers and businesses with a single location. It typically includes features like:

• Online time-off requests and approvals
• Accurate PTO accrual calculations
• Automated PTO tracking and reporting
• Integration with payroll and HR systems

Businesses with a dedicated HR team or administrator responsible for managing employee time off are best suited for PTO tracking software.

Integrating this software with payroll systems simplifies the process of calculating and processing employee pay and benefits.

2. Flexible Time Tracking Apps

Flexible time tracking apps offer a much more versatile and convenient solution for tracking PTO. 

Some of the benefits of flexible time tracking apps include:

• Real-time tracking of PTO and hours worked
• Location tracking and geo-fencing
• Automatic PTO accrual calculations
• Integration with payroll and billing systems

Flexible time tracking apps are ideal for businesses that have employees working in the field, such as construction companies or service businesses. 

These apps can help employers track employee time and PTO accurately, even when employees are working off-site or on the go.

Workyard is a great alternative to PTO tracking software, offering flexible time tracking features for contractors and service businesses. With Workyard, employees can track their time and PTO from their mobile devices, using a simple and intuitive app. 

More importantly, employers can track PTO balances, approve time off requests, and integrate with payroll and billing systems, all in one place. With Workyard, employers can use location tracking and geo-fencing features to ensure accurate tracking of employee hours, even when employees are working remotely.

So, what are you waiting for? Sign up for a free trial of Workyard today!

The Bottom Line on PTO

This article has covered how PTO works, its usage, calculation, and the importance of accurate tracking. We’ve also covered the benefits of understanding how PTO works and the must-haves of a PTO policy.

As an employer, you need to manage PTO effectively to ensure compliance with state and federal laws, as well as to manage employee entitlements and time off requests efficiently. By offering PTO and managing it fairly, you can improve employee satisfaction and retention rates, reduce errors, and manage your business more efficiently.

Ensuring consistent and accurate tracking of PTO across all employees and departments is essential. By using a centralized PTO tracking system, you can improve communication and transparency around PTO balances, approvals, and entitlements.

Accurate tracking of PTO is a critical part of managing employee time off effectively, and with the right tools and policies in place, it can be a straightforward and hassle-free process.