What is Paid Time Off (PTO) ?

PTO, or paid time off, represents a benefit whereby employees are entitled to take leave while still receiving pay. Companies commonly group vacation, sick days, and other personal leave under the PTO category. However, in some countries, regulations mandate separate allocations for annual and sick leave.

Determining PTO Amounts

The quantity of PTO granted to an employee typically depends on the company's location and its specific PTO policy. PTO allowances are generally issued in three ways: accrued, allotted, or as unlimited time off.

• Accrued PTO: This type of PTO accumulates over time. For instance, an employee might accumulate 8 hours of paid time off every two weeks according to their company’s policy.
• Allotted PTO: Here, PTO is given in a lump sum at the beginning of each year. A company may, for example, provide 25 days of paid time off annually, resetting this amount on January 1.
• Unlimited PTO: Unlimited PTO is increasingly used as a competitive advantage, allowing employees to take as much time off as they need without a fixed limit.

While U.S. federal law does not mandate PTO, some states have specific guidelines. Conversely, in Europe, employees are generally entitled to a minimum of 4 weeks of paid time off annually, with some countries offering more.

Operation of PTO

PTO balances are usually monitored through a specific platform or database within a company. When employees need time off, they submit a request indicating the required days. This application is then reviewed by their manager or supervisor for approval. Following approval, the employee’s PTO balance is updated to reflect the taken leave.

Rollover and Payout of PTO

Company policies may vary on whether unused PTO can be carried over to the next year. For example, an employee with ten remaining PTO days might roll over a maximum of five days if that's the company’s policy, forfeiting the rest. 

Furthermore, many companies opt to pay out unused vacation days upon an employee's departure. This practice is legally required in certain regions and forms part of many organizations' PTO policies. Typically, PTO payout is calculated on a pro-rata basis.