Question:

Can you tell me the difference between a regular vacation policy and a PTO policy? I am revising my company’s leave policies and am not sure what I should be providing for my employees in terms of time off for personal reasons, as well as sick and vacation time. I am also not clear as to whether I need a different policy for each of these categories.

Answer:

Employers are often confused about the amount and types of time off that they can provide for their employees. First off, you should realize that you are not required by law to provide employees with vacation or other paid time off for personal use (including sick time). However, most employers recognize the value associated with providing these kinds of benefits in terms of attracting and retaining employees, and remaining competitive in the marketplace. Employers are therefore faced with deciding how much leave they will provide, and how that leave will be structured.

Some employers prefer to give their employees a paid time off (or “PTO”) plan. This is generally a flexible arrangement that gives the employee a set number of days off per year to be used at the employee’s discretion. These days can be used for sick time, personal days, vacations, or for whatever reason the employee may need time off. Like vacation and other forms of time off, the annual number of PTO days may increase based on years of service and/or the employee’s position within the organization. It may be useful to think of a PTO policy as a “bank” of hours from which an employee can draw, depending on his/her needs.

Employees usually like PTO plans because of the flexibility they afford. Employees have greater choice in how their paid time off is allocated, and are not restricted to using their time only for vacation or sick leave. PTO benefits can also be used more equally by all employees, including those individuals who are rarely ill or who do not have children to care for. PTO plans are appealing for employers as well, since there is less administrative time spent tracking the reasons for an employee’s absences. Additionally, employers may require that an employee use up to two weeks of accrued PTO before becoming eligible for Paid Family Leave (“PFL”), whereas an employer cannot compel an individual to use up their sick leave before receiving PFL benefits (i.e., sick leave is protected from this type of requirement).

There are potential drawbacks to PTO plans, however. Because PTO plans do not require an employee to specify the reason for taking a day off (e.g., the employee does not need to differentiate between the use of a PTO day for vacation and one for sick time), employees are sometimes inclined to view all of their PTO as “vacation” time. This can encourage employees to come to work when they are ill, because they do not want to “waste” a potential vacation day. Employees may also use up all of their PTO for vacation early on in the year, instead of saving some PTO in the event that they become ill. This can result in the employer having to provide both the allotted PTO under the company’s plan, as well as additional unpaid time off due to illnesses that occur later in the calendar year.

In addition, the law in California treats PTO just like vacation for purposes of paying an individual their final wages at the time of termination. This can be a drawback for employers with PTO policies since an employee is entitled to be paid for all PTO days at the time of termination, whereas an employer with distinct vacation and sick leave policies is not required to cash employees out for their unused sick time. However, an employer can place a reasonable limit or “cap” on the amount of PTO that an employee may accrue, thereby limiting its potential exposure in the event of a termination.

Whether to institute a PTO policy is up to the individual employer. In making your decision, you may want to consider your company’s absenteeism patterns, your employees’ attitudes toward work, and whether your supervisors would be comfortable with a more flexible arrangement that gives employees greater control over their time off from work.
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