What is PTO?

Written by Asim Qureshi
By Asim Qureshi, CEO Jibble

Hi, I’m Asim Qureshi, the CEO and co-founder of Jibble, a cloud-based time and attendance software. I have several years of experience in building and scaling software products and teams across various industries and markets. Before I founded Jibble, I worked as a VP at Morgan Stanley for six years. I’m passionate about helping businesses improve their productivity and performance through smart time management practices. Let’s talk about PTO and how you can leverage it to boost productivity. 


Everyone deserves a break from work. A few days or weeks to relax without worrying about finishing that report on time, hitting KPI’s, or attending those early morning meetings are bound to have employees feeling recharged and well rested. The only thing that is better than taking those few days off is getting paid for them. So let your employees enjoy their paid leave days. They’ve earned them. 

Employees certainly enjoy their paid time off (PTO). But they’re not the only ones who can benefit from this policy. PTO has considerable perks for managers and employers as well. In fact, according to the Society for Human Resource Management, organizations with good PTO policies have more creative and productive employees, better worker retention, and healthier staff. 

To unlock these benefits and get the best out of paid time off, you need to understand what PTO is. So, let’s dive in.  

This article covers:

What is PTO?

Paid time off (PTO) is any type of leave for which employees are compensated.

Basically, they get paid not to work for a few days or weeks depending on your company’s PTO policy. What they do with this downtime is up to them. They can travel, visit family, or engage in their hobbies without worrying about their job security. That said, PTO can be packaged in different ways. Let’s explore them below. 

What are the Types of PTO?

1. Vacation Days

Working for extended periods without breaks reduces productivity. Vacation leave is the perfect solution to employee burnout. Vacation days are a type of PTO that an employee can take when they need a break from work. But don’t let the name limit what you or your employees can do with their vacation days. You can spend your days off at home or visiting family. The number of vacation days differs across organizations. I’ve seen companies limit the leave to a few days a year while others offer unlimited paid vacation time. 

2. Personal Time

We all need a few hours or days for personal tasks and errands. This could be anything from a routine doctor’s appointment to moving apartments or attending a parent-teacher conference. Personal time is just that. Personal. Your employees get to spend it at their discretion and so do you. They also deserve to spend this time without worrying about exhausting their vacation days. This type of PTO is separate from paid vacation, sick leave and parental leave. 

3. Sick Days

Most types of PTO require employees to give advance notice but some absences are impossible to anticipate. Sick leave falls under this category. It is owed to employees who are unwell, recovering from an accident, or due for upcoming treatment. Some organizations extend sick leave to employees with sick family members. Organizations are at liberty to structure their leave policies. However, they must offer the minimum sick leave days stipulated by law. So be sure to check your federal or state laws on sick leave. 

4. Holidays

On average, most countries have 11 public holidays every year. In some organizations, these holidays are paid days off for employees to spend as they wish. Other organizations offer double pay for employees who are willing to work on public holidays. Remember, PTO policies vary across organizations. So be sure to state in your company policy which public or bank holidays your organization recognizes.

In addition to offering paid leave on public holidays, some organizations offer paid floating holidays. These are days that are not recognized publicly as holidays but are significant to employees, such as birthdays and anniversaries. 

5. Parental Leave

Most companies offer paid parental leave to new parents. The length and scope of parental leave varies across countries and organizations. Some limit PTO to pregnant mothers who deliver their children while others allow mothers who welcome children through surrogacy to take some time off to bond with their newborn. More progressive organizations offer PTO to adoptive or foster parents as well. 

6. Bereavement Leave

Death is part of the human life cycle. And when it comes knocking, employees need some time off to mourn their loved ones. Most organizations send employees who have lost family members home on paid bereavement leave.

The length of bereavement leave is at the employer’s discretion. Similarly, the employer determines the relationship that an employee should have with the deceased person to qualify for paid time off. In most cases, employees qualify for bereavement leave after losing a parent, sibling, spouse, or child. Some organizations offer paid leave to parents who experience a loss through miscarriage or stillbirth as well. 

7. Voting and Jury Duty

Voting is the civic duty of every citizen. Further, some countries require their citizens to serve as impartial juries in judicial processes. In both cases, employers are obliged to offer PTO. However, the number of days of PTO allocated for each vary, with only one paid day off allowed for voting while PTO for jury duty depends on the length of the trial. 

Benefits of PTO

A well designed PTO policy benefits organizations as much as it benefits employees. Here’s how:

1. Minimized Employee Burnout

PTO is a great solution for employee burnout. But how do you know that you or your employees need some PTO? A time clock software can help clue you in by alerting you when employees start logging an unusual amount of idle time. You may also notice that some employees are clocking in for less hours or working the same number of hours but delivering lower quality work.

These signs of burnout are universal. Once you notice a drop in your employees’ performance, it’s time to send them on paid leave. Let your employees blow off steam without fear of losing income. They’ve earned their time off. Your benefits will kick in once they return to work and their productivity skyrockets. After all, it’s been proven that PTO improves creativity and increases productivity. 

2. Controlled Absence

Second, nothing disrupts business operations more than unplanned absences. Fortunately, with a good leave and PTO tracking software, requests for most types of PTO can be placed days or weeks in advance. Once you have approved requests for paid leave, you can use a time and attendance software to anticipate absences and incorporate them into your schedule to redistribute work on days when an employee is away on paid leave. Controlled absences are a great way of ensuring that your business operations run smoothly all year round. 

3. Legal Compliance

Companies dangle PTO as an incentive during recruitment. However, some types of PTO are not company initiatives. They are mandated by law. For instance, most countries require organizations to offer new parents paid parental leave. The global average parental leave is 22.1 weeks. Similarly, some national and local laws require organizations to offer unlimited leave to employees who are called upon for jury duty. It is important to brush up on these laws to reduce the risk of non-compliance. 

How Do You Calculate PTO?

A typical employee benefits package has several types of PTO bundled into one. Some accrue immediately after an employee signs their appointment letter. Others are based on hours worked and years of service to the company. So how do organizations calculate each employee’s PTO accurately? 

Here are the most common ways of calculating PTO:

1. Set Amount of Days

Most companies require their employees to work for a set probationary period before PTO benefits begin to accrue. Once the probationary period is over, an employee has a specific number of days that they can take whenever they wish. However, the PTO is bound by policies that keep organizations staffed all year round. For instance, most companies limit the number of vacation days an employee can take at a time. Others require employees to put in their requests for leave weeks in advance. 

This kind of PTO is by far the easiest to calculate. All you need is accurate attendance records and timesheets. You can get these easily using free time and attendance software. Once an employee completes the probation period and becomes eligible for PTO, they can put in their request for PTO. You can track the number of paid leave days every employee takes easily using PTO tracking software. 

2. Accrued time off 

A second approach calculates PTO based on the number of hours an employee has put in. Under this method, employees accrue paid time off with every hour they work. They can take paid leave once they hit the specified number of hours. 

Accrued time off is relatively difficult to track and calculate manually. But don’t worry, I have the perfect solution for you. You can generate records of your employees’ hours easily with most time clock software. This way, you’ll know how much PTO every employee has accumulated even before they put in that request for some paid leave days. 

3. Rollover Allowance

Finally, employees get a set number of paid days off every year. Some exhaust their PTO but it is not unusual for some to have a few days left over. Some companies have a ‘use it or lose it policy’. Under this policy, an employee forfeits all unused paid time off at the end of the year. No rollover calculations are needed under this policy. 

Other companies carry over unused PTO to the following year while others pay it out on top of regular wages. Computing these rollover allowances is a breeze with time tracking software with timesheets and payroll features. These can be used together with a good PTO tracking software with additional features such as an automated leave request workflow. If you are not sure where to start, check out this guide on choosing the best PTO tracker for your business. 

Final Thoughts

In conclusion, paid leave is an important employee benefit. With a good PTO package, employees are happier and healthier. They achieve that elusive work-life balance easily and it shows in their work. They are more productive and better at solving problems. Besides, PTO is a strategic tool for attracting and keeping the best employees. To get the best out of PTO, consider getting a tracker to automate the entire process. Learn more about PTO trackers here.