When a company is implementing a new leave tracker or attendance management system, they might also consider re-evaluating how they manage employee time off. Within the larger category of time off are two concepts that a lot of people get confused with one another. These are Paid Time Off or PTO, and vacation time.

So what are the similarities and differences, and which one might work best in your organization?

What is PTO?

Paid time off can also be called personal time off in some organizations. A PTO policy is one in which employees are provided with a bank of hours that they can use for time off. This can include time for vacation, sick days and personal days. There aren’t federal requirements in the U.S. as to how many paid vacation days an employer must offer.

PTO hours can cover sick days that are unplanned, and planned vacations. There is no distinction made between the type of days an employee is using. The company really takes a hands-off approach, as long as an employee isn’t using more than their allotted days.

There are different ways PTO policies are implemented in workplaces. For example, some businesses will have PTO hours accumulate annually, and if they’re not used by the end of the year, they go away. Other companies have rollover policies, where PTO hours are allotted but if they’re unused in one year, they roll over to the next.

Some PTO plans also include things like military duty, bereavement leave, and jury duty. What most PTO banks don’t cover are things like family and medical leave, workers compensation, sabbaticals, or disability leave.

Pros of PTO Banks

As with everything, there are both pros and cons to using PTO banks as a way to allow time off for employees. The following are some pros:

• PTO banks are increasingly being used as a recruitment tool and a benefit to attract top talent. Employees like it, especially if they’re healthy because these PTO banks tend to give them more time off than they would have under a plan with differentiation between vacation and sick
• The idea with PTO is that most employees will schedule their time off in advance, rather than calling in sick as a way to miss work. This can allow the business to be better prepared and avoid being understaffed.
• Younger workers seem to like the idea of PTO because they appreciate a sense of flexibility and autonomy in the workplace.
• Tracking PTO is easier for employers. Employers can still rely on a streamlined leave tracker or attendance management system, but it’s much simpler and more straightforward than trying to keep up with vacation days, sick days and personal days.

Cons of PTO Banks

• Employers don’t always love the idea of PTO as much as employees do. Yes, it makes management of employee time off simpler, but employers may feel they’re paying their employees not to work.
• Some employers report higher levels of absenteeism under PTO plans. However, this can be alleviated through the use of a leave management system, and a formalized policy about how people are to take time off under a PTO plan.
• Also a big problem with PTO banks is the fact that employees may use up all their time, and then end up getting sick. They’re then going to come into work sick, which puts everyone else at risk and can reduce productivity levels.
• When an employee hasn’t used all of their PTO and the end of the year is nearing, they might want to take their time. That can be a trend with multiple employees, so the employer can have problems with staffing and scheduling.

While a lot of organizations seem to be moving in the direction of PTO, even more than the cons listed above, there is another downside. If an employer offers PTO and employees have a large bank of days they haven’t used, the company may have to pay the employee for those days if they leave, whether through resignation or termination. That can be extremely expensive in some cases.

What is Vacation Time?

So on the other hand, what is vacation time? Paid vacation times are what they sound like. An employee is paid when they take time off. Paid vacation days are considered part of overall compensation packages, and in most organizations, paid vacation days accrue based on how long someone has been with an organization, and what their position is.

Employees will usually start out with anywhere from one to two weeks of paid vacation time, and then as they stay on longer with the company or advance upward, they receive more paid vacation time.

Some companies will also negotiate with employees over paid vacation days, especially when employees are managers or are at the executive level.

For businesses, one of the biggest downsides of traditional vacation time is that then things like sick leave and other types of time off have to be managed separately. It can get complicated, although a leave tracker or vacation tracker can be helpful.

How Do PTO and Vacation Time Compare?

A lot of people use PTO and vacation time as interchangeable terms, but in reality, they’re not.

PTO is a situation where anytime an employee is away from work, and they’re being paid. It’s a much broader term than a paid vacation.

Vacation is PTO, but PTO doesn’t have to be vacation.

Some advantages vacation time can over PTO includes the fact that employers don’t have to worry about employees missing their days off and not allowing themselves any sick there. There is vacation time and sick time, and they’re distinct from one another. This reduces the risk of illnesses being spread among employees.

Also, in a lot of states when someone is fired or quits their job, their employer has to pay out for all of their earned PTO. In an organization that separates vacation and sick leave, the state law usually only requires that the unused, accrued vacation time be paid for. That can reflect a pretty big cost savings.

So which is better PTO or vacation time? The honest answer is that it depends on the organization. For some companies, PTO is definitely the best option, while for others it’s more advantageous to stick with separate sick and vacation time.