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The Difference Between Vacation and Paid Time Off

Once upon a time it was the norm for employers to offer separate paid time off benefits to employees, differentiating sick leave from personal days and paid vacation. Today, however, a growing number of organizations have moved to a more flexible paid time off (PTO) benefit that incorporates all policies into one all-inclusive plan.

With employees hoarding accrued time off due to the pandemic, making the right choices when it comes to creating a time off policy has never been more important. Finding a way to incentivize employees to take much-needed time away from work can help prevent burnout and boost engagement long-tern.

The debate continues as to whether employers benefit from offering PTO versus separate vacation, sick and personal leave plans. In some instances, state law dictates what an employer can offer because there are legal obligations attached to it, such as:

In any case, it’s important for an employer to be clear on their PTO policy while staying within the law. Here are some key differences as well as of the pros and cons to consider before offering employees a singular PTO policy.

Advantages of a PTO Policy

The terms PTO and vacation often are used interchangeably by employees, but they’re not actually the same thing. PTO is considered to be any time an employee is getting paid while away from work—it’s more all-encompassing than “vacation.” Think of it like this: all vacation is PTO while not all PTO is vacation.

Other examples of PTO include maternity/paternity leave, jury duty, sick leave, holiday pay or disability leave. In fact, part of the 2017 tax reform bill stated that employers who provide between two and 12 weeks of paid family and medical leave can receive a tax credit.

Some other advantages to PTO programs include:

  • Employees appreciate the flexibility PTO plans provide.
  • Employees aren’t incentivized to lie about being sick or having a doctor’s appointment in order to use their allotted sick days, resulting in a more honest and transparent employer/employee relationship.
  • Employees and human resources only have to track PTO hours as opposed to separately tracking hours for vacation, sick and personal days.

Research consistently shows that incorporating a PTO policy will result in employees taking more vacation time and less sick days. This benefits employers in two ways—first, employers typically receive more notice about scheduled vacations and can plan for adequate coverage. Second, employees return to work more refreshed and productive following vacation leave—which doesn’t happen if they’re using sick days.

Disadvantages of a PTO Policy

There are a few potential downsides (depending on how you look at it) to creating a PTO bank that HR professionals should keep in mind.

  • Employees will most likely use their PTO whereas personal and/or sick days may be left unused.
  • Employees tend to save all their PTO for vacations and come to work when they’re sick—now, more than ever, it’s crucial this isn’t the case.
  • In some states, accrued (yet unused) PTO must be paid to the employee upon his/her last day of work but unused sick/personal time doesn’t.

most and least PTO days used by state

Is Unlimited PTO a Good Idea?

When there’s tough competition for talent, organizations may be tempted with the idea of offering unlimited PTO as a way to attract quality new hires. After all, what could be better than unlimited days off work?

Despite how dreamy it sounds, the reality is workers who are offered unlimited “vacation” rarely take more than other employees. Which might explain why only 4% of companies in the U.S. offer unlimited PTO, according to the Society for Human Resource Management.

If you are considering an unlimited PTO policy, there’s a couple things to remember. First, such a benefit isn’t appropriate for nonexempt employees whose paid time is governed by wage and hour laws and gets overtime for working more than 40 hours a week. Second, in states where an employer is required by law to pay an employee a monetary amount equivalent to the amount of unused vacation time upon his/her last day of work, how could you determine an “unused” amount of time?

Unlimited time off might also cause issues with the Family and Medical Leave Act (FMLA) which requires employers to allow available paid leave to run simultaneously with an employee’s FMLA leave. If there’s no limit to paid time off, does that mean an employee’s entire 12-week FMLA leave will be paid?

Time Away from Work is Good

Whatever sort of vacation, sick or PTO policy you implement in the workplace, be sure to encourage your employees to use it. Create a culture that supports time off—make sure managers lead by example and take vacation days. Eliminate the guilt factor by showing a true interest in where employees travel (ask questions, look at photos). Perhaps even pay your employees to go on vacation by offering a financial incentive to be used for flights, hotels or food.

Paycor Can Help

Don’t let your team be one of the 52% of U.S. workers who leave unused PTO on the table at the end of the year*. With Paycor’s online time and attendance software, employees can request time off, see how much PTO they’ve accrued and easily access employer PTO policies. But that’s just the tip of the iceberg. Employees can also clock in and out, manage their schedules and view pay stubs, all while on the go. Want to learn more? Talk to a Paycor consultant.

Source: U.S Travel Association’s Project: Time Off report


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