Paid time off

Paid time off or personal time off (PTO) is a policy in some employee handbooks that provides a bank of hours in which the employer pools sick days, vacation days, and personal days that allows employees to use as the need or desire arises. This policy pertains mainly to the United States, where there are no federal legal requirements for a minimum number of paid vacation days (see also the list of statutory minimum employment leave by country). Instead, U.S. companies determine the amount of paid time off that will be allotted to employees, while keeping in mind the payoff in recruiting and retaining employees.

Generally PTO hours cover everything from planned vacations to sick days, and are becoming more prevalent in the field of human resource management. Unlike more traditional leave plans, PTO plans don't distinguish employee absences from personal days, vacation days, or sick days. Upon employment, the company determines how many PTO hours will be allotted per year and a "rollover" policy. Some companies let PTO hours accumulate for only a year, and unused hours disappear at year-end.[1] Some PTO plans may also accommodate unexpected or unforeseeable circumstances such as jury duty, military duty, and bereavement leave.[2] PTO bank plans typically do not include short-term or long-term disability leave, workers compensation, family and medical leave, sabbatical, or community service leave.[3]

It is unclear as to when PTO bank-type plans were first being utilized in the workforce. In a 2010 study conducted by WorldatWork, 44% of 387 companies surveyed said they started using PTO bank-type plans prior to year 2000.[4]


An early instance of paid time off, in the late 19th century in Australia, was by Alfred Edments who gave every employee a fortnight's holiday on full pay, and when ill, Edments continued to pay their salaries.[5]


  • PTO can be an attractive benefit for healthy employees because they are offered more vacation time under a PTO plan than they would be under a plan that differentiates sick leave and vacation.
  • Theoretically, the employee will be honest in scheduling PTO in advance, allowing the company to plan around the absence, rather than "calling in sick" at the last minute.
  • PTO is usually attractive to younger workers, who tend to rate work-life balance as an important source of job satisfaction.
  • The flexibility of PTO plans aligns with the current trend in the United States of having more frequent but shorter vacations.[1]
  • Tracking PTO is less onerous for management and employee than tracking personal, sick and vacation days.[6]
  • Employees who give adequate two weeks' notice before retirement or resignation may be paid for all unused, accrued PTO.[1]


  • At first glance, PTO may not be attractive for employers due to little direct advantage. This is because the employer pays the employee for time spent not working; thus, receiving nothing in return for the expense.
  • Employees may tend to miss work more frequently, which can be seen as a drawback for the employers and lead to absenteeism. This can be offset by the employer establishing acceptable and unacceptable standards of unscheduled PTO (call-offs).
  • Employees may decide to work despite illness, whether it be because they are saving for a vacation and would not like to use any accrued PTO until then, or because they have returned from using nearly all PTO accrued and have fallen ill.
  • If PTO hours go unused, employees may sometimes call in sick near the end of the year so they can obtain the benefit of paid leave before it disappears. Employers may counter this tendency by paying employees for some or all of their unused days at year-end or upon retirement or resignation.[1]
  • Employers in the United States need to be aware of their state labor law regarding paid time off. If not, the policy might not be legally enforceable.

A longitudinal study conducted by World at Work of over 1,000 organizations of different sizes concluded that over recent years, PTO plans have become more actively utilized by the general workforce. In 2002, about 71% of organizations were using traditional distinguished paid time off system, and about 28% were utilizing the PTO bank-type system. As of 2010, the use of the traditional paid time off system decreased to 54%, while the use of the PTO bank system increased to around 40% of all organizations.

Recent information may indicate that PTO bank-type plans are difficult to implement in very large organizations. In 2010, only 32% of organizations with 20,000+ employees had a PTO bank-type system. However, 51% of organizations with 10,000-19,999 employees had PTO bank-type plans. In organizations with less than 100 employees, 48% had PTO bank-type plans.[4]

In the 2010 study performed by World at Work, industrial differences were also found. 97% of organizations in the Education industry use traditional paid time off plans with only 3% utilizing a PTO bank-type system. On the other hand, 80% of organizations in the Health-care and Social Assistance industry utilize PTO bank-type systems.[4]

As of 2012, nearly one in five employees in the United States receive leave in the form of a PTO bank plan, but the contours of such policies are often little understood—especially outside of the human resources community.

Among employees with paid leave, lower-wage employees are less likely to have access to a PTO bank than a traditional paid vacation system. 51% of employees in the lowest average wage quartile have access to any vacation time, and only 9 percent of the lowest wage employees have access to a PTO bank. 89% of employees in the highest wage quartile have access to vacation time and 28% have access to a PTO bank.

There is also a difference in PTO among employment status. 9% of Part-time employees have access to a PTO bank, whereas about 23% of full-time employees do.

14% of unionized organizations have access to PTO bank-type plans.[3]

Length of service

Paid time off usually increases with years of service to an organization. This provides a greater benefit for employees who have been with the organization longer.

Average number of total paid days off in the US
Years of serviceAverage days per year
Less than 1 year14
2 years of service17
3 years of service18
4 years of service18
5 years of service21
6 years of service23
7 years of service23
8 years of service23
9 years of service23
10 years of service25
11 years of service26
12 years of service26
13 years of service26
14 years of service26
15 years of service27
More than 15 years of service27+

Source: Society for Human Resource Management, 2004 SHRM Benefits Survey.[2]

Differences between jurisdictions

Because there are no federal requirements in the United States, the states must each determine respective regulations for paid time off in the state labor law. Because of this, employers not only need to be aware, but also need to establish and follow a formal written policy for paid time off. Failing to formally establish paid time off policies may result in violating the state's code and the policy not being legally enforceable.


Vacation is legally vested per formal language in the California Labor Code. Vacation cannot be forfeited once earned, and unused balances must be paid out upon termination.


There is no Pennsylvania labor law which requires an employer to pay an employee not to work. Benefits like sick leave, vacation pay, and severance pay are payments to an employee not to be at work. Therefore, an employer only has to pay these benefits if the employer has a policy to pay such benefits or a contract with you to pay these benefits. An employer must follow its own rules for these kinds of payments.

Most states, in fact, do not require unused vacation balances to be paid out upon termination, and very few states have formal rules protecting employees from changes in the vacation policy; however, all states must comply with federal labor laws such as the Family Medical Leave Act.[7]

New York City

In January 2014, 16 days after taking office, Mayor Bill de Blasio put forward paid sick leave legislation to expand this right to more New Yorkers, including 200,000 of whom did not have any paid sick days. The law took effect on April 1 and applies to all workers at businesses with five or more employees, encompassing those excluded under the previous legislation that applied to businesses with 15 or more workers.[8]


  1. Lee Ann Obringer, HowStuffWorks Money, How Employee Compensation Works, p. 6.
  2., Creating a Policy for Paid Time Off
  3. Andrea Lindemann and Kevin Miller, Clasp - Institute for Women's Policy Research, Paid Time Off: The Elements and Prevalence of Consolidated Leave Plans, May 2012.
  4. WorldatWork, Paid Time Off - Programs and Practices, May 2010.
  5. Neilma Sidney (1981). "Edments, Alfred (1853 - 1909)". Australian Dictionary of Biography, Volume 8. MUP. pp. 412–413. Retrieved 2008-10-09.
  6. Thompson, Melissa. "How Entrepreneurs Can Attract And Retain Talented Millennials Who Prioritize Health". Forbes. Retrieved 22 February 2017.
  7. "Archived copy". Archived from the original on 2013-05-22. Retrieved 2013-03-26.CS1 maint: archived copy as title (link)
  8. "Mayor de Blasio signs paid sick leave bill into law in New York City". 20 March 2014. Retrieved 8 April 2018.
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