PTO vs. Vacation vs. Sick Leave: The Differences (and Why They Matter)
Modern job seekers want fantastic benefits. The top three most important benefits for employees are:
- Better health, dental, and vision insurance
- More flexible hours
- More vacation time
And if it’s important to employees, it's important to employers.
In the past, "PTO" belonged in clear buckets: vacation, sick leave, and maybe a few other categories. Now, companies often lump them together under an all-inclusive paid time off (PTO) policy.
Given employees are hungry for generous time off, what's the most attractive way to design a policy for employees—combined PTO or vacation and sick leave? And what, functionally, are the differences?
The difference between PTO and vacation
Just like every square is a rectangle but not every rectangle is a square, all vacation time is PTO but not all PTO is vacation time.
PTO is any time an employee gets paid when they aren’t at work. It encompasses all variations of a paid day off, including:
- Parental leave
- Jury duty
- Sick leave
- Holiday pay
- Personal time
- Disability leave
Vacation is any time an employee gets paid to rest or travel for pleasure. Most companies that offer vacation days (rather than PTO) will let employees take paid time off for illness, bereavement, and other non-vacation reasons without using their vacation days.
The difference between PTO and sick leave
In the same vein, sick leave is a type of PTO. Sick leave is any time an employee isn’t at work to take care of themselves or a relative because of an ailment.Typically, “sick leave” involves disclosing your health issue to your employer, sometimes even with a doctor’s note verifying the illness.
Since employees can take a day off for any reason with all-inclusive PTO, a combined policy eliminates the need for doctor’s notes and other forms of “proof.” However, the primary concerns with a combined policy are that:
- Employees might use up all of their days for vacation and then get sick and need to miss a day
- Employees will want to save up their days off for personal time and go into the office while they’re contagious, getting a bunch of other people sick
- Employees may lose out on accrued sick days because they never got “ill enough” to use their sick days
Should you have a PTO policy or a vacation and sick leave policy?
As long as you offer a comprehensive time off policy, it’s entirely up to you whether you create an all-inclusive package or separate requirements. A few things to keep in mind when you’re debating between integrated or segmented policies include:
Your capacity to track time off. A segmented policy requires employees to indicate the reason for their time off, while all-inclusive plans allow them to just request time off. Not tracking reasons could save you (or your HR professionals’) time.
State leave requirements. Each state has different laws regarding the size of a payout you owe if an employee leaves with unused vacation.
Employee preference. You may want to talk to your team members about what will empower them to be able to take the days off they need.
Let’s break down the ins and outs of offering an integrated PTO policy.
Pros of an all-inclusive PTO policy
From the employee’s perspective, an all-inclusive PTO policy is liberating. This type of PTO plan gives them more flexibility, and they won’t have to lie about having a doctor’s appointment just so they can take a day off. In the long run, this can lead to a more transparent employer/employee relationship and retention.
Employees who work at companies with an all-inclusive PTO plan may use more of their days of PTO for vacation instead of for sick days. Part of this is because the employees are able to take time to relax and refresh before going back into the office so they don’t stretch themselves too thin and get sick as a result
For the employer, handling PTO requests becomes significantly easier because you don’t have to procure proof of illness (like a doctor’s note) when an employee uses a “sick” day. It takes unnecessary time and energy, and truthfully, you don’t want to treat your employees like untrustworthy children.
At the same time, you may get more advanced notice about employee time off with a combined PTO bank, giving you the chance to cover for their absence. People who plan on calling in sick to take a personal day don’t do so until the last minute because advance notice would indicate they’re not actually ill. But with the flexibility of an all-inclusive PTO, your employees can let you know that they need a day off as soon as they make plans.
Additionally, an all-inclusive PTO plan may be attractive to candidates for open positions, especially with more potential hires being more picky about the jobs they accept. Many modern employees want to have flexibility woven into their employee benefits, and the right PTO policy could convince them to accept a position at your company. Employees know that if they don’t use all of their days for illness-related absences, they’ll have no problem using their extra PTO days for some personal time.
Cons of an all-inclusive PTO policy
Since employees can take advantage of an all-inclusive company policy for whatever they’d like, they may decide to go into work while ill so they can save their days off for vacation time. If your time off policy is segmented, your employees may feel more compelled to use their sick days when they’re sick.
At the same time, segmented paid leave policies often result in employees taking fewer days off, whereas people with all-inclusive PTO tend to use up all of their days. (You can decide whether you consider this a con or not.) This ties back into employees being able to use their days off for any reason and not needing to demonstrate a “legitimate” reason why they were absent from the workplace.
In many states, the employer must pay the employee for any vacation days left over when they leave the company. They must also let employees carry over PTO from one year to the next, or pay them out for unused PTO days at the end of the year. With a segmented policy, you won’t have to pay them for their unused personal or sick days, but with an all-inclusive day, you’ll have to pay for all the hours they have left.
Best practices for a clear, all-inclusive PTO policy
Trying to implement a PTO policy? Here are some pointers.
Avoid unlimited PTO unless until you have company-wide buy-in
Although the idea of having an unlimited number of paid days off at your disposal sounds incredible to the employee, unlimited PTO is typically not the best idea for most companies. Some businesses that offer unlimited PTO shower employees with guilt and shame when they actually decide to request a day off because they’re “letting the team down.”
This ultimately leads people to take fewer days off and contributes to employee burnout, which is especially dangerous during the coronavirus pandemic, since burnout is so high.
Instead, consider a PTO policy where you set a limit for how many days an employee can take off for any reason they desire. Many companies have also found success by stipulating a minimum number of days an employee needs to take off each year.
Create a clear (and centralized) process to request PTO, vacation, and sick leave
Whether you offer all-inclusive or segmented PTO, the best thing to do is craft a transparent, step-by-step guide for employees to request days off.
Outlining the process will make it easy for employees to submit requests and for you to process them. Keeping everything as clear as possible is essential for any PTO policy because it contributes to effective absence management. Add the policy to your company handbook and discuss it during onboarding to sidestep any confusion.
Offer additional PTO for mental health, floating holidays, and volunteer days
If you decide to go with a segmented approach, you may also want to include options for PTO for mental health days, floating holidays, and volunteer days. If you go the all-inclusive route, you can discuss how employees can use their days for any of these reasons.
Either way, it’s crucial to understand that adopting modern PTO policies will improve the quality of work because your employees will feel more fulfilled outside of the office and want to elevate their performance in the office.
Define your PTO policy for remote workers
If you have employees working from home, you need to take the time to remind them that they’re still entitled to PTO. The first step is to create an addendum to your in-person PTO plan that outlines your time off policy for your remote employees.
Although these employees don’t come into the office every day, they still dedicate their time to your company and deserve the same breaks as your in-person workers.
FAQs about PTO, vacation, and sick leave
Figuring out the type of employer’s policy best for you can be overwhelming, especially as more states are passing laws that require PTO of some kind. Here are the answers to some of the most frequently asked questions about PTO.
What is PTO accrual?
PTO accrual is a system in which full-time employees earn time off based on the number of hours worked. You can have an hourly, daily, weekly, bi-weekly monthly, or even annual accrual program, in which employees accrue a bank of PTO hours each hour, day, week, etc. they work.
Some employees have an hourly accrual system and offer faster rates for additional years of service.
Where is paid vacation time required?
There aren’t any federal, state, or local laws in the US that require employers to provide their employees with paid vacation. Some states do have mandates that ensure paid personal days are available to employees who need time off for any reason.
The best thing you can do is check with your local laws to ensure you maintain compliance, but for the most part, you have a lot of wiggle room in your vacation policy.
If you operate internationally, you will have to abide by the local laws regarding vacation pay in the country your employees work in. For a comprehensive list of international paid annual leave laws, check out this guide.
Where is paid sick time required?
There aren’t any federal requirements for paid sick leave in the US, although the Family and Medical Leave Act (FMLA) provides up to 12 weeks of unpaid sick leave for employees throughout the country. However, state law requires paid sick leave in the following jurisdiction:
- California: Berkely, Emeryville, Oakland, San Francisco, Santa Monica, San Diego, Long Beach, West Hollywood (effective July 1, 2022), and Los Angeles
- Illinois: Chicago, Cook County
- Maryland: Montgomery County
- Minnesota: Duluth, Minneapolis, and St. Paul
- Nevada: all cities
- New Mexico: all cities (effective July 1, 2022)
- New York: New York City
- Pennsylvania: Allegheny County, Philadelphia, and Pittsburgh
- Washington: Seattle, Tacoma, and SeaTac
- Washington DC
My state requires sick leave–do I need a sick leave policy on top of PTO?
If you have an all-inclusive PTO policy that clearly defines how it integrates sick leave into the plan, then you typically don’t need to create a separate sick leave policy. Just be sure that your PTO plan enables your employees to take at least as many days off as stated by the local laws and your policy satisfies the requirements set by the law for sick leave.
Try Roots to simplify PTO requests
Whether you adopt a segmented or all-inclusive PTO policy, Roots offers an intuitive way for your employees to request PTO. Your employees can submit their official time off requests through Slack, an app you’re already using.
PTO doesn’t have to be complicated. Simplify your PTO and get started today.