PTO vs. vacation: A guide for managers and owners
Time off isn’t just a benefit—it’s a strategic lever that can elevate your team’s performance and job satisfaction. Yet for many managers and business owners, the distinctions between PTO and vacation time are anything but clear-cut. Are your current time-off policies enhancing your workplace culture or inadvertently causing confusion and frustration?
Navigating PTO vs. vacation can be daunting, but understanding the nuance and subtle differences between the two is important, especially for leaders who want to create effective time-off strategies. In this guide, we’ll break down the complexities surrounding different leave arrangements, so your organization can design policies that align with your business goals and support your employees’ well-being.
What is PTO?
Paid Time Off (PTO) is a versatile leave policy that grants employees a certain number of days or hours to use at their discretion while still receiving their regular pay. Instead of separating leave into categories like sick days or personal days, PTO pools all paid leave into a single bucket. This approach allows employees the flexibility to decide how and when to use their time off, whether it's for a vacation, a personal appointment, or simply a mental health day.
Under a PTO system, employees accrue time off based on the company's policy, which might be influenced by factors like tenure or employment status (full-time vs. part-time). The key advantage of PTO is its simplicity and flexibility; employees don't need to provide specific reasons for their absence, which can help foster a culture of trust and autonomy within the workplace.
Does PTO include holidays?
Some businesses include holidays in their PTO policies, requiring employees to accrue and use paid days off for holidays. But many others offer paid holidays and/or floating holidays in addition to PTO, giving employees the flexibility to observe celebrations and days with religious or cultural importance while still using their PTO as they see fit.
What is vacation time off?
Vacation time off refers specifically to paid leave allocated for rest, recreation, or personal leisure activities. Unlike PTO, vacation time is often a distinct category separate from other types of leave such as sick days or personal days. Employees use vacation time to recharge and disconnect from work responsibilities, which can result in higher levels of productivity and job satisfaction upon their return.
Is vacation time paid?
This depends on applicable laws for your jurisdiction and your company’s time off policies. Vacation time can be paid or unpaid, but employers are required to follow the law and honor agreements they make with their employees regarding benefits compensation.
Legal requirements for PTO and vacation time
At the federal level, the United States does not require employers to provide any paid time off for any reason. The Fair Labor Standards Act (FLSA) leaves the provision of vacation benefits to the discretion of the employer and the terms of employment contracts or company policies.
However, state laws can vary significantly, and many states have passed legislation that requires paid time off for various reasons, ranging from jury duty to sick leave to vacation time.
Here’s a general overview of the state laws governing PTO as of 2024:
State
PTO required
Details
Alabama
Jury duty leave
Full-time employees are entitled to jury duty leave at their regular pay rate. Employers cannot pull this from a preexisting PTO balance.
Arizona
Sick leave
Employers must provide one hour of paid sick leave for every 30 hours worked, up to a maximum of 40 hours a year for companies with 15 or more employees, or 24 hours a year for companies with fewer than 15 employees.
California
Sick leave
Parental leave
Employees are entitled to a minimum of 40 hours of paid sick leave per year (and more in certain cities), plus eight weeks of partially paid parental leave.
Colorado
Jury duty leave
Sick leave
Parental leave
Employees must be paid $50 per day for the first three days of jury duty. Paid sick leave is accrued at a rate of one hour for every 30 worked. The state requires up to 12 weeks of parental leave with maximum compensation of $1,100 per week.
Connecticut
Medical, parental or family leave
Sick leave
Eligible employees can take up to 12 weeks of paid medical, parental or family leave per year, and serious medical conditions can qualify for an additional two weeks of leave. Employees are paid their normal rate for the first five days, then $50 per day from the state. Employees also accrue paid sick leave at a rate of one hour per 40 hours worked.
Delaware
Medical, parental or family leave
Beginning Jan. 1, 2025, employees will be entitled to 12 weeks of paid family, parental, and self-care leave.
Illinois
PTO
Employers are required to give workers one hour of PTO for every 40 hours worked. Leave can be used for any reason.
Louisiana
Jury duty leave
Employees are entitled to one day of paid jury duty leave.
Maine
PTO
Employers with more than 10 employees are required to provide one hour of PTO for every 40 hours worked. Leave can be used for any reason.
Maryland
Medical, parental or family leave
Sick leave
Employers with 15 or more employees are required to provide one hour of paid sick leave for every 30 hours worked. Up to five hours of paid sick leave can be used for bereavement leave. Employees who have worked for a company for 12 consecutive months are entitled to 10 weeks of paid family and medical leave per two-year period, which will increase to 12 weeks in 2026.
Massachusetts
Sick leave
Family leave
Employers with more than 10 employees are required to provide one hour of paid sick leave for every 30 hours worked, up to a maximum of 40 hours a year. Qualifying employees are also entitled to up to 26 weeks of paid family leave.
Michigan
Medical leave
Employees earn one hour of paid medical leave for every 35 hours worked, up to a maximum of 40 hours a year. Medical leave can be used to care for family members.
Minnesota
Sick leave
Employees earn one hour of paid medical leave for every 30 hours worked, up to a maximum accrual of 80 hours.
Nebraska
Jury duty leave
Employers are required to provide PTO for jury duty, minus any payment employees receive from the court.
Nevada
PTO
Employers with more than 50 employees are required to provide PTO at a rate of 0.01923 hours for every hour worked, up to a maximum of 40 hours a year. Leave can be used for any reason.
New Jersey
Sick leave
Employees earn one hour of paid sick leave for every 30 hours worked, or employers can provide 40 hours of leave at the start of the year.
New Mexico
Sick leave
Employees earn one hour of paid sick leave for every 30 hours worked.
New York
Jury duty leave
Sick leave
Family leave
Employers with more than four employees or over $1 million in annual net income are required to provide one hour of paid sick leave for every 30 hours worked. Employers must also pay $40 per day for the first three days of jury duty. Employees are entitled to up to 12 weeks of paid family leave.
Oregon
Sick leave
PTO
Family leave
Employers with 10 or more employees are required to provide one hour of paid sick leave for every 30 hours worked, up to a maximum of 40 hours a year. Employers also contribute to a state paid leave fund that employees can use to cover PTO and family leave.
Rhode Island
Sick and safe leave
Family leave
Employers with 18 or more employees are required to offer up to 40 hours of paid sick and safe leave per year. Employees can also earn six weeks of partially paid family leave.
Tennessee
Jury duty leave
Employees are entitled to paid leave for jury duty.
Vermont
Sick leave
Employees earn one hour of paid sick leave for every 52 hours worked, up to a maximum of 40 hours a year.
Virginia
Sick leave
Home health workers who work at least 20 hours a week earn one hour of paid sick leave for every 30 hours worked, up to a maximum of 40 hours a year.
Washington
Sick leave
Family or medical leave
Employees earn one hour of paid sick leave for every 40 hours worked. The state also requires up to 12 weeks of paid family or medical leave per year.
Table updated Nov. 19, 2024
What is the difference between PTO and vacation?
While PTO and vacation time off both provide paid leave benefits to employees, there are differences in how they’re structured and managed. PTO consolidates various types of leave into a single pool, offering greater flexibility. On the other hand, vacation time is a specific allotment for leisure and rest, often separated from other leave types like sick days.
Here are some of the key differences between them that business leaders should know:
1. Scope and flexibility
PTO: Offers a broad scope, allowing employees to use their allotted time off for any reason without specifying the purpose. Having this much flexibility means freedom—it can empower employees to manage their work-life balance more effectively.
Vacation time: Typically designated solely for leisure and rest. Depending on your company’s policies and systems, employees may need to categorize their time off requests based on the type of leave, such as vacation, sick leave, or personal days.
2. Tracking and management
PTO: Simplifies tracking by consolidating all leave types into one category. This can reduce administrative burdens, but may require more planning to make sure your organization has adequate staffing, especially during times when many people tend to take time off, like major holidays.
Vacation time: Requires tracking multiple leave categories separately, which can be more administratively intensive. However, it provides clearer insights into why employees are taking time off, which can offer valuable people data.
3. Carryover policies
PTO: It’s generally up to each company to decide its policy on how unused PTO is carried over to the next year, capped, or forfeited. Some employers allow limited rollover, while others implement a "use it or lose it" policy.
Vacation time: Similarly, carryover rules can vary. But it’s important to note that in some states, accrued vacation is considered earned wages and must be carried over or paid out, affecting how some employers need to manage unused vacation balances.
4. Compliance with state and local laws
PTO: Must be managed in compliance with state and local regulations, which may affect accrual rates, payout requirements, and usage policies. For example, in states like California, accrued PTO may need to be paid out upon termination.
Vacation time: Subject to specific laws that treat vacation differently from other types of leave. Some states mandate payout of unused vacation time, influencing how employers structure their vacation policies.
Sick time vs. PTO: 4 differences
There's often confusion around the distinctions between sick time and Paid Time Off (PTO). While both provide paid leave, they serve different purposes—and can have unique implications for employers. Before you start designing your PTO policy, you’ll need a solid understanding of the differences. Below, we cover four of the biggest distinctions employers should know.
1. Purpose of use
Sick time: Specifically allocated for health-related absences. Employees use sick time for illnesses, injuries, or to attend medical appointments. Sick days can also cover caring for sick family members, depending on company policy and local laws.
PTO: A flexible pool of paid leave that employees can use for any reason, including paid vacation days, personal days, or sick days. Employees aren't required to specify the reason for their absence, which promotes autonomy and privacy.
2. Accrual and allocation
Sick time: Often accrues separately from other types of leave. Some states mandate minimum sick leave accrual rates and may require that unused sick days be carried over annually.
PTO: Accrues as a single bank of hours encompassing all leave types. This is simpler and makes it easier to track leave—but may require employees to manage their time off more carefully to make sure they have leave available when they need it.
3. Impact on employee retention and attraction
Sick time: Offering dedicated sick leave as part of your employee benefits package can demonstrate your company’s commitment to employee well-being. This can be attractive to current and prospective employees who value health benefits.
PTO: The flexibility of a PTO policy can give a boost to overall job satisfaction and appeal to a broader talent pool. Employees often appreciate the ability to use their paid time off at their discretion without categorizing the reason.
4. Financial and operational planning
Sick time: The unpredictable nature of employees taking unplanned sick days can make staffing and budgeting more challenging for employers, who may need to allocate extra resources for temporary coverage or adjust workloads accordingly.
PTO: Since at least some paid time off requests are scheduled in advance, it allows employers to forecast their staffing needs and budget for PTO expenses. Proactive planning around your organization’s time off policy can help minimize disruptions and maintain your team’s productivity.
PTO policy: Pros and cons for managers
After reading this far, you may be considering implementing a PTO policy for your organization. Before going all-in on PTO, it’s important to consider the implications—here are some key advantages and disadvantages to consider:
Advantages of PTO policies
Disadvantages of PTO policies
Simpler administration: Combining all leave types into one PTO bank streamlines tracking and reduces administrative burdens
Risk of presenteeism: Employees might come to work ill to conserve their PTO for vacation, potentially spreading illness and reducing overall productivity
Attractive to potential new hires: Flexible or unlimited PTO policies can be a strong selling point when recruiting, appealing to candidates who value autonomy over their time off
Potential for increased time off: Employees may deplete their PTO quickly, leading to staffing shortages or increased requests for unpaid leave
Reduced absenteeism: Employees may be less likely to take unnecessary sick days when they have the freedom to use PTO at their discretion
Compliance challenges: Making sure your PTO policy meets varying state and local regulations, especially concerning mandated sick leave, can be complex
Cost control: A clear PTO policy can help manage financial liabilities associated with accrued leave and can simplify payout calculations upon employee departure
Easily manage PTO and vacation time with Rippling
Whether you choose to offer PTO or vacation time in your employee benefits plan, Rippling can help you manage employee time and attendance by automating time tracking and payroll, keeping you compliant with local laws, and providing the information you need to make better staffing decisions across your workforce.
Rippling Time & Attendance helps safeguard your business from compliance risks by automatically enforcing federal, state, and local labor laws based on each employee’s work location—helping you avoid legal risk and financial penalties.
It also offers real-time visibility into attendance, labor trends, overtime, and other data to help you catch gaps in staffing, monitor burnout, and track where your employees’ time is going and how much it’s costing you so you can make more informed workforce decisions.
And with Rippling’s scheduling feature, it’s fast and easy to build schedules that meet your organization’s needs. You can manage shifts and track attendance in real time, make sure all shifts are compliant with local laws, and minimize overtime to maximize your budget.
PTO vs vacation FAQs
Is PTO the same as vacation?
No. PTO (Paid Time Off) is a comprehensive leave policy that includes vacation time, sick days, and personal days in a single bank of hours. Vacation time specifically refers to paid leave taken for rest and leisure. While all vacation time is PTO, not all PTO is vacation time.
What are the rules of PTO policies?
PTO policies are set by employers but must comply with federal, state, and local laws. Here are some things to consider when creating your company’s PTO policy:
- Accrual rates: How employees earn PTO over time
- Guidelines for usage: Procedures for requesting and approving time off
- Carryover policies: Whether unused PTO rolls over to the next year
- Payouts: If and how unused PTO is paid out upon termination
Employers should document their PTO policies clearly in the employee handbook and make sure they meet legal requirements in all jurisdictions where they operate.
Should I offer vacation time off or unlimited PTO?
The choice depends on your company's culture, operational needs, and employee preferences. Vacation time provides structure and predictability, which can help your company with planning and budgeting, and may be the better choice if you operate in an industry where you need to make sure you maintain staffing levels. Unlimited PTO offers maximum flexibility and can be a strong recruiting tool, but may come with challenges in tracking time off and making sure usage is fair among all your employees.
What are floating holidays?
Floating holidays are paid days off that employees can use at their discretion, often to observe personal, cultural, or religious religious events not covered by standard company holidays. They offer flexibility and promote inclusivity by acknowledging diverse backgrounds and traditions.
This blog is based on information available to Rippling as of November 20, 2024.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.
