Paid time off (PTO) is a valuable team member benefit that allows people to take days off from work while still receiving their salary.
PTO isn’t just an optional benefit—it’s a cornerstone of a healthy workplace. It gives people time to recharge, handle personal matters, and maintain overall wellbeing. For organizations, PTO can boost retention, enhance productivity, and strengthen morale across teams.
Still, access to PTO varies widely. While some countries mandate generous leave, the United States leaves PTO policies up to employers, leading to inconsistency and gaps in access. These gaps can carry real costs. According to Gallup, professionals in the United States with fair or poor mental health take nearly 12 days of unplanned absences annually—compared with just 2.5 days for others—costing the economy $47.6 billion each year in lost productivity.
Thoughtful PTO policies can bridge these gaps and show your people that you value their time and health. In this guide, we’ll explore how to build inclusive, effective PTO policies that support your people’s wellbeing and drive better business outcomes.
Key insights
- PTO is a foundational benefit that supports wellbeing, reduces burnout, and improves retention across all types of roles, including hourly professionals
- PTO structures vary, from accrued time and yearly allotments to unlimited PTO and flexible PTO banks
- Offering a range of PTO types—sick, personal, parental, bereavement, and vacation—helps meet diverse team needs
- A clear, inclusive PTO plan, supported by HR tech, streamlines tracking, boosts transparency, and empowers people to manage their time off
- Compliance matters—understanding local PTO laws and using the right tools ensures fairness, accuracy, and audit-ready records
PTO policies
While PTO policies vary across organizations, the core idea stays the same: giving people time to rest and recharge. Many companies start with a general PTO policy template and tailor it to fit their culture.
There are a few common approaches to building a paid time off policy:
Accrued PTO
Professionals in a company accrue PTO based on factors like years of service and number of hours worked. They can then use these accrued hours as paid leaves of absence when needed. A company’s PTO policy usually outlines the accrual rate and maximum accrual limits for team members.
Accrued PTO typically builds up hourly, daily, biweekly, semimonthly, monthly, or yearly. To calculate PTO accrual, multiply the number of hours a professional works by the accrual rate your organization sets.
For example, if the accrual rate is 0.05 hours of PTO per hour worked, someone working 40 hours a week would earn 2 hours of PTO weekly (40 × 0.05 = 2). This method allows PTO to build gradually and proportionally with time worked.
Yearly allotment
This is a fixed, annual amount of PTO companies give to every team member. If there’s any paid time off remaining for a team member at the end of the year, it may expire or roll over, depending on company policy. Paid time off may be the same for everyone or vary by a professional’s years of service at the company.
Unlimited PTO
Many progressive companies offer unlimited PTO, which means there’s no fixed limit on the amount of paid time off a person can take.
Some employers with an unlimited PTO policy require professionals to ask their managers for approval before taking any leave, so other team members aren’t left in the lurch, while other companies trust their people to responsibly manage their own unlimited PTO.
PTO bank
A PTO bank consolidates various types of leave into a single pool. This approach gives team members greater flexibility, letting them use their paid time off based on their individual needs without having to label the reason for their absence.
For employers, a PTO bank simplifies time-off tracking and reduces administrative overhead by eliminating the need to manage multiple leave categories. Teams can administer PTO banks through HR software that automatically tracks accrual, usage, and balances, or through manual methods like spreadsheets and timesheets, depending on the size and structure of the organization.
How does paid time off work for hourly workers?
Offering PTO to hourly workers can significantly boost job satisfaction and retention. Some jurisdictions don’t require private companies to offer PTO, but doing so can set your organization apart and support a more engaged team.
Calculating PTO for hourly workers involves determining an accrual rate based on hours worked. For instance, you might offer one hour of PTO for every 40 hours worked. The accrual method ensures fairness and allows team members to accumulate PTO as they contribute to the organization.
Managing hourly PTO requires clear communication and tracking. HR software can streamline this process, ensuring accuracy and compliance. This approach benefits the organization and enhances transparency with your team members.
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Types of PTO
Navigating PTO can vary widely from one organization to another. Each company manages it in a way that aligns with its culture and operational needs. Let’s explore some common types of PTO:
- Sick days: Sick leave is meant for professionals who are ill or require medical attention, ensuring they don’t lose pay while recovering.
- Parental leave: Whether or not parental leave falls under PTO depends on the organization. Paid parental leave gives new parents the chance to bond with their newborns or adopted children.
- Bereavement leave: This type of PTO gives people who experience the loss of a close family member or loved one time to settle affairs and grieve.
- Vacation days: Vacation days are often part of PTO, but sometimes organizations offer them separately. This ensures team members can take time off for rest and relaxation.
- Personal days: Personal days provide flexibility for individuals to manage personal matters or emergencies.
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Benefits of offering PTO
Offering PTO can truly transform your workplace dynamics. Here’s how it makes a difference:
- Team member wellbeing: PTO reduces burnout and stress, leading to happier, healthier team members—in fact, PTO greatly reduces the odds of voluntary turnover
- Increased productivity: Regular breaks boost productivity and creativity
- Retention and recruitment: Competitive PTO policies can attract top talent and help retain valuable team members
- Healthcare savings: Preventing burnout and stress-related illnesses can reduce employers’ healthcare costs resulting from extended medical leaves
- Team member-employer relationships: Offering PTO builds a positive relationship between team members and employers, building trust and loyalty
How to make a PTO plan
Creating a PTO plan that’s both effective and straightforward helps ensure your team feels supported and valued. Let’s walk through how to craft a plan that works:
- Assess organizational needs: Start by understanding your company’s culture and size and what’s standard in your industry. This helps identify a PTO policy that fits your team best.
- Choose a PTO model: Decide if accrued PTO, yearly allotment, unlimited PTO, or a PTO bank is the right fit. Each has its benefits, so consider what aligns with your operational goals.
- Define and communicate accrual rates and limits: Clearly outline how PTO will accrue and document any limits in your employee handbook. This ensures everyone knows how their time off builds and helps your people make the most of it.
- Implement tracking tools: Use HR tech to track PTO accurately. This makes management easier and provides team members with easy access to their balances.
- Gather feedback: Check in with your team regularly, at least during annual reviews if not more frequently, to see how the PTO plan is working. Adjust as needed to keep it effective and supportive.
PTO laws and compliance
PTO laws vary by country, state, and city. It’s important for employers to be aware of these regulations. Some regions mandate that employers provide a certain minimum amount of PTO for their people, while others allow companies to establish their own policies. They may also require organizations to offer their people PTO during national holidays.
How to use HR tech for PTO tracking
PTO can be difficult to manage, especially for larger organizations with hundreds of people, but implementing a great PTO strategy doesn’t have to be overwhelming. Some HR software solutions come with a leave management system to help employers manage PTO requests, accrual, and usage efficiently. HR departments can purchase specialized stand-alone software that manages PTO exclusively, or they can use HRIS systems that include PTO management features.
The best system depends on the size of the company and on how well the particular HR platform integrates with the organization’s wider systems.
These software solutions help HR departments comply with labor laws and enable people to request and schedule their own time off easily—saving HR professionals valuable time.
Looking for a simpler way to manage time off? Explore HiBob’s time off management tools to streamline requests, track balances, and stay compliant with ease.
Make the most of PTO
Paid time off plays an important role in modern employment, giving professionals the flexibility to manage their work-life balance effectively.
Understanding how PTO works—along with the different types of leave and legal considerations—empowers both employers and team members to get the most value from this important benefit. Thoughtful PTO management encourages a healthier workplace dynamic—one where people feel trusted, supported, and empowered to thrive.
<< Download a customizable PTO policy template to build a clear, people-focused PTO strategy >>
Paid time off FAQs
Is PTO required?
PTO isn’t always required, but it depends on your location. Some jurisdictions have laws mandating a minimum amount of paid time off, while others leave it to the employer’s discretion. HR teams check local regulations to ensure companies stay on the right side of the law.
Do I have to pay out PTO when a team member leaves?
Whether you need to pay out accrued PTO when someone leaves can vary. In many places, it’s required by law if the PTO is considered earned wages, but company policy and local regulations play a major role. It’s important to have a clear understanding of both.
Can I ask why someone is taking leave?
You can ask why someone is taking leave, but it’s best to be considerate. While it supports better planning, respecting team members’ privacy helps build trust. Some types of leave, such as medical leave, often involve sensitive information and are best handled with care and confidentiality.
