Vacation vs. Paid Time Off: How to Choose

In the past, employee benefits typically included separate paid holidays, vacation, sick leave, and personal days off. In recent years, however, many companies have converted to an integrated paid time off (PTO) system in which any time off, regardless of the reason, is charged against the employee’s accrued PTO hours. Debate is ongoing as to whether companies benefit more with PTO than with separate paid time off benefits.

How PTO Differs from Paid Vacation

With paid vacation benefits, employees typically accrue a certain number of vacation hours every pay period, and when enough hours have accumulated, they can take time off work for vacation or personal reasons, with advance notice to the employer. Employees who become ill do not need to use vacation time as they have sick leave to cover their absence. In addition, they have certain paid holidays off. Most employers in the U.S. offer two weeks (10 days) vacation, eight days sick leave, 10 paid holidays, and two personal days per year.

With a paid time off policy, all paid time off benefits are combined into one, usually equaling a total of the paid days off for holidays, vacation, sick leave, and personal days the employee would have received in a separate paid time off system – 30 days per year in most cases. PTO hours typically accrue every payday, for example, at a rate of 1.25 days per pay period with a semi-monthly pay schedule in which employees receive 24 pay checks per year. An employee who takes little or no time off sick will have more PTO days to use for vacation.

A major difference between the two policies is that with PTO, employees have all their paid time off available to use for any reason, whether it is vacation, illness, medical appointments, or personal errands, and they may come to work sick to save their PTO for vacation. With a policy in which vacation and sick leave are separate, employees may feel they are entitled to use their sick days and call in sick when they are not.

Advantages and Disadvantages of Paid Time Off Compared to Vacation

If you are considering switching over, it is important to consider the pros and cons of PTO. As compared to a paid vacation policy, PTO has many advantages for employers:

• Makes the company more attractive to potential employees who value the flexibility of PTO policies
• Helps improve retention by making it possible for employees to have more total paid days off
• Results in more transparency in employee-employer relations, as employees have no incentive to call in sick when they need or want a day off
• Results in more advance notice of scheduled employee absences, as employees take more PTO days for vacation than for sick days
• Contributes to employee productivity, and they return from vacation refreshed
• Requires tracking of PTO hours only, instead of separate tracking of vacation, sick leave, and personal days

However, PTO systems do have employer considerations, such as:

• Employees tend to be absent more frequently, as they don’t officially need to give a reason for their absence as they would in a vacation-sick-personal day system.
• Employees saving their PTO days for vacation may come to work sick, exposing other workers to illness and reducing workforce productivity. Employees who have separate vacation and sick leave days are more likely to stay home when feeling ill.
• In some states, earned PTO must be paid out at termination of employment. In a system with separate vacation and sick leave, only accrued vacation days must be paid out.

Manage Potential Issues with PTO

If it is determined that PTO suits your company culture, take the necessary steps to avoid potential issues. It is important to establish clear guidelines in advance. Clearly define the types of situations that qualify as emergencies for which employees are not required to request PTO in advance. If an employee trying to save PTO for vacation arrives at work obviously ill, it may force you to send that person home to protect your other employees.

Interested in learning ways to encourage employees to take paid time off? Explore how to build employee loyalty with PTO.