What is PTO (Paid Time Off) – PTO Policy, Benefits & Types

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What is Paid Time Off
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Employees LOVE paid time-offs (PTO) since it pays them their salary while they are away from their work. However, why do companies pay for it? Are there are regulations regarding PTOs in India? Why should you provide PTOs when it is obviously costing your company?


We will be answering these queries in this article.


What is Paid Time Off (PTO)?

A Paid Time-Off (PTO) is an employee benefit which enables them to take leaves, while still getting paid. PTOs are often classified into various categories by companies based on their discretion. The policies that govern these different kinds of PTOs are also defined by the company’s HR team to ensure their fair usage.


It is common practice in the corporate sector to accrue PTOs based on the employee’s years of service in the company and the number of hours worked. The companies are free to decide whether there are additional policies which govern the PTOs in their organization.


While the regulatory authorities have defined certain guidelines regarding PTOs, companies are free to frame their policies based on their specific requirements, as well as the organizational HR and employment policies. For example, some organizations provide the option to encash their unused PTOs annually, while others enable them to be carried forward into the next year.


Working of Paid Time Off

Paid time off work based on the company’s leave policies. The HR team defines which kinds of leaves are included under the PTOs and which ones are to be left out. While some companies club the various leave types under a single PTOs section, others bifurcate them into several different categories, such as sick leave, sabbatical leave, vacation time leave, etc.


On the other hand, some organizations provide PTOs in the legacy manner, in which an employee will accrue around 1.5 days of PTO every month, while some companies offer unlimited PTOs, which come with some pre-conditions to avoid abuse.


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Elements of a PTO Policy

There are numerous elements of PTO policies which ensure their fair usage that is favourable for the company while being just towards the employee. Hence, you need to take care of the following elements while drafting PTO policies in your company:


1. Allowances

While deciding the PTO policies, HR should define the nature of PTOs and who are eligible for the different kinds of PTOs in the company. The PTO allowances can also be allocated based on the employee’s designation in the organization, their tenure and related factors.


2. Usage

The usage element defines when the PTO can be availed. Companies can set different policies for different kinds of PTOs based on the type. For example, PTOs are not allowed after they come back from a sabbatical time off for a specific period. The ‘sandwich policy’ of several companies in India is a good example of usage policies.


3. Requests & Approvals

Since paid time off is required to be requested by the staff and approved by their managers, the PTO policies should also specify the process for the same. For example, it should specify how to apply for vacation time off, or which documents to be submitted in case of sick leaves.


4. Unused Offs

The companies should also inform their staff what will happen to the unused leaves. For example, in some companies, the unused time off simply expire, while in others, they can be encashed and given with the salary, while in some other organizations, they can be carried forward into the next year.


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Accruing Paid Time Off

When it comes to accruing PTOs, companies generally have two options. The first option includes providing the entire annual paid time off (PTO) in a lump sum. It provides the entire set of leaves as soon as the new year starts and the employee can use it all the very next day if required. However, once used, they will have to wait until the start of the next year to get more leaves in their bucket.


On the other hand, some companies provide time off to their employees on a pro-rata basis. In this method, the staff accrues a specific number of time off every month. An employee can use this time off based on how much they have in their bucket.


Types of Paid Time Off

Based on their usage, PTOs can be divided into several categories. By separating the PTOs into different types, HR and management can define the approval and accruement rules for each type separately. We are sharing some of the most common PTO types generally prevalent in companies below:


1. Personal Time Off Leave

Personal time off is the leaves provided to an employee to help them fulfil their responsibilities at home, such as taking any sick family member to their medical appointments, repairing their vehicles, etc. As a result, personal time off leaves is usually short-term time off, with employees usually taking a single working day for the leave.


2. Sick Leave

As the name implies, sick leaves are reserved for employees for medical reasons such as falling sick or to heal from injuries. Depending on the company’s PTO policies, using a sick leave could require the employee to furnish a medical practitioner’s medical certificate to verify the authenticity of their claim of being sick.


3. Vacation Time Leave

Vacation time leaves are the time off provided to employees to engage in vacation time activities or to simply take a break from their work. For example, some staff members request vacation time leaves to pursue their hobbies. Due to the vague nature of the term ‘vacation time’, it is the responsibility of the HR team to define clear policies about this time off such as the maximum time allotted for it, notifying period, and others.


4. Optional Leave

Optional leaves provide the employee with the option of choosing to take a time off for a specific holiday, which is not mandated by the regulatory authorities. On these days, the business can go on as usual, while the employee can take time off if they wish so. On the other hand, they can also choose to not use the PTO for a particular day, making it ‘optional’.


5. Compensatory Leave

Compensatory Leaves are the time offs that are allotted to an employee when they have fulfilled certain conditions predefined by the company’s leave policies. For example, companies usually provide compensatory offs for employees who have worked on holidays, as compensation for using their time during the holiday. Some companies may also include overtime or provide compensatory offs against a job well done.


6. Sabbatical Leave

Sabbatical leaves are the PTOs taken by employees for a longer duration, ranging from a month to over a year. The company still pays the employee their salary, which is why it is categorized as a PTO. There are several reasons which make an employee eligible for sabbatical leave, such as pursuing higher education, volunteering for some cause, break for taking care of mental well-being, etc.


7. Study Leave

Employees who are undertaking studies can avail study time off for any reason related to their studies. However, the company might set any conditions for them to avoid its abuse. Additionally, being a PTO, study leaves can be used for specified study-related activities. For example, some companies might provide study time off for attending courses, while others require that the employee joins some university.


8. Military Leave

Military leaves are generally defined by the local and national laws and hence, companies will have to abide by them. Such time off is usually provided to personnel who needs to fulfil certain obligations with the country’s military forces. Military leaves are usually taken by ex-military personnel who have started civilian life after their stint with the armed forces.


9. Parental Leave

Parental leaves refer to the paternal and maternal time off required by new parents to adjust to the experience of becoming a parent. Its duration and related rules are usually defined by local laws. Maternal leaves are generally required to be taken in one go once the woman becomes a mother. On the other hand, paternal leaves can be broken down into several sections which can be taken as per the father’s choice.


10. Earned Leave

Earned leaves are generally provided to employees who have worked for a certain pre-defined duration in a year or helped the company in achieving a certain profit. It is usually awarded to personnel who have worked with the company for a significant tenure. Few companies provide earned leaves as it can be confused with paid time off itself.


11. Bereavement Leave

Bereavement leave is provided to employees who have lost a family member or a dear friend. Since death is a cause of grievance, the affected employee will not be in a condition to undertake their work duties. Bereavement time off also help them cope with the situation as well as make arrangements for the funeral.


12. Vote Leave

Vote leaves are used in cases where the employee needs to take a leave to cast their vote in the local or national elections. While some companies provide a whole day for voting, others may provide it as an hourly leave. However, in both cases, the leave remains a paid time off defined by government regulations.


13. Volunteer Leave

Volunteer leaves help the employee take time offs to volunteer for any cause or charity. It displays the company’s supportive nature towards the cause as well as enables the employee to balance their work time with their volunteering time. Providing such kind of support goes a long way in keeping the staff member engaged with the company.


Difference between PTO and Vacation

The main distinction between paid time off (PTO) and vacation time is that PTOs include any kind of leave the employee can take, which is defined in their company’s PTO policy documentation.


On the other hand, vacation time is simply a type of PTO that can be taken by the employee for going on a vacation. While PTOs are categorized into different types based on their usage, vacation is one such category.


Hence, all vacations are PTOs, but all PTOs cannot be vacations. Additionally, vacations require prior permission from the reporting manager, while there are many PTOs which does not require such permissions.


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Benefits of Paid Time Off

There are multiple benefits for both the company and the employee in providing paid time offs. Apart from the most evident fact that it provides the employee time to balance their work and personal life without taking any financial hit, it also enables them to wind down and take a break from their daily work.


Let us discuss some of the other benefits of PTO.


➔ Improved Relationships

Since PTOs help employees with their errands, it helps them maintain an adequate balance between their personal and professional lives. Since PTOs are also provided by the company, they can be honest about their conditions which require them to take time off from work with their reporting manager. It also allows their managers to understand their staff’s circumstances and foster open communication with them, improving their relationship.


➔ Talent Retention

Having multiple types of PTOs helps your employees realize that you understand their circumstances and personal time off requirements. Providing adequate PTOs also enables them to feel recognized for their worth in the company, leading to an increased retention rate in the organization. You will also be saving on hiring costs due to improved talent retention.


➔ Reduced Burnout

When employees have enough PTOs in their bucket, they will be likely to take leaves to relax. In the absence of such PTOs, they will be working continuously, leading to low productivity and burnout. Since PTOs also help avoid loss of pay for their time off from work, employees will avail these leaves to wind down and come back with increased vigour to work.


➔ Competitive Edge

Having good paid time off policies helps prospective employees realize that the company values its employees and their personal lives. Hence, a PTO policy also helps them attract the best talent, giving them a competitive edge in their business. If your company is offering a lucrative package along with added employee benefits such as adequate PTOs, talented candidates are bound to choose you over your competition.


➔ Increased Employee Brand

Due to the robust implementation of paid time off policies, your employees will realize their importance to the company and the fact that their company acknowledges the same. It helps create an employer brand that is friendly towards the staff, making them stay longer and provide good input, leading to enhanced productivity.


Disadvantages of Paid Time Off

While PTOs are mostly beneficial to the company and the staff, there are some disadvantages, when they are implemented poorly, such as:


➔ Inequal Usage

Employees may want to save their time off for future vacations and come to work while sick. The HR team should ensure that such unhealthy practices are curtailed as much as possible, as it will lead to burnout and frustration.


➔ Unused Sick Leaves

Some cautious employees hold on to their leaves for future emergencies, leading to unused sick leaves. On the other hand, less cautious employees may use up their leaves too early into the year, leaving them with no option but to take unpaid time offs. It leads to distrust in the company as they will start to believe the company did not provide enough leaves.


➔ Company Losses

If the employees do not take enough time off, companies usually have a time off encashment PTO policy, which results in them paying the employee. If a higher number of employees come forward for such encashments, it will be an additional financial burden on the organization.


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As with any company policy, Paid Time-Offs or PTO policy are essential to the company and the employees working in the organization. It helps balance their personal and professional lives, making it easier for the administration to improve talent retention and develop better overall employer branding, gaining a competitive advantage. Hence, every company should have a robust PTO policy.

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