PTO, Vacation, Sick Leave: What’s the Difference and What to Choose?

Historically, employers have been granting days off of several different types to their employees: vacation, sick days, personal days, etc. Today, the widely used practice is switching to the integrated PTO (paid time off) balance that covers all types of absence, instead of calculating spent and remaining days for each one.

In this article, we’ll figure out what’s the difference between these policies and see what benefits and drawbacks they bring to the employees and employers.

Paid time-off

PTO is understood as a pool of time off from which an employee can draw at their discretion. It can include various types of time off – vacation, time off for studies, sick time, jury duty, etc. – that are generally requested and approved in advance.

The main reason that makes many companies favor PTO is its simplicity. The employer doesn’t need to keep record of each leave type with days allowed and spent – any time off is deducted from one single pool. This allows reducing effort spent on leave management and treat employees like adults.

Vacation

In terms of PTO as a single leave balance, vacation is one of the time-off types that can be drawn from the PTO bank. In the companies where PTO balance is not used, vacation days are calculated basically as a separate balance alongside with other leave types.

Vacations normally require an approval procedure defined by the company’s leave management policies. This decreases flexibility, but provides the employer with more information on the employees’ absence reasons and creates more predictability for future work planning.

Sick Leave

Employers who offer vacation days separately usually also offer sick days as a separate accrual. This makes the leave management procedure a bit more complicated for the employer, as two balances need to be calculated, and a bit less convenient to the employees, as they need to let their employer know why they’re absent at the workplace.

Being mostly unpredictable, sick leaves are one of the hardest absence types to manage. Usually, the number of paid sick days that a company grants to an employee is defined by common practice and by the company’s resources. However, this number doesn’t necessarily reflect the reasonable figure.

PTO vs. traditional absence policy: What to choose?

As we already mentioned, many companies prefer PTO today because of its flexibility and simplicity. This is an important feature for retaining valuable employees and making the company more attractive for prospective workforce. Those employees who don’t usually use all their paid sick leave can benefit from the PTO system by having extra time for vacation, family leave, studies, or other absence types.

But PTO policies have negative effects too – first of all for employers, but, surprisingly, for employees too. An obvious consequence of less control of absence reasons is that employees are absent more frequently – which is costly for employers.

Another drawback of having a single paid time-off bank is employees not using their sick leave as intended. Tending to see the entire PTO as vacation time, people more often turn up to work while being sick, which affects their coworkers and causes productivity decrease.

What’s more, with a single PTO bank policy, the employer can owe an employee a significant amount of money for unused PTO in case of termination – this depends on the law requirements and company’s policies. And this is the reason why companies apply different measures to get the employees to use their earned PTO – they range from encouraging to literally forcing.

Which system would work better for your company, depends on many factors: company’s resources, work culture within your particular team or in the industry in general, and legal requirements.

When developing and implementing a leave management policy, take into account the following:

  • Which policy type works best for your team: PTO or vacation + sick days accrual;
  • How much time off you’re able to grant your employees and what are the common practices in your field;
  • Whether unused time off should be carried over to the next period – if you’re using more than one balance, the policy can define different approaches for each one;
  • Whether unused time off should be paid out upon resignation or termination;
  • How paid time-off should be requested and logged.

To implement the policy and make it work for the team, use special leave management tools: they use managers’ and employees’ time more efficiently, help streamline the request and approval procedure, calculate the balances (be it a single PTO balance or different accruals for vacation and sick leave), and ensure accuracy of all calculations and records.

Remember that configuring an efficient leave management policy increases the attractiveness of your company for prospective employees,improving work environment and the overall well-being of team members – which directly influences productivity and work results.

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