Are You Ready for Vacation? What’s the Difference between Vacation and PTO?

comuter screen vacation time wording

When it comes to time off—especially paid time off (PTO)—employees generally want a good idea of their company’s policy on the matter. Do you offer any type of pay for time away from work? How many days? How can it be used? The list of questions goes on, and while they can be answered simply enough, there’s one question in particular that comes up more often than the others:

What’s the difference between PTO and vacation days?

Well, the answer to that question is simple, but it comes with a few caveats.

PTO vs. Vacation Time

The essential difference between the two is that PTO covers any paid time away from work where the employee is not working; in contrast, vacation time refers to paid time off that’s taken for the employee to take a break with or without their family. It’s generally requested (and approved) in advance. In this regard, vacation is really just a type of PTO, but paid time off may not necessarily refer to vacation.

(Sick time, personal time, mental health cays, holiday pay, and jury duty are examples of non-vacation paid time off.)

As a side note, we don’t recommend assuming that holidays are included in PTO because it’s very likely that an employer would prefer to dictate which days they are closed.

PTO can be “used,” even if it isn’t

What we mean by this is, policies differ between companies (and states) on whether or not they pay out for “earned but unused” PTO. This means if an employee leaves, are you paying out any time they have earned but NOT used. For example, PA does not require employers to pay out this leave UNLESS it is specified in the handbook. This varies by state!

Generally, and as permissible by law, there are three options available in most instances that a company can choose from.

  1. You can request a two-week notice and pay out any unused PTO
  2. You can pay it out regardless
  3. You can choose not to pay it out

The policy you put in place can affect morale, employee retention, and possibly, even how employees treat their PTO, so craft your policies carefully. And SHARE them with employees.

Vacation vs. PTO: choosing one over the other

Employers who offer vacation days will also generally offer sick days. This means there are two different accruals to manage – also, you then need to know WHY the employee is requesting the time off. Is the employee sick or is their child sick? Does it matter? Compare this with PTO, and there are less records to manage over all. Choosing between vacation time and sick time or PTO, the answer comes down to your company’s needs and goals.

There are advantages to both options but the trend seems to be favoring PTO. Essentially, paid time off gives employees carte blanche when it comes to how they want to spend their days, whether they’re for leisure or something personal like sickness or a mental health day, without making them feel guilty for using a sick day when they just need a break because they’ve used up all of their vacation time.

One of the more talked about downsides to paid time off policies in general is the concern that employees may bank a large quantity of days, and if they go unused and that employee leaves, the company may be on the hook to pay all of those days out, which can potentially be a huge and unexpected sum to pay after a resignation/termination. (Don’t forget to accrue this time on your books as well – check with your CPA to make sure you’re tracking the time properly.)

Things you want to consider when developing your PTO plan:

  • Is there a cap to how many PTO days an employee can earn
  • Will accrued days roll over; if so, for how long (“use it or lose it)
  • Will you pay PTO out when an employee is terminated/resigns (this may have more to do with state law than your policy)
  • What kind of notice do you require employees give before taking PTO
  • Is there a limit to how much PTO can be taken at a time, or a minimum (such as hours vs. a full day)
  • Will your policy replace all forms of paid absence, or will you have a separate policy in place for unanticipated leave, such as jury duty or bereavement
  • Never forget that YOU always retain the right to turn down a request for PTO based upon the needs of the business

Get ahead of the problem and cut out the confusion with some #DramaFreeHR. We can help you create and determine the best approach and policy for your company while keeping you and your employees’ best interests in mind. From HR for Small Business to large company’s, we’re here for you. Get started today!

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