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What is Paid Time Off? (+Best PTO Software Examples)

May 15, 2019

Vacation. Paid time off. Unlimited paid time off. What does it all mean?

As an HR professional, your job is to stay up to date on the latest HR trends. Oftentimes, that can mean deciding which employee benefit programs are the right fit for your company's compensation and benefits program. Cutting through the noise to find the facts can be tough if you don’t know where to look. Luckily for you, we’ve put together a guide to get you started.

In this article, we’ll be taking a deep dive into paid time off and how it differs from other vacation policy options. If you’re looking for more information about a specific topic regarding paid time off, you can use the links below to jump ahead:

What is paid time off?

Unlike a traditional vacation policy, a paid time off (paid time off) policy combines an employee’s vacation, sick time, and personal days into a single bank of days they can use to take paid time off from work. paid time off days are often worth monetary value that is paid out to the employee when they quit or retire.

Don’t confuse a paid time off policy with an unlimited PTO policy. The two are similar in name but different in practice. A regular paid time off policy caps the number of days an employee can take from work, while an unlimited PTO policy is unlimited as the name suggests.

Tip: Read more about unlimited PTO off and how it differs from a traditional paid time off policy?

What are the pros and cons of a paid time off policy?

As with every vacation policy your company might offer, there are pros and cons. Paid time off is a very popular employee benefit because it offers employees extra flexibility while giving employers more control of tracking employee absences.

Some other benefits of a paid time off policy are:

  • Your employees are entitled to use paid time off at their discretion without micromanaging or oversight. They are not obligated to explain to their manager why they are taking time off, rather they just need approval to be absent from work
  • Paid time offsets an expectation with employees that they are entitled to a certain number of days each year. Everyone knows what to expect
  • Employees value the flexibility that paid time off allows them because it gives them the option of using their paid time off for whatever their needs may be

Tracking paid time off gives employers an easy way to track and address employees with attendance issues and course-correct accordingly, all while avoiding rules that may punish other employees who don’t have attendance

The benefits of a paid time-off policy are undeniable. But before you dive into creating a new vacation policy, it’s best to educate yourself on the potential downsides. There are some serious hurdles dealing with finances and company culture you’ll need to clear when implementing your paid time off policy.

Some of the downsides of a paid time off policy are:

  • Many states require employers to pay out unused paid time off to employees when they quit or retire, which means you not only have to track accumulated time for employees, you also owe them money for it when they leave for their next opportunity
  • Paid time off policies that require employees to use their paid time off or lose it at the end of the year often deal with a large number of employees taking end of year vacations, leaving massive absences in the workplace
  • Employees tend to view paid time off as vacation time and often come to work when they are sick in order to prevent using a paid vacation day
  • Employees consider paid time off as a benefit and many of them use all of their time off, regardless of if they had a vacation planned or not. The ‘use it or lose it’ policy encourages employees to use it.

Once you've weighed the pros and cons of a paid time off policy, you'll have a better understanding of whether or not it's the right solution for your company.

How much paid time off should you offer your employees?

Another thing you’ll want to consider is how many days each employee will get under a paid time off policy. Most employers use a sliding scale that rewards employers who have been with the company for a long period of time with more paid time off days.

Use the example below as a base for creating your own paid time off policy:

  • Less than one year of service: 14 days
  • 1-3 years of service: 16 days
  • 5+ years of service: 18 days
  • 10+ years of service: 24 days
  • 15+ years of service: 27 days
  • 20+ years of service: 30 days

If you’re adamant about creating a paid time off policy after reviewing the pros and cons, the next step is to right the right software to administer your paid time-off policy.

The right software solution can help reduce the administrative time required by your HR team, streamline the process of tracking paid time off, and encourage employee involvement. 

Get your complete guide to human resources, FREE.    Explore →

Best software solutions for managing paid time off

When it comes to tracking and administering paid time off, there is no one software solution that works for every company. Finding the right benefits administration software solution depends on your budget, company size, and what software solutions you’re looking for.

There are currently more than 165 benefit administration software options with user-reviews on the G2 website. Sorting through that many options can seem daunting, especially if you’ve never purchased software before.

To help get you started in your search, we’ve included a live look at the G2 Grid® for this category. It shows the different benefits administration products available based on real-time, validated user reviews.


If you're looking for more information about any of the products listed on the grid above, follow the link through to the benefits administration software page. There you can read user-reviews, explore pricing options, and compare product functionality. 

Finding the right software can pay off in the end

Switching your company to a paid time off policy takes careful planning and consideration. Use the right software solution to make your job easier and create a smooth rollout of your new policy.

Interested in learning more about benefits administration software solutions? Click the button below to read more G2 user reviews from people like you.

Find the best Benefits Administration Software on the market. Explore Now, Free  →

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