Paid Time Off vs Vacation and Sick Time: Explained

Once upon a work-time, bosses used to hand out different kinds of paid time off like candy – sick days, personal days, vacation days – you name it. But guess what? Times have changed. Now, the trend shows that many companies are ditching the complicated system and going for one plan that groups all of these into one: Paid Time Off (PTO). And this, as you may have guessed, often caused quite the stir when it comes to Paid Time Off vs Vacation and Sick Time debate,

Why? Well, think about it. 

Because of COVID and a worldwide shift to a hybrid/remote work culture, lots of us are either working from our living rooms or doing the office-home dance. Because of that, the line between work and life is blurrier than ever. So, choosing the right time-off plan that works for you and your company is a big deal. Furthermore, 77% of full-time employees emphasize the importance of taking regular vacations for job satisfaction. Hence, encouraging employees to take essential breaks from work has become a pivotal strategy to thwart burnout and enhance long-term employee engagement and retention. 

The debate around Paid Time Off vs Vacation and Sick Time

Now, some folks still debate if it’s better for companies to mix every leave type into PTO or keep the old-school system.

In certain instances, local state laws play a determining role in shaping what employers can provide, as legal obligations are attached to considerations such as the implementation of a “use it or lose it” policy, the classification of vacation time as earned wages, the requirement to pay out vacation wages upon termination, and the establishment of rules governing vacation and PTO within an employer’s policy. In other cases, setting a good leave policy is entirely up to the employer’s discretion.

So if you’re confused about what Paid Time Off vs Vacation and Sick Time actually means, we’ve got you covered. To unravel the mystery of having a PTO policy versus the solo acts, let’s dig into the nitty-gritty of each option.

Defining Paid Time Off vs Vacation and Sick Time

What is Paid Time Off?

A growing number of employers have adopted a Paid Time Off benefits model, merging paid vacation and sick time into a unified pool.

PTO, to put it simply, is like the golden ticket employers give their employees to help them take a break, breathe, and sort out their lives outside the job scene. It’s their way of saying, “Hey, we get it – everyone needs a breather!”. Employers adopt diverse approaches when it comes to granting PTO, each with its unique set of rules and benefits. Let’s delve into the distinct types of PTO systems that organizations commonly embrace.

Types of Paid Time Off

Accrued PTO

In the accrued PTO system, employees gradually accumulate paid time off based on the hours they spend working. The PTO your employees accrue is stored in a designated PTO bank, accessible for use whenever needed, providing a flexible approach to time-off management.

The accrual rate, i.e., the amount of PTO earned per hour, is contingent upon the employer’s policies and may vary across different organizations. Employers typically implement accruals over various periods:

• Daily: Employees accumulate PTO on a daily basis, reflecting each hour worked. This system is particularly suitable for eight-hour shifts and is advantageous for part-time employees.
• Bi-weekly: PTO accrues every two weeks on a set day (for example every other Friday), resulting in 26 accrual periods annually. 
• Semi-monthly: Semi-monthly PTO accrual means employees earn paid time off benefits twice a month (for example on the 15th and 30th of each month).
• Monthly: Employers allocate a percentage of the employee’s PTO balance each month, representing a widely adopted method for calculating PTO rates.

On Vacation Tracker, users can easily track and manage the 3 most popular forms of leave accrual—semi-monthly, monthly, and bi-weekly. This eliminates the need for manual calculation of employee leave balances. All you have to do is choose the desired frequency (daily, weekly, bi-weekly, or monthly), and our system takes care of the rest.

Unlimited PTO

This relatively modern PTO style is gaining traction, and rightfully so.

Employers employing the unlimited PTO system grant their workers an unrestricted amount of paid time off, contingent upon the completion of assigned tasks. The underlying philosophy here is to motivate employees to enhance their task efficiency rather than adhering to rigid leave structures.

Having this system fosters a sense of trust and autonomy among employees, empowering them to manage their work and personal commitments effectively. That’s the reason why hundreds of successful companies around the world like Microsoft, Twitter, and Netflix (and many more) are adopting it and are witnessing countless benefits within their teams.

P.S. You can also track unlimited PTO in Vacation Tracker with a simple toggle to calculate leave quotas for unlimited leave types like PTO.

Fixed PTO

The simplest of them all and operating on a predetermined annual allocation, the fixed PTO system grants employees a specific amount of PTO each year. Employees have the freedom to utilize any portion of the total allotted time as needed, promoting flexibility in managing personal and professional obligations.

The fixed PTO amount typically renews annually, and some organizations also allow the carryover of unused time into the subsequent year, called Brought Forward or Rolled Over Days.

How does PTO differ from a vacation?

Lots of employers are now using a Paid Time Off (PTO) system, where they mix paid vacation and sick time into one bucket. While these terms often seem interchangeable, it’s essential to recognize that PTO is a broader leave concept than vacation leave, covering a broader spectrum of paid leave options available to employees.

To put it simply, PTO is any period an employee is absent from work while still receiving compensation. This chunk of time is versatile, serving purposes ranging from vacation and illness to attending doctor’s appointments, fulfilling jury duty, taking personal days, or addressing any other reasons employees may need time away. Typically, PTO accrues with an increase in an employee’s tenure. 

In contrast, a vacation is a scheduled break from work intended for rest and relaxation, often booked in advance and taken in blocks of one week or more. Ultimately, the choice between a unified PTO policy and separate leave policies rests on the employer’s approach to flexibility, transparency, and the overall employee experience.

 As workplaces continue to evolve, so do the strategies employed in crafting effective and appealing leave policies that cater to the diverse needs of the modern workforce. 

Paid Time Off vs Vacation and Sick Time

Vacation Time

In contrast to PTO, vacation refers explicitly to any paid time off an employee takes to rest, travel, or spend time with their family.

It’s no secret that a well-rested employee is a happier and more productive one. Thus, offering adequate vacation time to your employees is not just a perk but a strategic move to prevent burnout and retain high-quality staff. Many employers adopt a vacation policy tied to seniority, where time accrues gradually. Under this policy, employees typically need advance approval to take time off, emphasizing the importance of communication and planning.

When vacation and sick time are tracked separately, they often accrue at distinct rates. Vacation time is primarily intended for leisure and rejuvenation, and employees are expected to use it as an escape or break from work. Depending on your local leave laws, vacation time is considered part of employees’ benefits packages, mandating that any unused vacation time must be compensated when they leave the company.

Sick Time

In the evolving post-pandemic workplace, having a robust paid sick leave policy takes center stage. 

Sick time is designed for employees facing illness or injury, urging them to prioritize their well-being and that of their colleagues. Encouraging employees to stay home when unwell can mitigate the spread of infectious diseases, contributing to a healthier work environment.

While the law does not universally mandate paid sick leave, several states and jurisdictions do. Beyond compliance, providing paid sick time is a strategic investment in employee health and morale. Unlike vacation time, unused paid sick leave is not subject to payout upon departure from the company, emphasizing its distinct purpose as a health-focused benefit.

How to manage it all on Excel

Creating a tangible record that reflects the ebb and flow of employee leave on Excel may be hard, but we have a few tips and tricks that can make the process easier for you. 

Managing Paid Time Off vs Vacation and Sick Time manually may seem like a lot of work, but our free Excel spreadsheet is to help. Start by downloading it here. The template comes with premade columns for different leave types, which include codes for deductible and non-deductible leave types.

Now, let’s say your employee Olivia wants to take PTO and Vacation in the same month. 

Depending on the most popular leave types in your company, you can add columns next to the monthly totals for each PTO, Vacation, and Sick Leave, and fill out each depending on the usage. Then, add the days for each leave type Olivia has requested and fill in the columns accordingly. She has requested a PTO day on April 8 and Vacation from April 15-20.

Lastly, calculate the totals and add all of them to their respective columns to deduct totals. We will then add a day of PTO and 4 Vacation days to her monthly PTO usage.

Last but not least, you can compile this information and add it to her yearly totals at the end of the year to keep track of everything in one place. Sounds easy enough, right?

How Vacation Tracker can help you automate it all

As easy as tracking everything manually sounds, it often makes for a messy, organized way to manage leaves on Excel, especially if you’re managing a team that’s bigger than 10 people, operating from different cities, or a mix of both.

Navigating the intricate landscape of employee leave, be it PTO, Vacation, or Sick Leave, can be a logistical challenge. Enter Vacation Tracker, a powerful tool designed to streamline the process and empower organizations to manage leave efficiently.

So whether it’s Paid Time Off, Vacation or Sick Leave that you’re trying to track, here’s how Vacation Tracker can help you get there.

Track any kinds of leave types

Users can create and manage up to 25 different leave types on Vacation Tracker. This means that when you’re playing the Paid Time Off vs Vacation and Sick Time game, managing either one is easier than ever.

Create custom leave policies

In addition to designing personalized leave types applicable to your entire organization, you can further tailor them to specific locations through customized leave policies. You can adjust the leave quota, negative balance settings, visibility of the leave type, and other settings as needed, all in just a few clicks. Talk about convenience.

Access individual user profiles

Curious to see a quick breakdown of how much Paid Time Off, Vacation, and Sick Time you’ve used? Get an easy overview on all things PTO related with customized, user profiles that are accessible right from your workspace.

Intuitive, user-friendly interface

Last but not least, Vacation Tracker ensures that managing leave is not just efficient but also user-friendly. 

Our intuitive interface makes it easy for both administrators and employees to navigate leave requests, approvals, and overall leave management. The goal is to simplify the process, reducing administrative burdens and fostering a positive PTO experience for all users.

Bottom line

As we close the chapter on this exploration, remember this: the Paid Time Off vs Vacation and Sick Time debate is all about finding what fits your work-life balance. 

Whether you’re cruising through a combined PTO landscape or navigating the separate paths of vacations and sick days, the key is to make it work for you and your team. So, embrace the leave policies that align with your journey, debate the pros and cons, and find what your employees prefer best. Happy adventures, and here’s to a well-deserved break!

Snigdha Gupta

An avid writer and aspiring marketer, Snigdha is a student at Concordia University’s John Molson School of Business.