Paid time off (PTO)
Paid time off (PTO) is a single bank of paid hours an employee draws from for vacation, illness, or personal reasons.
PTO combines what used to be separate vacation and sick leaveSick leave. Sick leave is paid or unpaid time away from work for an employee’s own illness, injury, medical appointment, or care of a family member.Click to open the term into one pooled balance. Your policy sets the accrual rate, carryover of unused hours, and payout to departing employees. State law places its own limits on forfeiture and final pay. PTO commonly accrues across each pay periodPay period. A pay period is the recurring block of time, such as a week or a month, for which you calculate and pay wages.Click to open the term, often at a rate that rises with tenure. Other plans front-load the entire annual balance at the start of the year or on each employment anniversary. Whichever model you pick, apply a written policy consistently, since inconsistent application invites discrimination claims.
What happens to unused PTO?
In states that treat accrued vacation as earned wages payable at separation, a combined bank is generally treated as vacation. The whole balance can then become payable, while standalone sick leave usually is not. State and local paid sick leave laws still apply to a pooled bank or an unlimited policy. Those laws generally accept a PTO policy only if it provides at least as much leave, for the same reasons and conditions. Which rules reach your policy is a question for employment counsel or the state labor agency.
| RULE | WHAT IT MEANS |
|---|---|
| Carryover | Unused hours roll over without limit, or up to a cap |
| Use it or lose it | Hours above a cap are forfeited, though a number of states restrict or ban forfeiture of earned time |
| PTO payout | Payment of unused PTO, usually at separation; owed where state law or your written policy requires it |
| Unlimited PTO | No accrued balance to pay, so generally no payout, if the policy is genuinely unlimited in practice |
| Negative PTO balance | Hours used before they accrue, called a PTO advance, where your policy allows it; whether you can recover their pay from a final paycheck depends on state wage deduction law, and federal wage rules can also limit it, such as the salary basis rule for exempt employees |
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.