What Is PTO? (Plus Types, Benefits, Drawbacks and Tips)

By Indeed Editorial Team

Published 3 April 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Offering paid time off or PTO instead of separate sick and vacation time is an important decision that can affect employee morale, retention and hiring. It can also help lessen unscheduled absences, which can help boost productivity in the workplace. Understanding the key advantages and drawbacks of PTO can help managers determine whether it's right for the organisation. In this article, we explain what PTO is, share its key benefits and drawbacks, discuss the different types of PTO and list the different ways managers track PTO.

What is PTO?

The answer to the question, "What is PTO?" is it's a benefit programme offered by many organisations that allows employees to take off from work for a period of time and still receive compensation. This often includes absences related to illness, vacation or personal circumstances. PTO policies typically fall into one of two categories:

  • Traditional: With this type of company policy, the amount of PTO that's available may increase the more time an employee spends with the company.

  • Unlimited: Unlimited PTO allows an employee to take as much free time as they want, provided it doesn't interfere with their ability to complete their work. This means that as long as the employee's work has met the expectations of their employer and coordinated their leave with others to make sure an absence doesn't impede their work, they're free to take leave.

Related: How to Apply for Leave at an Office (With Example)

Types of PTO

As of 2021, the following are the entitlements for sick leave, vacation days, maternity and paternity leave according to Hong Kong' Employment Ordinance, Cap. 57:

Sick leave

Employees are generally entitled to a sick leave allowance if they have taken at least four consecutive days, have accumulated a sufficient number of paid sick days and have a medical certificate. Employees can accumulate paid sick days at a rate of two days for each month of employment for the first year, and four days every month for each year thereafter. They can't accumulate more than 120 paid sick days.

Employers grant sick pay at a rate equivalent to 80% of the average daily wage employees have earned in the prior 12 months, or time since hiring if they've been with the organisation for less than 12 months. Companies can't terminate employees who are on sick leave, except in cases of gross misconduct.

Related: How to Write a Sick Leave Email Message (With Examples)

Vacation days

Employees are eligible for seven vacation days after they serve a period of 12 months. Once they reach three years of service, their vacation leave increases by one day for each year until they reach the maximum of 14 days of vacation leave. Most companies provide at least 14 vacation days to white-collar employees, and senior executives may command more.

The Hong Kong employment law does allow employees to monetise part of their vacation entitlement, which exceeds 10 days. For instance, if an employee has 12 days' annual vacation, they can take 10 days' vacation and accept payment of equivalent wages for the two days' vacation. Employers can't put a cap on the number of days carried over and there's no statutory limit. Also, employers can require employees to take vacations if they provide 14 days' notice.

Related: How to Write an Annual Leave Request Email in 6 Steps

Maternity or paternity leave

Here are the current maternity and paternity leave entitlements:

Maternity leave

Female employees are eligible for 14 weeks of paid maternity leave if they have worked for the company for at least 40 weeks prior to the date of their scheduled leave, have given notice of their intention to take leave and have presented a medical certificate with the expected date of confinement. If they've worked for fewer than 40 weeks, they're eligible for 14 weeks of maternity leave without pay, provided they give proper notice.

If an individual is eligible for maternity pay, they can get it at a rate of 80% of the average daily wage they've earned in the prior 12 months, or time since hire if they've been with the organisation for less than 12 months. Employees can take maternity leave from four weeks before their expected date of confinement. If they don't choose a date or don't get agreement from their employer, their maternity leave may begin four weeks prior to their expected date of confinement. If the date of confinement occurs before their scheduled maternity leave, that becomes the date on which maternity leave begins.

Paternity leave

Male employees are also eligible for paternity leave, provided that they've been with a company no less than 40 weeks and have given notice. Employers often require male employees to give notice at least three months prior to the expected date of delivery of their child. They may also require the employee to submit a signed written statement with the name of the mother, expected date of delivery and that he is the father of the child.

Male employees are often eligible for three days of paternity leave. This can be taken from four weeks before the expected due date until 10 weeks after their child's birth. Also, they are often eligible for paternity pay at a rate of 80% of their average wage.

Benefits of PTO

Here are the benefits of PTO:

  • Boost employee morale: Employees who take periodic time away from work often have better performance throughout the year. This time away allows them to relax and recharge, coming back ready to perform at their best.

  • Encourages a better work-life balance: When an employee has a healthy work-life balance, it can make them feel more personally fulfilled and help them reduce their overall stress. This can directly translate to their work performance and can help them not only perform better but also be more productive.

  • Improves employee retention: A company that offers paid time off as part of its benefits package helps employees feel empowered and appreciated. This can, in turn, motivate employees to stay with the company for a longer period of time.

  • Provides a competitive advantage: Providing a competitive benefits package that includes PTO is more attractive than companies that distinguish between sick and vacation pay, which can improve the likelihood of attracting top talent to the company.

  • Makes it easier to track absences: Providing a bulk number of PTO days is usually much easier to track than when employers choose to separate the time employees spend away from work into sick and vacation time.

  • Reduces unscheduled absences: When employees get sick time independently of vacation days, an employer never knows when they'll be missing a member of their team. When an employer includes sick days as part of the PTO, they're more likely to have advance notice where they can plan more effectively for absences.

Related: How to Write a Leave of Absence Letter (With Examples)

Drawbacks of PTO

Here are a few drawbacks of PTO:

  • Resistance to using PTO as sick time: Employees may be resistant to the idea of using their PTO days for sick days, as they want to reserve them for vacation. Instead, they might choose to come to work when they're sick.

  • Risk of using all of the time: There's a risk, with PTO, that an employee can use up all of their time before the year ends, which leaves them with no days to spare if there's an emergency or family illness. That's why it's important for companies to know how to manage employees who use all of their PTO early in the year and don't have time remaining for emergency situations.

  • Difficulty transitioning from previous methods: If the company previously tracked sick days and vacation time separately, deciding how previously accrued time fits into a new PTO policy may be challenging.

  • Increase in the volume of requests: Employees may take off more days when there's a PTO policy, which can affect the company's scheduling needs.

Related: How to Write a Sick Day Email (With Samples)

Ways to keep track of PTO

If you're a manager, there are several methods you can use for tracking PTO. These include:

Using spreadsheets

This method relies on manual entry but can be extremely effective if the company has a large number of employees. You can create a template for your spreadsheet and have lines at the top for the pay period start and end dates. You can then have column headings like starting balance, used and ending balance.

Using time-tracking software

There is standalone time-tracking software available that allows you to monitor employee PTO and generate customised reports. Employees can use these systems to submit requests for time off. You can then review it for approval.

Using payroll and HR software

Company payroll and HR software often have the functionality to track PTO time for employees. This method is effective if you want to administer HR functions in-house instead of outsourcing. With this type of software, PTO time is usually updated after closing payroll for each pay period. You often also have the option to generate custom reports for employees.

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