How does PTO work to benefit both employers and employees? For your team, paid time away can mean enjoying a vacation or handling tasks like doctor appointments during the workweek. For you, offering paid leave is a way to attract job seekers and enhance your benefits package. Managing these requests also doesn’t have to be complicated — most payroll software automatically syncs approved time off and deducts used hours from an employee’s available balance, eliminating the need for manual tracking.
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What you’ll learn
What you’ll learn
Key takeaways about PTO
- PTO helps employers compete for talent while giving employees paid time to rest, recharge, and handle personal responsibilities.
- Employers typically structure PTO through accrual, upfront allotment, or unlimited policies, each with different tracking and management needs.
- You can calculate PTO accrual using annual work hours, pay periods, or an hourly accrual rate, depending on your workforce.
- Beyond standard vacation, other types of time off include volunteer time off, bereavement leave, jury duty, and floating holidays.
If you haven’t offered PTO before, it can take time to understand this benefit’s nuances and find the most sensible way to offer it. This guide covers the different types of PTO, why employers make it part of their perks programs, and how to set up a PTO policy.
How does PTO work?
PTO is time away from work that you pay your employees for. They can use it for a variety of reasons, and usually have to request supervisor approval. Depending on your policy, you might give employees a set number of days when they start the job, let them accrue days as they work, or offer unlimited PTO with no set cap. We’ll go into more detail on the different types and how to structure them a bit further in the article.
Next, let’s discuss why employers incorporate PTO into their benefits plans in the first place.
Why do employers offer PTO?
This perk shows up in benefits packages for several reasons.
Workers want it
PTO can make your company more attractive to prospective employees, since it’s usually one of the most sought-after benefits job seekers look for.
Employee peace of mind (and time)
Furthermore, some staffers may need time to recharge, decompress, or complete personal tasks that they’re unable to take care of outside of work hours.
Energize employees
Employees need time to recharge, decompress, or handle personal tasks they can’t get to outside of work hours. They appreciate having hours set aside for it.
PTO boosts your bottom line
Offering PTO can also positively affect your bottom line. An EY study found that employees’ performance reviews improved nearly 8% for every 10 hours of vacation time they took.
Competition probably offers
Offering PTO is commonplace, and chances are your competitors use it to gain an edge in recruiting. According to the US Bureau of Labor Statistics, 71% of workers at companies with 1–49 employees have access to paid vacation.
PTO benchmarks: What’s standard in 2026?
While there is no federal mandate for paid time off in the US, most competitive employers use tenure-based tiers to reward loyalty. Here is how typical vacation allotments look across the private sector, according to the U.S. Bureau of Labor Statistics (BLS):
| Years of service | Average paid vacation days | Common practice |
| 1 year | 11 days | Often paired with 5–9 separate sick days |
| 5 years | 15 days | Many companies “bump” employees to 3 weeks here |
| 10 years | 18 days | Milestone typically reached by mid-career staff |
| 20 years | 20+ days | Senior-level “cap” for most traditional accrual plans |
To find out more, we spoke with Morgan Williams, Founder and CEO at PeakHR, a human resources consulting firm.
“While paid time off (PTO) can sometimes be an afterthought, it’s important to realize most job seekers expect it to be a part of your total compensation package. In a world where everything is moving fast, and individuals are putting in additional effort to complete projects, people need time to take a breather and are actively looking for employers that make PTO part of the equation.”
— Morgan Williams, Founder and CEO, PeakHR
Though we briefly touched on it above, let’s get into more detail on how individuals may use downtime.
Is all time off the same?’
Not exactly. PTO covers paid absences like vacation and sick days, but employees sometimes need time away from work that falls outside that umbrella, like unpaid time off once their PTO bank runs dry. Here’s a look at some of the other types of time off you might build into your policies.
Volunteer time off (VTO)
Some companies give VTO to employees to support a local cause. For example, if an employee takes off to wrap holiday gifts for a nonprofit or clean a park, they can do this and still receive wages. Most companies limit VTO to 1 – 3 days per year, but it varies by company.
Bereavement
Losing a loved one or someone close is always unfortunate. For employees, knowing that they’ll be able to grieve or travel to see friends and family, and not forgo wages to do so, can be reassuring. They will also appreciate that their employer understands that unexpected events can and do happen. Knowing they can grieve or travel to see friends and family and still get paid gives employees real peace of mind during a difficult time. Some companies include a set number of bereavement days as part of PTO plans.
Jury duty
Employees may groan if they get a jury summons and end up selected to serve. Federal and state laws protect employees from being fired or penalized for jury duty, though whether that time off is paid depends on the employer and, in some cases, the state. Some employers pay employees for serving jury duty as part of their PTO policy.
Floating holiday
A floating holiday is a flexible paid day off an employee can use at their discretion, unlike fixed company-wide holidays. Employees typically use it to observe personal, cultural, or religious holidays without dipping into their regular PTO.
“Employers looking to compete for top talent need to consider the value of PTO and how potential employees expect this perk to be part of the conversation. Most consider it essential to work-life balance.”
— Morgan Williams, Founder and CEO, PeakHR
How do plans get offered?
Unlimited PTO policy
Unlimited PTO has made headlines in recent years. This policy lets employees take as much time as they need, as long as they stay on top of their responsibilities.
Front-loaded PTO
Some companies opt for front-loading PTO, where employees receive their entire allowance at the beginning of the year. This method simplifies tracking. But it requires careful management to prevent employees from using all their PTO early in the year, and leaving the company with a negative balance.
Accrue days
Though unlimited days off or front-loaded plans are options for employers, many will provide new hires with some PTO as part of an offer. Then the new employee accrues (or “earns”) time as they work.
Now let’s look at some of the math behind how these hours get accumulated.
How is PTO time calculated?
Method one: Annual work hours
One way to calculate annual PTO hours is by using the total annual work hours. This method involves determining how many hours employees work in a year and then calculating PTO based on that figure. Let’s look at some examples.
Determine total annual work hours
First, figure out the total number of hours the employee worked. Priscilla works 40 hours per week for 52 weeks for a total of 2,080 hours a year:
- 40 hours a week times x 52 weeks a year = 2,080 hours a year
Next, identify annual PTO hours
From here, you need to know how many PTO hours the company offers. In our example, let’s say Priscilla gets 80 hours of PTO per year. If you offer 20 or 40 hours (or whatever number you prefer), use that number instead.
Calculate the PTO accrual rate
To find out how much PTO an employee earns per hour worked, divide the total annual PTO hours by the total annual work hours:
- 80 PTO hours ÷ 2,080 work hours = 0.03846 hours of PTO per work hour
Using this rate, you can determine how much PTO an employee accrues over any given period. For example, if Priscilla works 160 hours in a month, she accrues a little over six hours:
- 160 work hours x 0.03846 PTO hours per work hour = 6.1536 PTO hours
Quick reference: converting PTO hours to days
If you’d rather think in workdays than decimals, assume a standard 8-hour workday:
- 40 hours of PTO = 5 workdays
- 72 hours of PTO = 9 workdays
- 80 hours of PTO = 10 workdays
This shortcut works well for full-time employees on a standard schedule. If your team works longer or shorter days, adjust the math accordingly.
Things to keep on your radar when it comes to PTO:
The five-day deadline
- Talent attraction: Offering paid time off helps employers compete for talent in the job market.
- Employee wellness: It gives your team the necessary paid time to rest, recharge, and handle personal responsibilities
Standard Policy Options
- Structuring plans: Employers typically structure PTO through an upfront allotment, an accrual method, or an unlimited policy
- Administration: Each of these policy structures comes with different tracking and management needs
Calculating Accruals
- Calculation methods: You can calculate PTO accruals based on annual work hours, set pay periods, or a specific hourly rate.
- Workforce variations: The most sensible method depends on whether your workforce is salaried or hourly
Beyond Standard Vacation
- Alternative needs: Time off isn’t just for vacations; employees sometimes need absences outside that standard umbrella
- Other leave types: Comprehensive policies often include specific allowances for volunteer time off, bereavement leave, jury duty, and floating holidays
Method two: Accrual per pay period
Another common method is calculating PTO based on pay periods.
If Fred receives 80 hours of PTO annually and the company operates on a bi-weekly pay schedule, here’s what he’d earn.
Total hours of PTO
Start with the annual PTO hours. We’ll use the same 80 hours from our first example.
Total pay periods
Next, figure out the number of pay periods. A bi-weekly pay schedule works out to 26 pay periods per year.
Now, divide the total annual PTO hours by the number of pay periods to find out how much PTO Fred earns each pay period:
- 80 hours ÷ by 26 pay periods = 3.0769 hours of PTO per pay period
Fred accrues approximately 3.08 hours of PTO during each bi-weekly pay period. Annually, this adds up to the full 80 hours of PTO:
- 3.0769 hours x 26 pay periods = 80 PTO hours annually
To find Fred’s monthly accrual, multiply the bi-weekly accrual by 2.167, the average number of bi-weekly periods in a month:
- 3.0769 hours x 2.167 = 6.67 PTO hours per month
Fred earns almost seven hours of paid time off per month.
Method three: Hourly accrual method
You can also calculate PTO based on the total number of hours an employee worked. This method works well for part-time employees or those with varying schedules.
First, establish how much PTO an employee earns per hour worked. You usually express this as a decimal. For example, say Jenny earns one hour of PTO for every 40 hours she works:
- 1 PTO hour ÷ by 40 work hours = 0.025 hours per work hour
To determine how much PTO Jenny earned, multiply her total hours worked by the accrual rate:
- PTO earned = hours worked x accrual rate
During Jenny’s first week at her new job, she worked 30 hours. The following week, she worked 35 hours.
Week one:
- 30 hours worked x 0.025 accrual rate = .75 PTO hours earned
Week two:
- 35 hours worked x 0.025 accrual rate = .875 PTO hours earned
Add up both weeks:
- 0.75 + .875 = 1.625 PTO hours earned
This method ensures PTO accrues proportionally to hours worked. There are other ways to structure accruals, but these are some of the most common ones.
How PTO differs for hourly vs. salaried teams
As you can see from the examples above, the way you calculate and offer PTO often depends on how you pay your team. While the math remains consistent, the administration varies.
| Feature | Hourly employees | Salaried employees |
| Common method | Accrual per hour worked (e.g., 0.04 hours of PTO per hour worked) | Annual allotment or monthly accrual (e.g., 1.25 days per month) |
| Overtime impact | PTO is often earned on regular hours only, not overtime | Not applicable; PTO is usually a fixed annual amount |
| Tracking need | High; requires integration with time clock or payroll software | Moderate; usually tracked via HRIS or request system |
| Compliance | Often subject to specific state “paid sick leave” laws | Generally covered by broader company-wide policies |
Do employers have to pay PTO when employees leave?
There’s no federal law requiring mandatory vacation time, but check the PTO payout laws where you do business. States like Illinois, Kentucky, and New York have rules employers need to follow, while states like Alabama, Florida, and Utah have no PTO regulations on the books.
Put PTO into your plans
Including PTO in your benefits program pays off for everyone. Employees get the chance to recharge and take care of life’s to-dos when they come up, while employers gain an edge in attracting talented job seekers. And a well-rested workforce might boost your company’s productivity and profitability in the long run.
This article is provided for informational purposes only and should not be relied on for tax, legal, human resources or accounting advice. You should consult your own tax, legal, and accounting advisors for formal consultation.
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.