As a business owner, you are likely looking for ways to offer time off benefits that help keep employees happy, productive, and provide them with an opportunity to recharge. This often means allocating paid vacation time for them to use as they see fit. According to the Bureau of Labor Statistics, over 90% of private sector employees have access to time they can use.
What you’ll learn
What you’ll learn
Updated: June 6, 2025
Key takeaways
- PTO policies typically blend sick time, personal days, and vacation time into a single pool
- Vacation policies often specify a certain number of days for leisure or travel, apart from sick leave
- Employers must follow local and/or state laws, which can require a minimum number of sick or parental leave days
- Tracking your time-off policy is easier when you have a clear system or use HR software to simplify it all
Recently, many employers have moved toward a single bank of paid time off (PTO). However, some still prefer traditional time-off policies that separate vacation time, sick leave, and other types of leave.
Below, we’ll discuss PTO vs vacation vs sick time, show you how PTO works, and walk you through best practices for creating time-off policies.
Similarities between PTO and vacation
Whether your employees use vacation time or a single bank of PTO, both methods let them take days off to rest, handle personal matters, or travel. Both policies also typically separate time off from paid holidays, so there is never any confusion between paid vacation time vs paid holidays.
PTO and vacation time offer similar employee benefits, such as:
- Time to decompress
- Time to handle personal business
- An opportunity to escape the stresses of work
- The opportunity to spend time with family
Now, while these policies sound the same, there are some differences that employers should be aware of.
Differences between PTO and vacation
Below are some characteristics to keep in mind.
PTO primer
A PTO policy usually rolls together different types of leave. Employees who take time off don’t need to share with you whether they’re using their PTO for vacation or sick time. They simply use hours from one bank, which can help them with anything from running personal errands to taking a mental health day.
Vacation station
A traditional vacation policy means employees have specific vacation days, sick days, and any other time-off days you’d like to offer, such as mental health days. This means employees will have to designate their days and ration them accordingly. This can also lead to some unused days off usage where an employee may have leftover sick days at the end of the year and use them for vacation.
Pro tip
PTO and vacation time may also differ in their accrual and carryover rules. You can have one simple accrual and carryover policy with a PTO policy. When you use a vacation policy, you may have one accrual and carryover rule for vacation time and a different one for sick time. This can add more complexity to your personnel management and confuse your employees.
Let’s move on to another type of leave that factors in if an employee needs time away from work when they are unwell.
The role of sick leave
In a single PTO plan, sick leave is part of the overall PTO balance, so employees don’t have to say, “I’m using a sick day.” They only need to notify their supervisor that they need time off. This approach is easier to manage, but the tradeoff is that some workers may feel reluctant to use PTO hours if they become ill. This can result in them coming into the office when sick and potentially spreading it to colleagues.
When you keep sick leave separate from vacation, employees may feel more comfortable staying home when unwell because they must use those days before they expire. The complex part is distinguishing them, as you don’t want employees using sick days just to take a day off. This may lead to requirements like having a doctor’s note if an employee takes multiple sick days in a row.
Can PTO and vacation be interchangeable?
Adopting a PTO policy may replace your vacation policy because the time off is all in one bucket. This technically makes PTO and vacation interchangeable.
While making time off interchangeable can make managing employees easier. Some states have rules about sick leave, minimum time off, or how you must handle final payouts for unused vacation time. A consolidated PTO bank may not be ideal if your state requires you to pay out all unused accrued vacation time when someone leaves the company. This is because a consolidated PTO program doesn’t distinguish vacation time from sick leave. Therefore, the state may require you to pay out the full amount of unused PTO — vacation and sick leave — instead of just unused vacation time.
Before changing your PTO policies, speak with a trusted advisor or check the laws in your area. Make sure that you are in full compliance with the law and your time-off policy is spelled out for employees.
Consolidated vs. separate leave plans
Each plan has its benefits and drawbacks. Choosing the right one depends on your preferences and company culture. Let’s outline the pros and cons of consolidated and separate leave plans.
Pros of consolidated leave
- Easier to manage
- Empowers your employees
- More flexibility for the employee
Cons of consolidated leave
- Employees may be reluctant to take PTO when sick
- May complicate earned and unused vacation time payout
Pros of separate vacation policies
- Employees are more likely to use dedicated sick days when sick
- Less confusion paying out unused vacation time
Cons of separate vacation policies
- More complex to manage
- Employees may take sick days when they aren’t sick
- May require multiple time off accrual and rollover policies
Regardless of your preferred methods for company time off, clarity in how PTO works is key to employees not becoming confused about PTO vs vacation time. Plus, you always want to let your employees know that you support them taking time off.
Paid time off is a perk most employees will appreciate
Whether offering PTO or separate vacation plans, both employers and employees benefit when time off is part of an organization’s offerings. Employees can use time away to decompress and return to work with renewed energy and purpose. Meanwhile, employers gain increased productivity and can leverage attractive time-off policies to recruit and retain top talent.
Many HR solutions, including those from OnPay, make it simple to create PTO policies, track time-off accrual, and manage leave requests—all from a single dashboard. As your organization grows, implementing a time-off policy helps foster a happy, healthy work environment where everyone can contribute their best!
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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.