What Is PTO and How Does It Work?

Burnout takes a toll on employees’ mental health. According to a study by Moodle, 66% of Americans say they feel burned out at their jobs, with younger demographics often expressing higher rates of work-related stress.

At the same time, many people aren’t taking a break. An estimated 62% of Americans didn’t maximize their paid time off (PTO) policies in 2023. Among the most common reasons are feelings of guilt and confusion — many employees hesitate to take time off because they don’t want to burden colleagues or seem less committed. Others are deterred by unclear or poorly communicated PTO policies, which can create uncertainty about when and how time off can be taken.

That’s why it’s essential for employers to both offer a robust PTO policy and communicate it clearly. When time off is encouraged and employees understand how PTO works, they feel empowered to take the rest they need, leading to healthier, more engaged, and more motivated teams.

What is PTO, and how does it work?

PTO is a workplace benefit that provides employees with regular pay while they take time away from work.

Traditional leave systems divide time off into distinct categories (e.g. sick days, vacation days, or personal days) with separate allotments and limitations. In contrast, PTO policies consolidate these days into a bank that employees can use at their discretion. This flexible structure empowers employees with greater autonomy and promotes better work-life balance.

Although many PTO policies often follow similar formats, there isn’t a universal standard. Companies have the flexibility to design a PTO structure tailored to their company’s culture, needs, and legal requirements.

Why is PTO important?

PTO is more than just a benefit — it’s a foundational element of a healthy and productive workplace. Offering PTO demonstrates a company’s commitment to employee well-being and contributes to a more sustainable and engaged workforce.

A thoughtfully designed PTO policy supports both employees and the organization in tangible ways:

Enhanced employee well-being and productivity. Regular breaks are essential for mental health, physical recovery, and long-term performance. By providing PTO, employers give their teams the space to rest, recharge, and return to work with renewed focus and energy. This reduces burnout and promotes higher-quality output over time.
Improved planning and coverage. When employees know they have dedicated time off available, they are more likely to schedule absences in advance and communicate their plans. This enables managers to anticipate staffing needs, plan workloads, and maintain continuity during employee absences.
Stronger talent attraction and retention. An employer’s PTO policy could determine whether applicants apply for and accept open positions. Competitive PTO packages are a significant draw that demonstrates how seriously the company values work-life balance.

8 types of PTO

Compared with traditional paid leave, where time off is divided into separate categories, PTO carries fewer restrictions on when or why employees can use it. As long as team members don’t exceed their PTO limit, they choose how to use their time off.

The following paid time off examples illustrate the range of time-off requests:

Vacation time. Employees planning to take a trip — or relax on a staycation — can use PTO for personal leisure, travel, or rest.
Sick time. This is used when an employee is ill or injured. This reassures employees they can recover without the added stress of lost wages.
Personal days. Personal days let employees attend to matters such as family obligations, errands, or mental health breaks.
Bereavement leave. When there is a death of a loved one, employees use bereavement leave to grieve and organize funeral services. The length and eligibility for bereavement leave varies by employer and may depend on the employee’s relationship with the deceased.
Paid holidays. Paid holidays are company-wide days off during which employees receive regular pay. These designated days do not require a formal time-off request. Standard paid holidays in the U.S. include New Year’s Day, Thanksgiving, and Christmas Day.
Floating holidays. Floating holidays let individual employees take time off for personal, cultural, or religious observances that aren’t on the company’s holiday calendar. By offering this flexibility, employers promote inclusivity and work-life balance by recognizing employees’ diverse backgrounds and values.
Parental leave. Many employers promote a family-focused work culture with parental leave, which gives employees time to care for and bond with a new child. This form of PTO supports parents’ well-being during a major life transition.
Jury duty. If a local court summons an employee to serve on a jury, employers may provide paid leave for the duration of their service. Employees can participate in the legal process without worrying about financial stress.

How to calculate PTO: Explaining PTO structures

Employers must consider workforce needs, budgeting, and other factors when deciding how to structure their PTO policies. Here are the most common PTO arrangements:

Set number of days per year

The most common PTO policy sets a flat number of annual days off for each employee. These days are usually allocated at the beginning of the calendar year, giving employees ample time to plan. This amount may depend on an employee’s seniority or tenure, and days may refresh or carry over from year to year.

Accrued PTO

Instead of establishing a preset number of days each year, accrued time off lets employees earn their PTO based on the amount of time they work. This method encourages retention, as employees accumulate time off throughout their employment rather than receiving a lump sum each year. Accrued time off also ensures new hires have fair access to an appropriate number of days off proportional to their time with the company.

Accrual policies vary widely, but companies often calculate accrued PTO using one of four methods:

Per pay period. Employees earn more PTO after completing a pay period (e.g. weekly, biweekly, or monthly). For example, an employee may earn five hours of PTO every two weeks, accruing 130 hours (around 16 days) over a year.
Per hours worked. This form of PTO allocates an hour of leave for a set number of hours worked. For example, an employee might earn one hour of PTO for every 40 hours worked. After 1,600 hours, they accrue 40 hours (or five days) of PTO.
Annual accrual by tenure. Employers sometimes factor length of service into their PTO calculation to reduce turnover and reward long-term employees. For example, employees with less than three years of service might accrue 10 days per year, while those with three to five years of tenure accrue 15 days.
Lump sum after probation with accrual thereafter. In this system, employees receive a fixed amount after a probationary period, followed by a transition to an accrual-based system.

Instead of front-loading a full year’s PTO, employers can reduce the risk of paying out unused time if an employee departs shortly after hiring.

It’s also important to note that there are sometimes limits in place for how much PTO someone can have, even if they have accrued it over time. Additionally, if that employee quits, their employer may have to pay them out for their unused PTO.

PTO rollover

Under this plan, employees don’t have to forfeit their unused PTO days at the end of the year. A PTO rollover system allows team members to carry over some or all unused days into the following year, reducing the pressure to “use it or lose it.” This gives employees greater flexibility in how and when employees take time off.

Unlimited PTO

Every PTO policy provides flexibility, but unlimited PTO is the most generous. Rather than accruing days or getting a fixed number each year, employees can request as much paid time off as they need — provided they maintain their performance and fulfill their work responsibilities. Although this approach promotes trust and autonomy, it requires clear communication about expectations to avoid misuse, inequities, or operational shortfalls.

Help employees take time off without financial risk

A well-structured PTO policy prevents burnout and reflects a company’s commitment to employee well-being. However, time off alone isn’t always enough to alleviate stress. For many employees, financial concerns can make it difficult to take time off or fully disconnect from work — especially if unexpected expenses arise. That’s where EarnIn’s financial wellness benefits can help.

By providing access to financial wellness tools that help employees budget, plan, and save, employees can stay on top of their finances, promoting peace of mind both on and off the clock. Team members can leverage Earned Wage Access to access up to $150 per day — with a max of $750 per pay period¹ — in minutes, starting at just $2.99 per transfer.² In addition to on-demand pay, EarnIn gives employees tools to build better financial habits, including Balance Shield³ to help protect against overdrafts and Tip Yourself⁴ to help them save for a rainy day. Best of all, EarnIn’s services come at no cost to employers, with no payroll integration required.

Support teams in and out of the workplace so they can handle life’s surprises with less stress.

Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.

This Blog was sponsored by EarnIn. While the author received compensation, the information shared is grounded in independent research and intended to provide helpful and accurate guidance to readers.

EarnIn is a financial technology company not a bank. Banking Services are provided by Evolve Bank & Trust or Lead Bank, both member FDIC. The FDIC provides deposit insurance to protect your money in the event of a bank failure. More details about deposit insurance here.

A pay period is the time between your paychecks, such as weekly, biweekly, or monthly. EarnIn determines your daily and pay period limits (“Daily Max” and “Pay Period Max”) based on your income and financial risk factors as outlined in the Cash Out Maxes section of our Cash Out User Agreement. EarnIn reserves the right to adjust the Daily Max and Pay Period Max at its discretion. Your actual Daily Max will be displayed in your EarnIn account before each Cash Out. EarnIn does not charge interest on Cash Outs or mandatory fees for standard transfers, which usually take 1–2 business days. For faster transfers, you can choose the Lightning Speed option and pay a fee to receive funds within 30 minutes. Lightning Speed is not available in all states. Restrictions and terms apply; see the Lightning Speed Fee Table and Cash Out User Agreement for details and eligibility requirements. Tips are optional and do not affect the quality or availability of services.

Lightning Speed is an optional service that allows you to expedite the transfer of funds for a fee. Depending on the product, the fee may be charged by EarnIn or its banking partner. Lightning Speed is not available in all states. Restrictions and terms apply. See the Lightning Speed Fee Table and Cash Out User Agreement for details.

Balance Shield provides free alerts when your bank account balance drops below the threshold you set in your EarnIn account. You can also enable automatic transfers (up to $100/day -subject to your available earnings- with a limit of $750/pay period), if your bank account balance falls below your set threshold. You choose the speed of these automatic transfers. Standard speed is available at no cost and the transfer typically takes 1-2 business days. Lightning Speed is available for a fee [see LS Fee Table] and the transfer typically takes less than 30 minutes. You will also have the option to set a tip for automatic transfers. Tips are optional and can be $0; however, if you choose to set a tip, it will be applied to each automatic transfer. Whether you tip, how much, and how often you tip does not impact the quality and availability of services. You can cancel the alerts and/or transfers at any time in your EarnIn account settings. See the Cash Out User Agreement for more details. While Balance Shield can help you avoid overdrafts, it does not guarantee protection from third-party fees, and its effectiveness depends on your usage and bank activity.

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Tip Yourself Account funds and Tip Jars are held with Evolve Bank & Trust, member FDIC and FDIC insured up to $250,000. Tip Yourself is a 0% Annual Percentage Yield and $0 monthly fee service deposit account. For more information/details visit Tip Yourself Account Terms. The FDIC provides deposit insurance to protect your money in the event of a bank failure. More details about deposit insurance here.