What is paid time off and how does it work?

Paid time off—also sometimes referred to as PTO—is a company policy that offers you time away from work for which you still receive your regular wages or salary. Here, we’ll explore what this benefit is all about, and how it works when it comes to vacation, or when you’re ill and unable to work. We’ll also answer some of the more common questions around company-specific policies.

 PTO is used as an abbreviation for a few different phrases which have very similar meanings—paid time off, personal time off, or planned time off. There are various reasons why an employee would take this kind of leave—vacation, sick days, parental leave, or bereavement leave. Typically, if you take time off for any of these reasons, it will mean you’re not working but are still being paid your wages as if you were.

There are a few different ways that PTO can be earned. One example is through accrual—this is when, rather than having a set allowance of days available at the beginning of the year, employees earn days off as they work. For example, if you have 20 vacation days per year, you’ll earn 0.4 days for each week you work—20 days divided by 52 weeks. These accrued days are held as a type of credit against your employment record. You can then choose when to take them, subject to approval by your manager.

Another method of paid time off is through allotted days. This is where you are given a certain number of days each year by your employer. These will often expire at the end of the year, but your employer may also allow a certain number of days to roll over to the next year if you have some days leftover. The allocated days often run from the calendar year—January to December—or from the financial year—April to March. These days can be calculated as a flat rate for all employees, related to a salary band for your job type, or can be determined by your years of service with a company. 

Finally, there are unlimited holiday polices, which are becoming increasingly popular in the modern workplace. This allows employees to take as much or as little time off from work as they want, fully paid, provided they’re able to meet expectations in all of their tasks.

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For hourly employees who receive PTO, the principles are the same—by working a certain number of hours over a given period, you can bank a certain number of hours. For example, for every 10 hours worked, you may earn one hour of paid leave. This would mean that after 300 hours, you’d be given 30 hours of paid time off. Unlimited paid leave benefits aren’t usually an option for hourly employees. This is because you’re generally already eligible to be paid overtime for any extra hours you do. 

You’ll generally need to request your time off through your manager, or your company may have an online system. Typically, the human resources (HR) team will inform you of the process when starting a new job. Make sure to check your contract for exactly how many hours you can accrue in paid time off.

There is a difference between PTO and vacation, but employers tend to use the terms in the same context. The meaning of paid time off is when you are being paid for time away from work. Taking a vacation is just one reason why you might take paid leave—other instances may include parental leave, jury service, or sick leave.

The allocation of paid time off should form part of your total compensation package and will usually have been covered when accepting the job. The specific details are typically decided by HR, so it’s a good idea to chat with them if you have any questions about your company’s paid time off policy. Your employment contract should also detail how the policy works, and what you are entitled to. Your manager will oversee your allocation and authorize the days you wish to take.

As the name suggests, unlimited paid time off allows employees to take as many (or as few) days off as they choose. More companies are adopting this policy because it shows a company’s trust in their employees to manage their own PTO time, as the days taken aren’t tracked or limited. It requires a degree of mutual respect between employer and employee. Interestingly, studies show that employees with unlimited fully-paid holiday tend to take fewer days off than if they had an allocated number of days.

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Whether you’re using your PTO for a long-weekend getaway or working hard to save up for a big vacation, N26 is there to support you. With an N26 Smart account, you’ll get all our most-loved features like instant push notifications for every transaction—plus, you’ll have access to up to 10 Spaces sub-accounts, virtual piggy banks that sit alongside your main account. Save up for your goals faster with Rules, which automatically transfers a portion of your paycheck into your chosen space. Opening an account from your smartphone only takes minutes—so what are you waiting for? Join the bank you’ll love today.