November 16, 2021
Easy Guide to Paid Leave Policies: PTO vs. Sick Leave vs. Vacation

What is the difference between paid time off (PTO), paid sick leave, paid vacation, and paid personal leave? And how do you know which type of paid leave program you should offer? 

Don’t worry—it doesn’t have to be too complicated. On a high level, employers have two options: Either institute an overarching PTO policy or individual policies for sick leave, vacation, and personal time. Whatever you choose, you need to ensure that: 

  1. You’re adhering to paid leave and paid sick leave laws in your jurisdiction, and
  2. You communicate all leave policies clearly to employees.

Read on for clarification on:

  • Paid leave laws
  • PTO policies
  • Separate paid leave policies: Sick leave, vacation, and personal time

Paid Leave Requirements

While there are no federal, state, or local laws requiring employers to provide paid vacation, some states require employers to offer paid leave that workers can use for any reason, including vacation. For example, Maine organizations with more than 10 employees must provide paid time off that can be used for any reason. 

On the other hand, Massachusetts has an extensive earned sick leave law stating that most employees must receive one hour of paid sick leave for every 30 hours worked. Learn the basics of the Massachusetts sick leave law and ensure you follow these specific requirements about cap and rollover allowances, rehiring an employee, notices, documentation, and prohibited practices.

Some jurisdictions also mandate employers to provide paid sick leave to employees and allow them to use sick leave for other relatives, such as parents, children, spouses, or registered domestic partners. While the FLSA does not require a paid leave plan, you may not deduct the pay of exempt employees for absences due to sickness or disability unless:

  1. You have a legitimate PTO plan that can be used for these absences, and
  2. Exempt employees are either not yet eligible or have used up their benefits under the plan.

PTO Policies

Many employers use one blanket PTO policy, meaning employees use one bank of hours or days to take time off for any reason. This system usually combines vacation time, personal days, and sick time into a single time pool. Using a PTO policy: 

  • Mitigates the need to track specific reasons/types of paid leave (make sure you comply with any state or local recordkeeping requirements).
  • Offers more flexibility to employees who can use their leave based on needs.
  • Provides a single, more straightforward policy for employers with employees in multiple jurisdictions (make sure it meets the requirements of the most generous paid sick leave law).

Types of PTO Accrual

Companies can use one of three types of PTO accrual policies:

  • Bank Policy: Employees can use PTO from a single bank of hours or days set throughout the year. For example, an employer may offer 15 days or 120 hours of PTO to use for any purpose. Organizations typically have a new hire period before the employee can use their time off.
  • Accrual Policy: Employees earn a certain amount of time off based on how much time they work. For example, an employee may accrue five hours of PTO for every 40 hours worked. You can also cap annual PTO accrual. Some employers even allow employees to advance a certain amount of hours (just be sure to outline the rules and limits in your policy).
  • Open Policy: A growing number of companies are allowing employees to either accrue unlimited PTO or take off an unlimited amount of time without the need for accrual. You might include a rule in your policy stating employees need to request time off a certain number of weeks in advance. 

If your organization follows a bank or accrual policy, you may also be wondering about rollover. How much should you allow? Are “use it or lose it” policies legal? Learn more about PTO rollover best practices.

Separate Paid Leave Policies

Other employers break down their paid leave into three categories: 

  • Sick leave
  • Personal time
  • Vacation time 

In this system, employers develop separate policies and banks of time for each type of leave. For example, a company may give employees 15 days for vacation, seven sick days, and four personal days. Let’s look at what these cover more closely.

Sick Leave

Sick leave is paid time off specifically for employees to address health concerns or miss work due to illness or injury. Sick time can also be used to care for an ill or injured family member and can be planned or unplanned. Implementing separate sick leave:

  • Encourages employees to prioritize their health.
  • Eliminates the concern of dipping into their vacation or personal time.
  • Mitigates hesitation about taking vacations or mental health days.
  • Fosters honesty from employees about how they are using their time.
  • Discourages staff from coming to work sick and possibly putting others at risk.

Additionally, sick leave laws usually don’t require employers to pay for unused sick leave when an employee departs the company. 

If your company does provide separate sick time, be wary of employees with more health issues who may spend more sick days than the average employee and feel pressured to use their vacation or personal time for health purposes.

Vacation Time

As the name suggests, vacation time is typically planned and used for:

  • Rest and relaxation
  • Travel
  • Personal matters

Employees usually schedule vacation time in advance, but some employers are flexible and allow staff to use it for unexpected absences when necessary.

Personal Time

Finally, there’s personal time. Generally used for any reason, personal time:

  • Can be planned or unplanned.
  • Supplements vacation and sick leave and is typically used for short-term absences.

Additional Paid Leave Policy Questions

Employers who opt for general PTO must ensure their policies and procedures meet paid sick leave laws. The following are two common questions from those who offer PTO.

Does my PTO policy cover my paid sick leave requirements?

According to many paid sick leave laws, your PTO policy is sufficient as long as it:

  • Allows employees to use the same amount of leave for the same purposes and under the same conditions as required by the sick leave law; and
  • Satisfies the accrual, rollover, and use requirements of the sick leave law

Always check your state and local laws to ensure compliance.

What if an employee who requests sick leave has already used up their PTO for the year? Do I have to offer them additional paid leave?

Many paid sick leave laws do not require you to provide additional leave so long as your PTO policy meets the requirements above. This employee may qualify for sick leave (typically unpaid) under a different law, such as the Family and Medical Leave Act (FMLA). Again, be sure to check your state and local laws to ensure compliance. 

To avoid this issue from occurring frequently, help employees manage their time off by clearly communicating the requirements of your PTO policy, what they can use it for, how it accrues, and their available balances.

Whether you need to make sure your current paid leave program is legally compliant, or you need to develop an entirely new policy, our HR specialists can help! Contact BlueLion today at or 603-818-4131, and we’ll be happy to walk you through it. 

The information on this website, including its newsletters, is not, nor is it intended to be legal advice. You should contact an attorney or HR specialist for advice on your individual situation.