global hiring

PTO vs. Vacation: The Differences (And Why Combined PTO Is Best)

What’s the difference between PTO vs. vacation? And how do you create an effective time-off policy? Discover all you need to know in this article.

Gabriele Culot
Written by Gabriele Culot
January 23, 2023
Contents
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Key takeaways

  1. 67% of US companies now use combined PTO policies instead of separate vacation and sick leave policies. 
  2. A solid PTO policy can streamline human resources (HR) processes, increase employee happiness and retention, and even act as a driver for talent acquisition. 
  3. A PTO policy is only effective if the request and approval process is clear and straightforward. Using a plugin like Deel PTO can automate and streamline your PTO management.

Paid time off (PTO) is a general term to describe any time employees take off from work while receiving payment from their employer.  Among the most common types of PTO are the following:

  • Parental leave
  • Jury duty
  • Sick leave
  • Bereavement leave
  • Vacation 
  • Personal time
  • Disability leave

In contrast, vacation refers explicitly to any paid time off an employee takes to rest, travel, or spend time with their family.

Is it better to have a separate PTO and vacation policy? 

Traditionally, many companies created separate paid leave policies for vacation, sickness, and parental leave, for example. Today, however, it’s becoming more common to lump all types of leave together under a combined paid time off policy. 

This choice is often due to the desire to let employees manage their PTO more easily, reduce unplanned absenteeism, and streamline HR processes. 

Employers tend to be satisfied with the decision to switch to combined PTO models, with 67% of surveyed US employers adopting this approach in 2022, according to SHRM research.

How does combined PTO work? 

With combined PTO, there is no distinction between different kinds of leave. An employer can implement combined PTO in a number of different ways.

For example, the employer may provide employees with a bank of PTO days upfront at the start of the year, or employees might accrue PTO based on number of hours or days worked or their years of service. Some employers provide an unlimited number of days of PTO which we will explain in more detail later.

Pros of a combined PTO policy

Among other benefits, combined PTO policy improves:

  • Employee satisfaction
  • Workforce planning
  • Talent acquisition. 

Let’s look at these benefits in more detail below.

A happier workforce 

Consolidating PTO and vacation into one policy gives your workforce more control and flexibility over how they spend their time off. No one can predict when they’ll fall ill, have to deal with a family emergency, or attend a funeral. Therefore assigning a certain amount of days for sickness, personal days, or bereavement is unrealistic. 

Instead, giving employees the freedom to take time off when needed improves their quality of life by offering them leave that can adapt to their needs and contributes to a healthy company culture where employees have room to set their priorities.

In addition, employees with free reign over their PTO are less likely to save their days off for vacation time. This means they won’t feel pressure to work while sick, spreading illness or delaying their recovery.

Improved transparency and planning

With combined PTO, employees are more likely to plan their absences in advance. Some companies that separate PTO and vacation encourage employees to use their unused sick leave as vacation, which can cause unplanned absences, and inaccurate record-keeping. 

Employees are also more likely to take their unused sick leave at the end of their year, which causes a workforce shortage if everyone is off at the same time with no prior notice.

A talented workforce 

According to a Fractl survey on employee happiness, more vacation time is one of the top three most desired employee benefits, alongside flexible hours and health benefits. Given that employees are hungry for more paid time off, designing a combined PTO policy is a great way to attract top candidates for open positions and stay ahead of the competition.

Cons of a combined PTO policy

While combined PTO has many pros, it also comes with some potential drawbacks, such as:

  • Exhausting all PTO for vacation time
  • Potential extra costs to pay out unused PTO

Let’s look at these in more detail.

Employees might sacrifice sick time for vacation time

A combined company policy for PTO may cause employees to exhaust their time off without saving any if they become sick.

A potential solution is to award a sufficient number of PTO days to cover an average amount of yearly vacation days and illnesses. Alternatively, adopting an accrual-based approach could ensure that employees only use the time they have already earned.

It can carry extra costs if PTO time is not used

Depending on where your employees are residents, governing labor laws may require them to receive a payout for unused vacation days if they leave the company.

In many US states, such as California, the employer must pay for any vacation days left over when an employee leaves the company.

Employers must also let employees carry over unused or accrued PTO from one year to the next or pay them out for unused PTO days at the end of the year. With a segmented policy, companies don’t have to pay employees for their unused time off for personal or sick days.

The most obvious solution here is to encourage employees to take all their PTO time, a company culture-focused solution. However, capping the rollover of unused PTO to the new year can also reduce this issue.

Four best practices for a combined PTO policy

Could a combined PTO strategy work for your business? Below are some tips and best practices to help create a PTO policy that fits your needs. Include the policy in your employee handbook, so it’s visible and accessible.

1. Clearly outline the time off request and approval process


Outlining the process step-by-step will make it easy for employees to submit requests and for you to process them. Failure to do this will result in your policy not delivering its best results, employees not taking enough PTO, and increased frustration.

Defining a clear process is a great first step. However, some tools can help streamline the process even further, boosting its success. 

PTO by Deel, for example, enables employees and managers to handle all PTO requests and approvals in Slack easily. Moreover, it offers notifications and coverage information so that no task or project is overlooked while key employees are off.

2. Adopt a modern PTO policy 


Modern PTO policies offer numerous benefits to employees in the form of more flexibility and available time. These policies also require less effort to manage and increase employee morale, talent acquisition, and retention. Check out three modern PTO policies worth adopting: 

  • Flexible PTO 
  • Mandatory PTO 
  • Unlimited PTO (with a set minimum)

3. Offer additional PTO for mental health, floating holidays, and volunteer days


Just because a combined PTO policy doesn’t divide time off into different uses doesn’t mean you can’t encourage your employees to take time off in different ways. 

Consider including different categories in your policy to showcase how employees can use their PTO. For example, your policy could include PTO for mental health days, floating holidays, and volunteer days. 

This approach will help employees feel the company values their needs and passions and develop a more robust company culture where work-life balance is essential to well-being.

4. Develop a healthy PTO culture 


The success of your PTO policy will hinge heavily on the success of your PTO culture. A healthy PTO culture should:

  • Encourage time off
  • Provide flexibility on how time off is used
  • Make taking time off easy
  • Reward behaviors that promote a healthy work-life balance
  • Discourage overworking
  • Monitor employee fatigue and burnout
  • Promote wellbeing
  • Lead by example
  • Involve employees in crafting the culture of their workplace

PTO policies in distributed teams

Remote teams, distributed across multiple countries, pose an extra challenge when choosing the right PTO policy. In these cases, especially, simplification is necessary. 

Different countries have very different regulations and legal mandates. These mandates can quickly become impossible to manage as teams grow across borders, and a lack of compliance with labor laws often carries heavy penalties. 

To avoid the growing complexities and potential legal issues, combined PTO policies offering unlimited PTO are often the best solution, as they remove any limits or barriers to PTO. This way, employees will always be able to take the legal minimum of time off they are entitled to, and employers will not have to worry about monitoring them and risk breaking the law.

Check out our free unlimited PTO policy template to get started.

PTO FAQs

Here are the answers to some of the most frequently asked questions about PTO. 

Is paid vacation time mandatory? 

This depends on your employee’s country of residence. If you operate internationally, you must abide by the local laws regarding vacation pay in the country your employees work in.

In the US, for example, no US federal, local, or state laws require employers to provide their employees with paid vacation. However, some states have mandates that ensure paid personal days are available to employees who need time off for any reason. 

In the UK, however, most full-time employees receive a mandatory minimum of 28 paid days off annually.

Check out our comprehensive guide to international paid annual leave laws to maintain compliance.

Is paid sick leave mandatory?

Again, this depends on your employee’s country of residence.

For example, there aren’t any federal requirements for paid sick leave in the US. However, the Family and Medical Leave Act (FMLA) provides up to 12 weeks of unpaid sick leave for employees throughout the country.

In the Netherlands, on the other hand, there is no limit to paid sick leave duration, though the employee’s salary is reduced to 70% for longer periods of illness.

Do I need a sick leave policy on top of PTO?

If you have a combined PTO policy that clearly defines how it integrates sick leave, then you typically don’t need to create a separate sick leave policy. Just be sure that your PTO plan enables your employees to take at least as many days off as stated by the local laws and satisfies the requirements set by the law for sick leave.

Manage your entire global workforce with Deel

Deel HR is a global-first HRIS that enables you to manage your entire global workforce—EOR employees, direct employees, and independent contractors—in one powerful platform. Instead of using multiple platforms to manage your global workforce, Deel HR covers everything for everyone:

  • Deel Engage plugins for PTO, Pulse Surveys, Onboarding, Org Charts (feature coming soon), Referrals, One-on-Ones, and more to help you track and increase engagement
  • Easy onboarding that covers equipment, workspaces, background checks, localized contracts, and app provisioning
  • Consolidated people management that keeps expenses, time off, documents, and your entire people directory in one place
  • Visual reporting for headcount planning, retention, global costs, and payroll to clearly understand the health of your entire organization


To empower scaling teams, we’re offering Deel HR free to companies with up to 200 workers, with no setup fees or monthly costs. Book a demo to see Deel HR in action.

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