PTO and Vacation: What’s the Difference?

Creating a PTO policy may not be as straightforward as employers would like it to be. After all, it’s not just a simple name change. What an employer calls their employees’ time off and how it is treated is important because it will affect the legal obligations attached to it.

Each state has its own set of laws regarding PTO or vacation, and employers must be compliant with the laws in their state. While there is no federal statute governing vacation or PTO policies, states have different laws regarding:

• Whether vacation time is considered to be earned wages (and cannot be forfeited)
• Whether an employer can have a “use it or lose it” policy
• Whether vacation wages must be paid out upon termination
• Whether an employer’s policy sets the rules for vacation and PTO

As such, what state you’re in will determine how you can structure your PTO policy.

“That is exactly why the policy is the key . . . Most states leave it up to the employer to lay out a PTO and vacation policy. Some states, like California, have laws that limit how far a policy can go, but in every state, the most important factor is a clear, effective, and distributed policy.” Daniel B. Chammas advised in a recent BLR webinar. In other words, it’s important to be clear on what your policy is while staying within the law.

How is Vacation Different from PTO?

Vacation is a term of art, but in general, “it means paid time off that can be taken without condition.” Chammas told us. This means two things: 1) wages are usually owed for vacation time (based on some state laws or employer policy) and 2) the employee has discretion on when to take vacation and for what reason.

This does not mean that employees can take vacation whenever they want—employers can insist that employees give reasonable notice of vacation and that the vacation fits in with the schedule. What it means is that the employee does not have to meet a legal requirement to take vacation as they do for some types of legally-protected leave.

PTO and vacation are often used interchangeably, but they’re not actually the same thing.

“PTO is any time an employee is being paid while away from work and not working. It’s basically any paid leave. PTO is broader than vacation.” Chammas told us. “Vacation is a subset, or an example of PTO. Vacation is PTO, but PTO may not necessarily be vacation.”

Examples of non-vacation PTO include pregnancy leave, disability leave, jury duty, holiday pay, or sick leave.

Knowing that vacation and PTO are not the same is the first thing employers must understand before creating a PTO policy. The next is to know how your state treats vacation time. That will affect how you want to structure your PTO policy and what types of leave you want to put under that umbrella—and which ones you don’t.

For more information on the differences between PTO and vacation time, order the webinar recording of “Mastering Everyday PTO Challenges: Curb Abuse, Cut Absenteeism, and Comply with the Law.” To register for a future webinar, visit http://store.blr.com/events/webinars.

Daniel B. Chammas, Esq., is a partner in the labor and employment practice group in Venable’s Los Angeles office. He has extensive experience defending employers in wage and hour class actions and other employment disputes, from actions for unpaid wages and sexual harassment claims to wrongful termination litigation and racial discrimination complaints.