Paid Time Off (PTO)

Paid Time Off (PTO) refers to the total paid hours employees can take off each year. Depending on company policy, it may be accrued gradually based on hours worked or granted all at once at the beginning of the year.

How do employees accrue PTO?

Employees typically accrue PTO in one of two ways: accrual-based or front-loaded. In the accrual-based system, PTO is earned gradually based on company policy and tenure. In a front-loaded system, employees receive their entire annual paid time off (PTO) allowance at the beginning of the year.

Can PTO be carried over from one year to the next?

PTO carryover rules depend on the employer and state. Some allow unlimited rollover, others set limits, and some apply use-it-or-lose-it policies. Employers must communicate their carryover rules and ensure they comply with applicable labor laws.

How does PTO affect payroll?

PTO affects payroll by requiring careful tracking of how much time employees earn and use. Any unused PTO (also known as PTO payouts) is counted as a cost the company owes, and when it's paid out, it’s taxed like regular wages. Keeping accurate records is essential for payroll accuracy and regulatory compliance with labor laws.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.