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As an hourly employee, manager, or boss, you’ve likely had questions about PTO, sick time, overtime, and more.
In this week’s blog, I’ll answer the following question: Does PTO (paid time off) count as overtime?
As with most questions with time tracking and payroll, there is both a short and longer answer.
Short Answer
Simply put, the Fair Labor Standards Act (FLSA) does not require employers to pay overtime rates for paid time off hours.
In fact, employers aren’t required at all to offer paid time off in the first place, although it’s very common to do so.
If you do have a PTO policy in place, I highly recommend a PTO tracker, or time clock software that can proficiently track PTO.
Note* – Don’t take this as legal advice. I always recommend talking with an employment law specialist in your local area before making a big policy change in your office.
I also suggest reading the LONG ANSWER, as this may help clarify how PTO and overtime work.
Understanding PTO (paid time off)
PTO stands for paid time off, and it’s commonly used in 2 different ways.
1. PTO is a general term that applies towards any type of paid time off. For example, accrued hours like vacation time, personal leave, bereavement, sick time, and more.
2. PTO is a specific term that applies towards one type of paid time off a company may offer among the different types of PTO. For example, you may offer your employees vacation hours, sick hours, and paid time off hours.
Both strategies work and are completely up to employer preference (except for in a few states where sick or vacation time are required if you have a PTO policy in place). Again, check PTO related laws in your local state for verification.
How Employees Earn PTO
There are various methods for employees to accrue PTO, but these are the most common I’ve seen.
1. Accrue PTO per hour worked
2. Accrue PTO per week, pay period, or month
3. Accrue PTO every year
There are other options, too, and again, they’re up to employer preference. If you want to learn more about PTO tracking methods and how TimeClick can track it all for you, I recommend checking out my live webinar recording and blog on tracking PTO, vacation, and sick time with TimeClick.
Understanding Overtime
Overtime is a form of compensation employees earn after working over a set period of hours. In other words, this is additional pay for employees that exceed standard working hours as dictated by state law.
Overtime rates can vary by state, but it is generally a requirement to pay employees 1.5 times their regular pay rate. Hence the phrase ‘time and a half’.
Most of the time, only your non-exempt employees will earn overtime, but this isn’t always the case. Follow this rule of thumb:
If your employee is hourly, and paid minimum wage or close to it, chances are they can earn overtime.
Example of Overtime Pay
If your employee earns $15 per hour and works 50 hours in a week, you would need to pay them 40 hours of regular wage, and 10 hours of overtime wage (1.5x pay). This is the case for most states, but some vary.
Even if you’re not a California business, I recommend checking out our Quick Guide to California Overtime to get a more in depth analysis of how overtime works across the nation. I also discuss in detail double-time – a unique type of overtime found in only a few states.
The Difference Between PTO and Overtime
The ultimate distinguisher is work. If your employee worked overtime hours, they worked for an overtime rate. When your employee uses their PTO, they do not work. They take time off.
Thus, you do not have to pay your employees overtime rates for PTO usage, even if their hours exceed 40 hours in a single week, for example.
PTO and Overtime Example
Your employee, Jill, worked 45 hours this week, and used 5 hours of PTO. How much should you pay Jill?
Answer: You’ll pay Jill her regular rate for 45 hours total (40 hours of regular work, and 5 hours of PTO at regular rate). You’ll also pay her 1.5x her regular rate for 5 hours, as they were overtime.
On your report, however, you’ll probably want to distinguish that 40 hours were regular work, 5 hours were PTO, and 5 hours were overtime.
Can you count PTO hours as Overtime hours?
Sure, if you’d like to. There is no hold up and it’s completely up to you, although it’s unnecessary.
What are Rollover Allowances?
Sometimes your staff may not use all their PTO during the year. Is your policy to roll it over, or expire it? Or maybe you just cap how much can be held?
Each is a viable option, and each has pros and cons.
PTO Roll Over
If you allow hours to roll over year to year, you may encounter a situation where your employees don’t use PTO enough. Or, when they use PTO, they request to take large amounts of time off, and perhaps this makes scheduling difficult.
Expiring PTO
Expiring hours that aren’t used during the year encourages use, but also lacks flexibility. For example, some people try to go on a bigger vacation once every two to three years, and allowing PTO save up is helpful in this situation.
Capping PTO
For our team here at TimeClick, we cap PTO. I’ve found this to be a happy median that generally works well. It facilitates use and forces PTO usage when an employee’s bank gets too high. But it also allows employees to save up for a longer vacation if needed.
Summary
To sum up our PTO and overtime discussion, I’ll leave you with a few 4 key takeaways.
1. You do not have to pay overtime rates for PTO hours, even when those PTO hours cross into typical ‘overtime threshold’.
2. Overtime is hours worked by an employee beyond regular hours, as dictated by state guidelines. You’re required to pay your employees 1.5x their regular pay for these hours.
3. PTO is paid time off and is not time worked. You only need to pay overtime rates when an employee works overtime.
4. Talk to an employment law specialist who specialized in your business’ state! Always be careful of policy changes, and seek legal advice before making big changes if you aren’t sure.