How to Handle PTO as a Small Business

Handling PTO can be done in different ways.
Handling PTO can be done in different ways.

Although the law does not dictate that all companies must provide their employees with built-in vacation time, some small businesses are finding creative, cost-effective ways to offer their employees added benefits and PTO.
The U.S. is the only advanced economy that does not legally require companies to provide any vacation time, under the Fair Labor Standards Act. In contrast, Canadian companies are legally obligated to offer employees two weeks of paid vacation days and Canada’s federal workers receive pay for nine holidays per year. Canadian workers who are part of a union receive at least three weeks of paid vacation time per year. Canada’s PTO is even quite low when compared to European Union member countries, which average 20 to 30 paid vacation days per year.
In the U.S., paid vacation time is based on a determined agreement between the employer and the employee. The Fair Labor Standards Act also does not require that companies offer paid holidays. Small businesses can attract valuable employees by offering generous PTO days and other incentives.


Some U.S. states have different overtime laws, but the FLSA requires overtime pay to be one and a half times normal pay for a 40-hour work week. Unfortunately, companies tare not permitted under FLSA to offer PTO incentives in lieu of overtime pay, in a practice often referred to as “compensatory time.” Under the act, employers must pay employees in money for hours worked over 40 hours in a week. This covers any tradtional work the employee performs in non-regular work hours. However, an employer and employee can agree upon PTO as an incentive for special projects or work travel. Also, an employee who is not full time may receive paid time off as an incentive for working extra hours. In most cases, if the employee leaves without taking all of the accrued time, the remainder shall be paid out within one week. This can be cheaper in the long run for new businesses or industries that rely on long hours of work to accomplish a goal.

Unclassified PTO

Some companies are abolishing different categories of PTO, such as sick time, floating days, holiday time or personal leave time. In its place, these companies are creating one across-the-board paid time off designation. This can often be simpler to track than designated categories of PTO, especially in online payroll and accounting systems like QuickBooks where employees can enter PTO using a drop-down menu.
Many employees prefer this arrangement to accrued overtime, valuing flexibility over monetary compensation. This benefits employees by putting them in charge of their leave time and creating an equitable situation for all employees. Additionally, it can benefit the business by maintaining employee motivation and morale. When employees aren’t given a set amount of “sick days” they may actually be more productive, as employees can feel they need to “use or lose” their sick days, even if they are healthy.
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