Does PTO count towards overtime? A payroll headaches guide

It seems like a simple question: Does paid time off (PTO) count towards overtime? 

Unfortunately, it isn’t a straight-up ‘yes’ or ‘no’ answer. So, if you find yourself sitting in front of a pile of papers on a Friday night when payroll is due, tearing your hair out because of PTO requests and hours worked––this is the article for you. 

We’re going to define paid time off and overtime and learn some important questions to ask yourself when drafting PTO rules and policies. And ultimately, we’ll help you figure out whether PTO counts towards ‘hours worked’, and how to easily keep track of all of these hours.

Even though it isn’t as easy as ‘yes’ or ‘no’, we’ve got answers for you.

What is paid time off (PTO)?

Paid time off, or PTO for short, is a benefit that your company can offer its employees so they can take time off work and still get paid. The bonus of paid time off is that employees can take this time however they see fit. Vacation, mental health, sick time, or personal leave, it doesn’t matter when it comes to PTO. 

This gives your employees a ‘pool’ of time that they can draw from when they need days. If they have a year where they keep getting sick, they don’t run out of ‘sick’ days. If they have a particularly healthy year, they can spend those accrued days on vacations instead of sticking to the 2 weeks many companies offer. And if they have a difficult family situation, they can be there for their loved ones without having to reveal their personal information to their employers.

Even though the advantage of PTO for employees is its flexibility, you’re going to need to reign it in a bit and create some PTO rules. Start with making sure you’ve got a clear paid time off policy.

Questions to ask when creating a PTO policy for your hourly employees

Here are some things to think about when developing your PTO policy for your hourly employees:

1. Will hours accrued be measured by hours worked, years of service, or both?

There are a couple of different ways you can accrue paid time off. As an employer, you get to choose what works best for you and your employees. They can accrue based on how many hours they work, how many years they’ve worked at the company, or both.

• Hours worked: Let’s say an employee gets 1 hour of PTO for every 40 hours they work. If they work 800 hours in a year, they accrue 20 PTO days.
• Years of service: You can set a policy based on how many years they’ve worked. For example, anyone under 3 years of service gets 10 PTO days, anyone in the 3-7 year range gets 15 PTO days, and anyone above 7 years of service gets 20 PTO days.
• Hours worked and years of service: You can combine the above and allow employees to accrue days throughout the year while starting them off with a set amount of days.

There’s no wrong way to do this. Take a look at your general staffing levels and your budget, and make a decision that feels good—for you and your team. After all, the American Psychological Association’s work and well-being survey found that employees who took time off were less stressed, more productive, and less likely to quit. 

2. Will PTO rollover or carryover?

When you write your PTO policy, will employees need to ‘use it or lose it’, or will their PTO carryover? How long can employees keep accruing those PTO days before they’ve got to start cashing in? Is there a limit to how many days they can take off at once? Or, let’s say an employee has been working for you for 5 years and accumulated 100 PTO days and wants to go on a 3-month trip—can they? 

Having these PTO rules all written out and agreed to ahead of time means you won’t find yourself scrambling to temporarily fill someone’s role.

3. How do your employees request paid time off?

Your employees have saved up those precious paid time off days. Now what? 

How do they request those PTO days? Do they fill out a form? Make a verbal request? Are there blackout dates for PTO for employees? 

If you run a retail store, you don’t want everyone requesting PTO on Boxing Day. Or, let’s say you run a salon; you can’t have all of your stylists asking for paid time off during Prom season. 

Based on your busy season, make sure to blackout some dates on the PTO calendar. Then create a clear way to submit PTO requests and communicate it to your team.

4. Does your PTO policy follow the FLSA and state laws?

Okay, so you’ve got a bunch of flexibility in how your employees accrue PTO. But—like most things—you’ve got to stay up to date on your own state laws and the Fair Labor Standards Act.

This isn’t a comprehensive list, but it’ll get you started:

• Minimum PTO: Some states or municipalities require you to offer a minimum amount of PTO.
• Unpaid leave: Under the Family and Medical Leave Act (FMLA), you’ve got to offer up to 12 weeks of unpaid leave for particular family and medical reasons.
• Job protection: The Americans with Disabilities Act (ADA) and FMLA require you to protect the role of employees who take leave. They get to return to their job, or an equivalent one, when their leave is over.
• Provide notice: At a base level, you’ve got to keep your employees educated on their rights under the state and federal laws for leave. But, if you offer PTO, you’ve got to keep your employees updated on in-house changes in policy as well.

Again, this list of questions to ask yourself to create a killer PTO policy isn’t all-inclusive. There are lots of moving pieces in play. But answering all of these questions will get us closer to answering, ‘Does PTO count towards overtime’. 

Let’s take one last mini-detour and learn what overtime is and what it means for you as an employer.

What is overtime?

Overtime is any hours worked above and beyond your employees’ normal working hours. According to the FLSA, this is any hours worked above 40 hours per week––for nonexempt employees. What does this mean for you? If you run a business with nonexempt employees, you’re going to need to keep close track of hours worked. Anything above 40 hours gets paid at time and a half. And that can add up quickly.

So, what do we mean when we say ‘hours worked’? It can get tricky. Here’s what the FLSA says:

• Hours on duty: These are the hours your employees are on the premises and officially on duty.
• Engaged to wait: These are time periods in which an employee is on duty and waiting for something work-related, like a delivery.
• Meetings and training: Times when employees are attending mandatory training for their role or team and individual meetings.
• On-call: If these on-call hours are restrictive of what an employee can do while on-call, they’re counted as ‘hours worked’.
• Short breaks: These are short periods of rest, typically under 20 minutes. 30-minute meal breaks wouldn’t be included in ‘hours worked’ unless an employee was asked to perform tasks while eating. 

See what we mean? It can get tricky.

All of this information really does have a point. It leads us to our original question of, ‘Does PTO count towards overtime?’ Without clear definitions, an understanding of basic FLSA laws, and policies in place, you can’t accurately measure ‘hours worked’. And that’s all that matters.

Does PTO count towards hours worked?

Now we’re down to the actual question, does PTO count towards overtime? The short answer is ‘no’.

If an employee works four 9-hour days––for a total of 36 hours that week––and then takes an 8-hour PTO day, do you have to pay overtime for those four hours? PTO for hourly employees count towards payroll hours, but they don’t count towards hours worked. Why’s that, you ask?

If you revisit those FLSA rules above, you’ll see that because employees are off-site, not expected to accomplish any tasks, and can use their time freely, their PTO hours aren’t hours worked. If those hours aren’t worked, they aren’t considered overtime.

Overtime and paid time off tracking

Ok, but how in the world do you keep a record of all of this? PTO? Overtime? Hours worked? That’s a lot of hours to categorize and track. You’ve got better things to do than tally timesheets.

Homebase offers an incredible suite of tools, including a payroll tool, that can keep track of everything for you. It makes payroll a breeze—or at least a little less painful.

• We instantly calculate hours, breaks, overtime, and PTO when you use our time clock for clocking in and out. Everything gets synced to payroll to help you avoid mistakes.
• Set up breaks and overtime for your state to calculate hours and wages correctly. 
• You can allow your employees to submit time-off requests and you can track them through the app, helping you avoid staff shortages.
• As an added bonus: We’ll transfer your payroll data to Homebase for you, so the switch is effortless and risk-free. 

Eliminate PTO and overtime headaches.

Homebase can automatically calculate accrued paid time off based on your parameters and send you a notification if an employee is heading into overtime hours. Make payroll painless. Sign up today.

Does PTO count towards overtime FAQs

What is PTO?

PTO stands for paid time off. It’s a benefit an employee can receive to get paid if they need to take time off for any reason. An employer can offer PTO for hourly employees based on their years of service, time accrued from hours worked, or both. PTO offers flexibility for employees to take time off for a variety of reasons instead of having a limited number of days assigned for specific reasons––think vacation days or sick days.

Does PTO count towards hours accrued for overtime?

PTO hours don’t count towards hours accrued for overtime. Because PTO hours don’t fall under the definition of ‘hours worked’ according to state and FLSA laws, they can’t send an employee into overtime. An employer doesn’t need to pay overtime pay if an employee’s PTO hours extend their payroll hours beyond the 40 hours of regular pay per week.

What is the law around PTO and overtime?

The Fair Labor Standards Act states that any nonexempt employees must receive time and a half pay for any hours worked above and beyond the 40-hour work week. This is called overtime pay. So, according to the FLSA, PTO can’t send an employee into overtime because PTO hours don’t count as hours worked.

For PTO, there are some state-specific laws as to whether there are mandatory PTO requirements. Make sure to look up your specific state’s law around PTO and things like the Family Medical Leave Act.