Hourly employees may have countless questions regarding PTO, pay rates, Overtime, and more. One of the most common is the question regarding whether or not PTO counts towards Overtime. As with any payroll question, there is a short answer and a long answer.
To put it simply, the Fair Labor Standards Act (FLSA) does not require employers to pay Overtime to employees using PTO. However, there are situations where paying Overtime may be more appropriate. Keep reading to get a better understanding of the complexities of PTO and Overtime.
Understanding PTO
Before one can dive into those complexities, it is helpful to fully understand what PTO is. PTO stands for Paid Time Off. It is a general term that applies towards accrued hours such as vacation, personal leave, and sick time.
It’s worth noting that while it was once traditional to have these three variants of time off tracked as separate values, it is no longer the norm. It is becoming more common to combine the three. Doing so simplifies tracking on the company’s end and allows employees to use their accrued hours as they see fit.
There are two common ways for employees to accrue PTO. Companies can decide how they want to manage PTO. Either a company can provide a set number of days, or an employee can earn PTO hours through time worked.
Understanding Overtime
Conversely, Overtime is a form of compensation towards employees working over a set period of hours. In other words, this is additional pay for employees that exceed regular working hours.
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’ when discussing Overtime amounts.
The availability of Overtime is only a requirement for non-exempt employees. So this is something that both employees and businesses should be aware of. Exempt employees make twice the standard amount of minimum wage. A good example would be salaried employees.
An easy way to remember non-exempt employees is by following a simple trick. All employees paid following minimum wage regulations must also be paid according to overtime laws. In other words, hourly employees. For more information on this matter, read the Fair Labor Standards Act.
Difference Between Paid Time off Hours and Overtime Hours?
Once one understands what PTO and Overtime are, it is easier to appreciate the differences. PTO is the accrual of paid time off, whereas Overtime is payment for hours exceeding a certain amount. In a sense, both are forms of additional pay. The key difference here is how they are earned.
Does PTO Count for Overtime?
To put it simply – vacation (PTO) hours are not considered time worked. Thus there is no legal requirement to count them towards Overtime pay. Companies are legally required to pay for Overtime only for hours worked. In other words – companies don’t have to pay Overtime for PTO used.
For example, let’s say an employee worked thirty-six hours in a given week and then used up ten hours of PTO. While the employee will be getting paid for forty-six hours, they only worked for the thirty-six hours mentioned earlier.
There are mitigating factors that could make this example more complicated. Take California laws, for example. There, Overtime applies not just to the weekly total but a daily total as well. So if one of the days worked exceeded eight hours, the employee would then earn Overtime. However, they still would not earn it for their PTO.
As mentioned above, there are times when an employer may choose to count PTO towards Overtime. It’s worth noting that this is not common, nor do most employees expect it. As such, it is not a requirement.
More on PTO Allotments and Accruals
According to the FLSA, employee benefits such as PTO are left to the determination of the employers and contracts offered. To put it simply – the way one accrues PTO can vary depending on the company.
In general, companies will choose one of the two methods mentioned above: allocating a set amount of hours for each year or allowing employees to earn PTO via time worked. For the former, it is common to see the allotted hours increase in response to an employee’s years with the company. For example, an employee who has been with a company for five years will have more PTO than one who has only been there for a year.
Things can get a bit more complex when calculating PTO accrued through the second method. This is where having a PTO or payroll calculator can make life easier – for employees and employers alike.
Rollover Allowances
As exciting as it may be to plan for a vacation, the simple truth is that not everyone gets to use up all of their PTO before the year is done. Sometimes the reason is personal. Other times it may be due to the company needing additional help around the holidays.
In response to these unused hours, many companies will allow employees to roll over a set amount of their PTO each year. Once again, there is no federal requirement forcing employers to do this – though it is common practice to encourage employees to save their hours when possible.
As with Overtime policies, roll-over policies may change by state, so it is critical to look into a state’s laws before making any final decisions. For example, Massachusetts requires that a company allow for at least forty hours of rolled-over PTO each year. Naturally, this requirement only becomes a factor should an employee have hours to roll over.
Most Common Types of PTO
While combining all of Paid Time Off into one neat sum (PTO) is the most common form these days, there are plenty of alternatives out there. Many combinations that use these variations will need to combine several, as this creates complete coverage for employees.
Additionally, even companies that provide a lump amount of PTO may still include alternatives to handle emergencies and increase accommodations towards employees.
- Vacation Days
Vacation days are one of the most common forms of PTO. These days can be used for anything an employee wants or needs – from days off for a wedding to taking some time off to get to the doctor’s office. As with PTO, the number of vacation days made available can vary from company to company.
- Sick Leave
Most companies that choose to offer vacation time will also have a set allotment of time available for when an employee falls ill. These days are commonly known as sick leave. Sick days can also be applied towards injuries and other urgent matters. Many states require companies to offer sick leave, so check local laws to ensure that your company is compliant.
- Personal Time
Personal time is a form of PTO that is very similar to vacation days. Typically employees take off a day here and there. This is in contrast to vacation hours, which not all employers will offer personal time alongside vacation days, so keep this in mind.
- Holidays
Holiday pay is available for companies that want to compensate their employees for certain holidays, usually federal holidays. The most common paid holidays include Memorial Day, Christmas Day, and Thanksgiving Day. Companies can also choose to add to this. Alternatively, some companies have taken to offering floating holidays, meaning that the employee can decide when they want the day off (with pay). This helps account for holidays outside federal holiday lists.
- Bereavement
Many employers offer a form of bereavement leave for employees who have faced a loss in the family. This time is intended to help them cope with their loss without having the added stress of finances. It also provides the time necessary to plan and arrange funeral services. The amount of time offered varies between companies, as do the terms for qualifying for bereavement leave.
- Parental Leave
The availability of paid parental leave is a federal requirement – depending on the size of the business, that is. Smaller companies are exempt from this rule. Some state laws add to the federally required amount of time, so it is critical to look up local laws before creating a company policy.
- Compensatory Time
One final form of PTO worth talking about is compensatory time. Compensatory time is a form of PTO, but with one major difference. It is relevant to the discussion at hand, as it is typically available in place of Overtime pay. It is essential to understand that compensatory time cannot be offered to non-exempt employees. Many states have laws relegating the use of comp time.
Frequently, comp time is only available as a bonus for exempt employees. In other words, a salaried employee may be offered comp time in exchange for longer than usual hours in hopes of keeping them content with their work. It’s a bit of a balancing act for companies. Comp time can only apply in certain situations. And those situations eliminate the need for additional sums. However, it is good practice to find a way of offsetting longer hours. One may do this either by increased pay, benefits, or comp time.
Liz Wyatt 
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