What is paid time off (PTO)?

Paid time off (PTO) is a workplace benefit that allows employees to take time away from work while still receiving their regular pay. Unlike traditional leave systems that separate vacation, sick days and personal leave, PTO often combines these into a single bank of days that employees can use at their discretion. 

In Canada, PTO must comply with federal and provincial labour standards, which mandate minimum vacation entitlements and other statutory leaves.

PTO policies vary widely by employer, but they typically include provisions for vacation time off, personal days and sometimes even wellness or mental health leave. The flexibility of PTO makes it a popular choice for employers trying to support work-life balance while maintaining operational control.

How does PTO work?

PTO can be structured in several ways, but most Canadian employers use one of the following models:

• Accrual-based PTO: Employees earn PTO gradually, often based on hours worked or length of service. For example, an employee might accrue 1.25 days of PTO per month.
• Annual allotment: Employees receive a predetermined number of PTO days at the beginning of each year or on their anniversary of employment.
• Flexible or unlimited PTO: Some companies offer unlimited PTO, trusting employees to manage their time responsibly. This model is rare in Canada but could become more prevalent in the tech and creative industries.

Employees typically submit a PTO request or vacation request using a time-off form or a digital HR platform. The request can include the dates of absence, the reason (if required) and any supporting documentation. Employers then review and approve or deny the request based on staffing needs and policy guidelines.

How does PTO benefit employees?

For employees, PTO is not only a break, but it also contributes to their overall well-being and job satisfaction. Here’s how PTO may benefit employees:

• enhance mental and physical health: reduce stress, prevent burnout and promote overall wellness.  
• facilitate work-life balance: allow employees to manage personal responsibilities, travel or simply recharge.  
• boost job satisfaction: improve outlook by taking time off without financial penalty, making employees feel valued and respected.  
• provide greater flexibility: may give employees the freedom to use their time as needed, whether for vacation, illness or personal matters.  

How does PTO benefit employers?

Employers offering a thoughtful PTO policy support employee health while driving business performance. Here are some of the benefits to employers:

• Higher retention rates: Employees may be more likely to stay with companies that respect their time and wellbeing.
• Increased productivity: Rested employees typically return to work more focused and energized.
• Reduced absenteeism: Structured PTO can encourage planned absences rather than last-minute call-ins, resulting in a more stable workforce.
• Enhanced employer brand: A generous and well-managed PTO policy can attract top talent and improve the company’s reputation.
• Legal compliance: Meeting or exceeding provincial standards may help avoid penalties and disputes.

Types of paid time off policies and procedures

Employers can choose from several PTO structures, each with its own procedures for requesting time off. Here are the main types of PTO policies to consider:

Traditional vacation policy

• separate from sick or personal leave
• employees submit a vacation request in advance
• vacation accrual is typically based on tenure (e.g. two weeks after one year, three weeks after five years)

Combined PTO bank

• vacation, sick and personal days are pooled together
• employees use a form to request time off for any reason
• offers flexibility but requires clear usage guidelines

Accrual-based PTO

• PTO is earned over time (e.g., per pay period)
• requires tracking systems and clear communication
• can be ideal for part-time or hourly workers

Unlimited PTO

• no set limit on days off
• employees must still submit a PTO request
• requires a strong culture of accountability

Each policy outlines the process for employees to request vacation, submit a time-off form and receive approval. Employers must also define blackout periods, notice requirements and carryover rules.

What to consider when creating a paid time off policy

Crafting a PTO policy that works for both your business and your team requires thoughtful planning. Here are key factors to consider:

1. Legal requirements

• Review federal and provincial labour standards.
• Note that minimum vacation entitlements vary by province (e.g. Ontario requires two weeks after one year).
• Consider include payout rules for unused PTO upon termination.

2. Company culture

• Align your policy with your values and decide whether you prioritize flexibility, structure or wellness.
• Consider offering mental health days or volunteer leave.

3. Employee needs

• Survey your team to understand preferences.
• Balance generous time off with operational coverage.

4. Accrual vs. lump sum

• Decide whether employees earn PTO gradually or receive it all at once.
• Consider hybrid models for different employee types.

5. Request procedures

• Create a clear process for requesting time off.
• Use a standardized form to request time off (paper or digital).
• Define approval timelines and escalation paths.

6. Tracking and reporting

• Use HR software to manage PTO balances and requests.
• Ensure transparency and accuracy in record keeping.

7. Carryover and expiry

• Decide if unused PTO can roll over to the next year.
• Set limits to prevent excessive accumulation.

8. Communication and training

• Include the policy in employee handbooks.
• Train managers on how to handle PTO requests fairly and consistently.

Sample PTO request procedure

A simple process ensures fairness, transparency and accountability. To streamline the process, here’s a sample workflow for requesting PTO:

1. Employee completes a time-off form with requested dates and reason (if required).
2. Employee submits the form to their manager or HR department.
3. The manager reviews staffing needs and policy guidelines.
4. The manager communicates the approval or denial within a set timeframe (e.g., three business days).
5. Approved time off is logged in the HR system.

Creating a paid time off policy in Canada is about building a workplace where people feel respected, supported and empowered to thrive. By understanding the legal landscape, listening to your employees and designing a system that works for everyone, you may create a PTO policy that contributes to the success of your business.