Unlimited PTO vs. Accrued PTO
With accrued PTO, employees earn a balance of hours over time and can take what they have earned. With unlimited PTO, there is no balance: employees ask for time off and a manager approves it based on workload and policy. For a small team, the choice changes what you track, how you handle fairness and coverage, and what happens to unused time when someone leaves.
Side by side
| Question | Accrued PTO | Unlimited PTO |
|---|---|---|
| What does the employee have? | A balance in hours that grows each pay period | No balance; each request is decided on its own |
| What does the manager track? | Balances, accruals, caps and requests | Requests, approvals and who is out when |
| Fairness | Clear: everyone earns by the same rule | Depends on consistent approvals |
| Unused time | Carries over, is capped or expires, as the policy says | Nothing builds up |
| When someone leaves | Unused balance may have to be paid, depending on the policy and state rules | Usually no balance to settle; check state rules |
Federal law does not generally require payment for time not worked, such as vacations; that is a matter of agreement between employer and employee (U.S. Department of Labor). State rules and your written policy can add obligations, especially about paying out accrued time when employment ends. Check them before changing your policy.
What a small team should consider
- Do people actually take time off? Without a balance, some employees take less. A suggested minimum, such as "at least two weeks a year", helps.
- Can you approve consistently? Unlimited PTO needs clear rules for notice, blackout periods and overlapping requests. See the approval workflow.
- What do you already owe? Moving from accrued to unlimited PTO raises the question of existing balances. Decide, in writing, whether they are used, paid or frozen.
- Still track time off. Even with unlimited PTO, record who is out and when, for coverage and payroll.
Frequently asked questions
What is the difference between unlimited PTO and accrued PTO?
Accrued PTO gives each employee a balance that grows over time. Unlimited PTO has no balance; time off is approved request by request.
Is unlimited PTO better for small businesses?
It depends. It removes balance tracking but makes consistent approvals more important. Teams with predictable coverage needs often prefer a clear accrual rule.
Do I have to pay out unused PTO?
Federal law does not generally require it, but some states do for accrued vacation, and your written policy matters. Check your state labor department before deciding.
Can I switch from accrued PTO to unlimited PTO?
Yes, with a written policy change. Decide what happens to existing balances and communicate it clearly; the rules about earned balances can depend on your state.