Does PTO Count Towards Overtime? A Guide for Small Businesses

It’s Sunday night and you get that dreaded text: your Monday opener is out sick. The rest of your team is either pushing into overtime or already booked off. As you scroll through PTO requests and overtime logs, scrambling for a fix (that may or may not exist), you can’t help but wonder: Does paid time off count towards overtime?

Close out some tabs, grab a snack, and breathe. We’ve got you. 

This guide covers everything you need to know about paid time off and overtime. You’ll learn the basics on PTO rules and policies, when PTO counts towards ‘hours worked’, and how to keep track of your team’s hours—the easy way.

TL;DR: Does PTO count towards overtime?

The short version: Overtime is strictly for on-the-clock working hours. Since your team isn’t actually working during PTO, it doesn’t count—and won’t push anyone into overtime pay.

Here’s what does count as hours worked:

• Hours spent working on-site (and travel between sites during working hours)
• Mandatory meetings and training
• Short on-duty breaks under 20 minutes
• On-call time (if it restricts what your employees can do)

What doesn’t count as hours worked? Paid time off (PTO), vacation, sick days, and holidays. 

Where things get messy:

• Manually tracking PTO accruals and rollovers
• Miscalculating overtime with mixed pay rates
• Missed punches and break compliance confusion
• Juggling state rules and federal laws

How Homebase keeps things tidy:

• Automatic PTO tracking & rollovers: Set it up once and never think about it again.
• Overtime alerts: Catch extra hours before they cost you.
• Smart timesheets: Approved hours, breaks, PTO, and multiple pay rates flow right to payroll—without the mental gymnastics. 
• Built-in compliance tools: Stay on top of FLSA and local laws—and get a heads up when they change.
• One mobile app for your team: Easy time off requests, approvals, and balances right in their pocket.

“Love everything about it. I really love how user-friendly both the manager and employee sides of Homebase are. I am so impressed with all of the functions, and my employees love how everything is in one place. No more paper time cards, calendars for time off requests, or long chat messages for shift trades!!" — Allison Folkers, Owner, Apple Creek Coffee Co.

Over 150,000 small businesses (including Allison’s) run smoother with Homebase. Yours can too.

What is paid time off (PTO)?

Let’s start with the basics. Paid time off, or PTO for short, is a workplace perk that allows your team to take time off and still get paid. They can use it however they want: vacation, mental health days, sick days, or just a personal break.

Sounds pretty great, right? But like any good thing, PTO needs some ground rules. Otherwise, it’s easy to get a little too generous. A clear paid time off policy keeps things consistent, so everyone stays on the same page—whether they’re clocking in for their morning shift or sippin’ sangria in Spain. 

What is overtime?

Overtime kicks in once non-exempt employees work more than 40 hours in a week. Managers and some salaried folks don’t count, but hourly staff usually do. That means you’re required to pay them time and a half for any extra hours over 40 in a workweek. And as you can guess, those extra hours add up fast.

But what exactly counts as ‘hours worked’? Here’s how the Fair Labor Standards Act (FLSA)  breaks it down:

• Hours on duty: This is when your employees are on-site and actively working.
• Engaged to wait: Times when an employee is on the clock but waiting for something work-related, like a delivery.
• Meetings and training: Mandatory sessions—whether team trainings or one-on-one meetings—count as ‘hours worked’ too. 
• On-call: If an employee has to be ready to jump in at a moment’s notice, that’s on-call time. And if those on-call hours limit what they can do while waiting, it counts as ‘hours worked’.
• Short breaks: Quick rest breaks under 20 minutes are included. But meal breaks of 30 minutes or more don’t count, unless the employee has to work while eating.

Between long shifts, on-call hours, breaks, and PTO, there’s a lot to keep track of. So if you’ve ever stopped mid-payroll and thought, Wait… does PTO count towards overtime?—that’s a fair question. And it’s not something you want to guess on. Knowing the basics of FLSA rules and exactly what counts as overtime pay and paid time off can help you avoid costly slip-ups.

No time to babysit FLSA rules? Homebase knows the compliance rulebook by heart.

So, does PTO count as hours worked?

Now that we know what ‘hours worked’ means, let’s tackle the big question: Do PTO hours count towards overtime? The short answer: no.

Say your employee works four 9-hour days—that’s 36 hours for the week—and takes an 8-hour PTO day. Even though their paycheck will show more than 40 hours that week, you don’t owe overtime for that PTO.

Why? Because by definition, PTO means your team is off the clock and free to use their time as they want. So while PTO counts toward payroll hours (meaning they’ll be paid for those hours), they don’t count as ‘hours worked’. And since they’re not actually working, those paid hours don’t count as overtime. 

Do vacation hours count towards overtime?

The same goes for vacation time: it doesn’t count toward overtime. No matter why your team uses PTO, including vacation, it’s not considered hours worked if they’re not on-site.

Does sick time count towards overtime?

No, sick time does not count toward overtime, even if it’s paid time off. When employees are home sick, they’re not working. So naturally, those hours don’t count as hours worked.

Do holiday hours count towards overtime?

No, time off for a holiday doesn’t count towards overtime. But working on holidays does. So, if an employee clocks more than 40 hours in a week—say, between December 20 and 27—any hours over 40 count as overtime.

Can you get overtime and PTO in the same week?

It’s possible, but not common. Let’s say an employee somehow manages to work more than 40 hours and takes PTO in the same work week. Any hours worked on top of that 40-hour limit count as overtime. But that wouldn’t make the PTO eligible for overtime rates. Overtime only takes into account hours actively spent working.

Bottom line? No matter what, PTO itself is not eligible for overtime pay.

Here’s what to bear in mind when creating a PTO policy.

Now that you know PTO won’t bump anyone into overtime, you’re ready to build a PTO policy. Here are a few smart questions to ask to keep things fair for your team and your bottom line.

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

There’s no single way to decide how your team earns PTO. Choose what works best for them and your budget. Your policy can build time off based on hours worked, years of service, or a mix of both.

Here’s how those options could look:

• Hours worked: Let’s say an employee gets 2 hours of PTO for every 40 hours they work. If they work 800 hours in a year (about 20 weeks at full time), they’d accrue 40 PTO hours (about a week).
• Years of service: If you’re basing PTO on how long someone’s been with you, it helps to break it into tiers. For example:
  
  • Less than 3 years: 10 PTO days per year.
  • Between 3-7 years: 15 PTO days per year.
  • 7+ years: 20 PTO days per year.
• Hours worked and years of service: You can mix both options. Let employees earn PTO throughout the year based on hours worked, and give them a set number of days up front, too. Best of both worlds.

There’s no right or wrong way to build out your PTO policy. But here’s some food for thought: the American Psychological Association says that time off is one of the best ways to support your team’s mental health. And happy employees are less likely to quit, which is great for team morale and your bottom line.

So check your staffing, crunch your budget, and craft a PTO plan that keeps your crew smiling and your business humming along.

2. Will PTO roll over or carry over?

When you write your PTO policy, consider:

• Will employees need to ‘use it or lose it,’ or will their PTO carry over from one year to the next?
• How long can employees keep accruing PTO days before they have to start cashing them in?
• Is there a limit to how many days an employee can take off at once? Let’s say an employee has been working for you for 5 years, has accumulated 100 PTO days, and wants to go on a 3-month trip. Can they?

3. How will your employees request paid time off?

Once your employees have saved up those precious paid time off days, how do they ask to use them?

• Do they fill out a form or make a verbal request?
• Can they only take so many days at a time? 
• How much time in advance do you need to know?
• Are there blackout dates when PTO requests aren’t allowed? For example, no PTO on Boxing Day if you run a retail store, or during prom season if you run a salon.
  

Keep your PTO rules and requests in one spot—no more “I told you I was off” or “Didn’t you see my text?” moments. Homebase keeps everyone on the same page.

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

You’ve got some wiggle room in how your team earns PTO. But—like most things in business—there are rules you can’t ignore. Stay on top of your state’s PTO payout laws and the basics of the Fair Labor Standards Act.

This isn’t everything, but here are a few key things to keep in mind:

• Minimum PTO: Some states or cities require you to give employees a minimum amount of PTO per year.
• Unpaid leave: Under the Family and Medical Leave Act (FMLA), your team can take up to 12 weeks of unpaid leave for certain family or medical reasons.
• Job protection: The Americans with Disabilities Act (ADA) and FMLA  say you have to hold that job (or a similar one) for anyone who takes approved leave.
• Provide notice: At the very least, keep your team in the loop about their rights and update them if your PTO policy changes.
  

There’s a lot to think about. It’s not just when someone can take time off. It’s how they earn it, how they use it, and what happens if they don’t. Having clear PTO rules—and making sure everyone knows them—keeps you from scrambling to cover shifts or untangle confusion later on.

​​Overtime and PTO tracking

Nailed down your PTO policy? Great, now it’s time to figure out how you’ll track everything day to day. And it’s not just PTO—there’s overtime, regular hours worked, and sick leave to stay on top of, too. That’s a lot of moving parts.

To manage PTO and overtime properly (and avoid payroll surprises), you’ll want a payroll platform that does more than just jot down hours. Here’s what you should look for:

• Accurate time tracking for every clock-in, break, and clock-out—no more missed punches or time theft.
• Clear break and overtime policies that calculate work hours, overtime pay, and paid time off correctly every time.
• Smart scheduling tools to spot when someone’s about to hit overtime before you post the schedule.
• Reliable time-off request tracking so PTO, sick leave, and vacation don’t leave you understaffed.
• Integrated payroll prep that connects all approved hours, PTO, and overtime pay automatically.
• Built-in compliance checks to help you follow FLSA overtime rules and state PTO laws without extra stress.

Eliminate PTO and overtime headaches with Homebase.

Manual PTO tracking and hidden overtime costs? Total time-wasters. Homebase logs every hour, break, and PTO day for you, then rolls it right into payroll—so you can spend less time triple-checking payroll and more time doing literally anything else.

Here’s how Homebase makes it happen:

• Automatic PTO tracking and accruals: Set your PTO policies once and run payroll without doing any math. Yes, really.
• Overtime alerts before it costs you: Get notified when someone’s about to hit overtime, adjust shifts before extra pay kicks in, and keep labor hours under control.
• Digital timesheets that sync with payroll: Forget manual entry. Approved hours, breaks, PTO, and overtime flow straight into payroll.
• Multi-rate pay made simple: Track multiple roles and pay rates per employee, automatically.
• Built-in time theft prevention: Auto clock-outs and secure PINs keep your team’s hours accurate, so you don’t have to play detective later.
• Mobile access for your team: Employees can submit time-off requests, see approvals, and check balances right from their phone. 
• Compliance built in: Homebase flags missed breaks, enforces overtime rules, and stays up-to-date with FLSA and state labor laws—so you can relax, not worry.
• Effortless switching: Move your payroll data into Homebase without a hiccup. We’ll take care of the setup for you—on the house, of course.

Over 150,000 small business owners rely on Homebase to keep PTO fair, overtime under control, and payroll error-free. But don’t just take our word for it:

"Homebase is easy to learn, and my staff loves it. They love being able to claim an open shift, request time off, and even trade shifts with each other. I like how Homebase notifies me to approve these changes. I love the phone app for the staff and being able to claim an open shift or trade shifts or request coverage." — Sara Preston, Owner, Scrappin' in the City.

Stop losing hours sorting out PTO and overtime. Let Homebase handle it—try it for free.

Overtime pay and paid time off FAQs

Does PTO count towards hours accrued for overtime?

According to state laws and the FLSA, PTO hours don’t count as ‘hours worked’. Since they don’t add to the total hours for overtime, they won’t push an employee into overtime pay. So even if an employee’s PTO hours extend their payroll hours beyond the 40 hours, employers don’t need to pay overtime.

What is the law around PTO and overtime?

The Fair Labor Standards Act says any non-exempt employees must get time and a half for hours worked over 40 in a week—that’s overtime pay. Under this law, PTO doesn’t count as hours worked. So, for non-exempt employees, PTO and overtime don’t mix. PTO can’t push someone into overtime pay.

Heads up: some states have extra PTO and overtime laws, on top of federal laws like the Family Medical Leave Act. Always double-check before locking in your policy.

Is anything over 40 hours overtime?

Yes, according to the Fair Labor Standards Act (FLSA), any hours worked over 40 hours per week are considered overtime (for non-exempt employees). And remember, overtime rates are 1.5 times the employee’s normal pay rate.

Is PTO included in total hours worked?

No, PTO is not included in total hours worked because PTO hours aren’t considered hours worked. Whether or not employees are paid for vacation time, sick leave, or personal days, they aren’t expected to perform work tasks while away, so it doesn’t count toward the total hours worked.

Does PTO count as overtime in California?

No, PTO doesn’t count as overtime in California. California defines overtime as more than eight hours worked in one day, or more than 40 hours per week.

How does PTO affect overtime pay?

It doesn’t. PTO adds to paid hours but not to hours worked, so it won’t bump a team member into overtime pay.

Still figuring out PTO and overtime? Homebase makes it simple.