Sick vs vacation time: What's the difference?

If you've ever had an employee ask "can I use my sick time for a personal day?"—you're not alone. For small business owners managing hourly teams, the difference between sick vs vacation time, and PTO can feel murkier than it should.

Here's the thing: they're not the same, and mixing them up can cost you. Whether it's a compliance issue in a state with mandatory sick leave laws or a payroll headache when someone quits with unused time on the books, how you define and manage your leave policy matters.

This guide breaks down what sick time, vacation time, and PTO each mean, how they compare, what the law requires, and how to decide which structure makes the most sense for your business while staying compliant.

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TL;DR: sick time vs vacation time vs PTO at a glance

Here's the short version before we dig in:

• Sick time: Used only for illness and medical needs. Many states legally require you to offer it.
• Vacation time: For personal time and leisure. Not federally required, and you have a lot more say over how it works.
• PTO (paid time off): A flexible bank that covers both. Employees can use it for whatever they need.

The catch: sick leave often comes with legal strings attached, vacation time usually doesn't. PTO keeps things simple, but can get tricky in states with mandatory sick leave laws.

What is sick leave?

Sick leave is paid time off that employees use when they're too ill to work, need to attend medical appointments, or need to care for a sick family member. It's specifically tied to health-related absences—not personal days or vacation.

Sick leave is typically delivered one of two ways: accrual or lump sum:

1. Accrual: Employees earn sick hours gradually—often a set number of hours per pay period. 
2. Lump sum: Your employees receive their full balance at the start of the year. 

Most state sick leave laws specify a minimum accrual rate, so check your state's rules before setting your policy.

In states with mandatory sick leave, employees can generally use it for:

• Their own illness, injury, or medical appointments
• Caring for a sick family member
• Mental health needs
• Absences related to domestic violence or public health emergencies (varies by state)

Is sick time paid?

Paid sick leave means employees receive their regular rate of pay during the absence. There's no universal federal requirement for private employers, but more than 20 states mandate it. 

Many states also require unused sick time to roll over year to year, up to a cap. Unlike vacation time, employers typically aren't required to pay out unused sick leave at termination.

Not sure what your state requires? Homebase HR has answers—without the lawyer bill.

What is vacation time?

Vacation time is paid leave for personal time, leisure, and travel. Unlike sick leave, it's not federally required and isn't tied to a specific reason for absence. 

As an employer, you can choose: 

• How much vacation time to offer
• How vacation time accrues
• When employees can go on vacation

Whether you can implement a use-it-or-lose-it policy depends on your state—California prohibits them entirely, treating unused vacation as earned wages that must be paid out. Several other states have similar rules. 

Before setting your vacation policy, check your state's regulations to avoid unexpected payout liability when employees leave.

What is PTO (paid time off)?

PTO—paid time off—is a single, flexible leave bank that combines sick time, vacation time, and sometimes personal days into one pool. Employees draw from one balance whenever they need time away, for any reason, without having to categorize the absence.

PTO can be structured three ways:

1. Accrual-based: Employees earn PTO over time, typically per pay period or hours worked.
2. Lump sum: Employees receive their full balance at the start of the year.
3. Unlimited: Employees take as much as they need, subject to manager approval.

Does PTO include sick days?

Under a standard PTO policy, sick days aren't tracked separately—they come from the same pool as vacation days. This is the core distinction between a PTO model and a traditional leave structure. 

The key trade-off: PTO is simpler to administer, but in states with mandatory sick leave laws, maintaining separate banks can make compliance easier to demonstrate.

Sick leave vs PTO vs vacation: how they compare

Sick leave, vacation time, and PTO might all show up on your pay stubs, but they work very differently in practice. Understanding the difference between sick time and vacation—and where PTO fits in—helps you build a leave policy that's fair to your team and keeps your business out of trouble. 

Here's how they stack up.

Sick leave vs vacation time: key differences

These two types of leave look similar—both are paid, both involve time away from work—but they operate very differently.

Legal requirement: Sick leave is often mandated by state or local law. Vacation time is not required under any federal law, and most states don't require it either.

Purpose: Sick leave is for health-related absences. Vacation time is for personal use and leisure, subject to your approval and scheduling policies.

Rollover: Many states require unused sick leave to roll over year to year. Vacation rollover policies vary by state, and some states prohibit use-it-or-lose-it vacation policies entirely.

Payout at termination: In most states, employers aren't required to pay out unused sick leave. Vacation time, however, is treated as earned wages in several states—meaning you may owe employees for unused days when they quit or are terminated.

Sick leave vs PTO

Sick leave is a designated category for health-related absences. PTO is a flexible bank that includes sick time within it. With separate sick leave, employees have a pool with legal protections in states that mandate it. 

With PTO, there's no distinction between a sick day and a vacation day. If you offer PTO in a state with mandatory sick leave laws, your policy must meet or exceed the legal minimum to stay compliant.

Vacation vs PTO

Vacation time is purpose-defined leave for leisure. PTO is broader—the same days can be used for anything. From an employee perspective, PTO is more attractive. From an employer perspective, it's simpler to track, but can create payout liability in states that treat all PTO as earned wages.

PTO vs separate leave banks

Separate banks give you more administrative control and make compliance easier to document. A combined PTO bank is simpler but can blur compliance lines. If you go the PTO route, make sure your policy explicitly addresses sick leave requirements in your state.

Can you use sick time for vacation (or vacation for sick days)?

The short answer: it depends on your policy and your state. Here's how it breaks down:

• Separate sick and vacation banks: Employees generally can't use sick leave for a vacation day—it's designated for health-related absences only.
• Combined PTO bank: Employees can use their balance for any reason, no explanation required.
• Can an employer require vacation for sick days? In many states, yes. Employers can require employees to exhaust vacation before taking unpaid time. But some states prohibit this when protected sick leave is available.
• The scheduling risk: If an employee burns through sick time for personal days and then gets genuinely ill, you may face a staffing gap with no leave balance to cover it.

Is sick leave or vacation time required by law?

One of the most common questions small business owners have about leave policy is what they're actually required to provide. The honest answer: it depends on where you operate. Paid sick leave is mandatory in many states, while vacation time is never federally required—but the rules around both can vary significantly by state and city.

Federal law (FMLA overview)

The Family and Medical Leave Act (FMLA) requires employers with 50 or more employees to provide up to 12 weeks of unpaid, job-protected leave per year for qualifying medical and family reasons. It doesn't require paid leave—it just protects the employee's job. If your business has fewer than 50 employees, FMLA doesn't apply to you, but state and local laws might.

State sick leave mandates

As of 2026, more than 20 states have mandatory paid sick leave laws, and many cities layer on their own requirements on top of state law. Here's what you need to know:

• States with mandates include: California, New York, New Jersey, Washington, Massachusetts, Alaska, Nebraska, and more.
• City-level rules apply too: Even if your state doesn't have a mandate, your city or county might. Check local ordinances wherever you operate.
• Business size isn't a free pass: In most jurisdictions with sick leave laws, the requirement applies regardless of how many employees you have.
• Laws change frequently: Check your state's Department of Labor website for current requirements, or consult an employment attorney.

Keeping up with sick leave laws across states and cities is a lot. Homebase HR helps you stay covered.

Vacation payout laws

No state requires employers to offer vacation time, but many regulate what happens to unused vacation when an employee leaves. Check the U.S. Department of Labor's state labor law resources to find the rules in your state:

• Several states—including California, Colorado, Illinois, Montana, Nebraska, and others—treat accrued vacation as earned wages that must be paid out at termination, and prohibit or restrict use-it-or-lose-it policies.
• Other states allow use-it-or-lose-it policies, as long as employees are clearly notified in advance.

Review your state's rules before finalizing any vacation policy.

Do employers have to pay out sick or vacation time?

Payout rules at termination trip up a lot of small business owners. Here's how each type of leave works:

• Sick leave payout is rare. In most states, unused sick leave isn't considered earned wages and doesn't require payout at termination.
• Vacation payout is more complicated. Several states treat accrued vacation as earned wages, meaning you're legally required to pay it out when an employee leaves—regardless of why. In these states, use-it-or-lose-it vacation policies are illegal.
• PTO payout depends on how your state classifies leave. If your state treats vacation as earned wages and your PTO policy doesn't differentiate between sick and vacation time, your entire PTO balance may be subject to payout at termination. This is one reason some employers in states like California maintain separate banks—it limits payout exposure.

If balances aren't tracked accurately, you risk underpaying or overpaying final checks, both of which can trigger wage claims.

PTO vs separate sick and vacation policies: what's better for small businesses?

There's no universal right answer—it comes down to your state, your team, and how much administrative complexity you want to take on. Here's how the two approaches stack up:

• Administrative simplicity: A combined PTO policy is easier to manage—one balance, one accrual rate, one set of rules. For small businesses without a dedicated HR person, that's a real advantage.
• Compliance risk: Separate leave banks are easier to defend in states with mandatory sick leave laws. With a combined PTO bank, the burden is on you to show the whole policy satisfies the mandate.
• Employee flexibility: Employees strongly prefer PTO. A combined bank gives them autonomy without having to explain why they need a day off—a meaningful recruiting and retention advantage for hourly teams.
• Scheduling and culture: Separate banks can improve scheduling predictability since you know which absences are planned vs. unplanned. But a PTO policy signals trust, and for small businesses where culture and morale matter, that flexibility goes a long way.

How to track sick, vacation, and PTO correctly

Tracking leave manually is one of the most common sources of payroll errors for small businesses. The problems stack up fast:

• Spreadsheet formulas break and accruals get miscalculated for variable-hour employees
• Time off requests live in a different system than the schedule, so approvals never reach the people building shifts
• Inaccurate balances at termination lead to overpaying or underpaying a final check—both of which can trigger wage claims

The cleanest solution is a system that connects time off requests, accrual tracking, scheduling, and payroll in one place—so approving a request automatically updates the schedule and adjusts the balance, with no manual entry required.

Make time off easier for your whole team

Managing sick time, vacation, and PTO doesn't have to eat up your week. Here's what that looks like with Homebase:

• Time off requests: Your team submits requests directly in the app—you approve or deny them with one tap.
• Automatic accruals: Balances calculate and update on their own, so there's no manual math or second-guessing.
• Schedule visibility: See exactly who's available and who's already approved for time off before you build the week—no more last-minute scrambles.
• Payroll sync: When it's time to run payroll, all that time off data flows through automatically. Homebase calculates PTO payouts, applies the right accrual rates, and sends direct deposits to your team.
• Employee access: Your team can check their balances, pay stubs, and time off history on demand—right in the app.

Give Homebase a try for free.

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Frequently asked questions about sick vs vacation time

Can you use vacation instead of sick time? 

Whether you can use vacation instead of sick time depends on your policy. If your business maintains separate sick and vacation banks, employees generally can't swap between them—sick leave is reserved for health-related absences. Under a combined PTO policy, there's no distinction, so employees can use their balance for any reason.

Is a personal day sick or vacation? 

A personal day is neither sick nor vacation time in the traditional sense—it's its own category. Some employers offer personal days separately; others fold them into vacation or a general PTO bank. If your business uses combined PTO, personal days come from that balance. If you maintain separate banks, you'll need to decide which bucket they fall into.

Why do companies combine sick and vacation time? 

Companies combine sick and vacation time primarily for simplicity and employee flexibility. A combined PTO bank means one accrual rate, one balance to track, and no requirement for employees to explain why they need time off—though it can create compliance complexity in states with mandatory sick leave laws.

Is it better to take sick leave or annual leave? 

For employees, it's generally better to use sick leave when sick rather than annual leave. Sick leave often rolls over and carries state-law protections that vacation time doesn't. Using annual leave for illness may deplete days that can't be recovered. The right answer depends on your policy and your state's rules on rollover and payout.

Is PTO the same as sick time? 

No, PTO is not the same as sick time—it's a broader category that includes sick time within it. Sick time is specifically designated for health-related absences, while PTO is a flexible bank that can be used for any reason: sick days, vacation, personal time, and more.

Does PTO include sick days? 

Yes, PTO does include sick days. Under a standard PTO policy, sick days aren't tracked separately—they're drawn from the same combined balance as vacation days. Employers in states with mandatory sick leave laws must still ensure their PTO policy meets the legal minimum, even without a separate sick leave bank.

Is sick time paid? 

Yes, sick time is paid in states with mandatory paid sick leave laws—employees receive their regular rate of pay during the absence. At the federal level, there's no universal requirement for private employers, but more than 20 states have enacted their own mandates as of 2026.

Is vacation time paid? 

Yes, vacation time is typically paid at the employee's regular rate—but offering paid vacation isn't federally required. Most small businesses provide it as a benefit to stay competitive in hiring, even when it's not legally mandated.

Can an employer require you to use PTO for sick days? 

Yes, an employer can generally require employees to use PTO for sick days. However, some states limit this—particularly when an employer tries to substitute vacation time for protected sick leave. Verify the rules in your jurisdiction before writing this into your policy.

What happens if you run out of PTO and get sick? 

If an employee runs out of PTO and gets sick, their options depend on your policy and applicable law. In states with mandatory sick leave, employees may still be entitled to protected leave even with a zero PTO balance. Beyond that, the absence may be unpaid, or the employee may request FMLA leave if eligible.

Remember: This is not legal advice. Leave policies vary significantly by state and locality. If you have questions about your specific situation, please consult a licensed employment attorney or HR professional.