You can manage PTO (paid time off), Holidays and Vacation time in various ways to meet the requirements of your organization.
The general approach recommended is to create projects. This way reporting and utilization calculation become easier.
Create Projects for the different types of non-working time
Create, e.g. a project for Vacation and Holiday. There are several ways how you can categorize the projects:
Utilization categories - create categories to differentiate work and different types of non-work time. For details check Utilization.
Payroll Codes have predefined Holiday, etc. selections.
These options are not required, they just help for creating reports and calculate utilization.
You can also manage time-off requests.