How to Create a Great PTO Policy

Your employees are not robots, and even the most dedicated and invested members of your team eventually need to take some time away from work to rest, recharge or deal with personal matters.

Exactly how you chose to control your employees’ absences is entirely up to you as an employer, but introducing a well thought out and comprehensive paid time off policy is something you should absolutely consider.

A good PTO policy that adheres to your state’s legal requirements and aligns with the expectations of the modern workforce can be a powerful tool in attracting, retaining and engaging your staff over the course of their employment.

If you’re new to the subject, navigating the field of PTO policy creation could be pretty difficult. To make things a bit easier, we’ve prepared a big guide covering different aspects of PTO as well as helpful suggestions on how to make your time off policy work both for your employees and your business as a whole.

PTO: Key Elements

Your PTO policy is a legal document and as such should be very detailed in its description of the guidelines it establishes. Language should be clear, precise, with no room for vagueness or ambiguity. As far as actual contents of your policy go, make sure it covers the following key sections:

  • Employee work hours. Detail the exact amount of business hours employees are expected to put in per week. If you have a clock-in/out procedure in place to control your team’s presence, it should also be reflected in your policy.
  • Available paid time off. Include a clear description of what specific paid leave types are available to employees, as well as how and when they qualify for each of them. Aside from family and medical leaves protected under FMLA, businesses have a lot of flexibility in what types of paid leaves they can offer. The most widely used are vacation days, personal days, national holidays, bereavement and jury duty leaves, but nothing is stopping you from trying something unique.
  • How PTO is accrued. How employees acquire their PTO usually comes down to one of two methods: accruals or flat rates. With accruals the amount of PTO available to employees increases by a certain amount of hours/days for every week/month worked. With flat rates on the other hand, employees simply get a set amount of PTO per year.
  • Leave request procedure. Explain how you expect your employees to submit their PTO requests and how long of a notice they should give. Whether you should require them to file a written form with HR, email or call their supervisor, or submit a request via a software application depends on how strictly you want to control the process. But whatever you chose, make sure that it’s reflected in your policy.
  • Repercussions for violations. Describe the consequences if an employee fails to follow the policy and goes on an unscheduled leave. From a simple warning to termination – how strict you want to be here is entirely up to you and your style of management.

Once you have the aforementioned parts locked down, your basic PTO policy is pretty much done and ready to go. With that said, if you’d like to go all the way and make it as comprehensive and detailed as possible, consider adding the following:

  • Increased PTO based on years of service or position. As a great way to reward your long term employees for their service, you may want to offer them increased amount of paid leave time depending on the length of their tenure. Offering more leave time to your higher ranking employees can also serve as an excellent perk, as well as an incentive for junior and newer employees.
  • Negative PTO balance. Decide whether or not you’re going to allow your team to go into PTO “debt”. Depending on your HR practices, you can allow them to pay it back in overtime, or take it as unpaid time off.
  • Waiting period for new employees. If you already require a probationary period for your new employees, you may want to document whether they must wait before they can take a paid leave.
  • Carry over vs. use it or lose it. In addition to accruals versus flat rates, PTO policies usually have a specific time period (usually a calendar year). There are two ways you can approach this – either allow any unused PTO to be carried over into the next period, or not. If you choose the latter, employees will need to use up their PTO before the end of the period or lose it.

Legally speaking businesses are not required to have a PTO policy, but in this day and age it’s all but essential from the HR perspective. Benefits are one of the first things a prospective employee will be looking at in your job offer, and a great PTO policy can do wonders in attracting good workers.

PTO: Legal Requirements

Even though employers have a surprising amount of freedom when it comes to creating a PTO policy, they still have a legal obligation to treat employees fairly as far as leave practices go. Be sure to study relevant federal laws:

As well as research your city and state laws regarding workers’ compensation. If you have remote employees or have offices in multiple states, keep in mind that you’ll need to comply with the laws of your employees’ location, rather than where your head office is based.

It would also be a good idea to have a qualified attorney review your policy to make sure it doesn’t contain any problematic language or rules that could be easily misconstrued.

PTO: Getting Creative

A simple barebones PTO policy that simply checks all the usual boxes is not much of a perk these days. It’s pretty much mandatory for you to have it because employees expect it.

A good perk, a great one even, should be something creative, something that aligns with your company’s image and corporate culture and boosts your business’s attractiveness in the eyes of existing and especially prospective employees.

What do we mean when we say creative? Well, let’s take a look at a couple of examples.

Airbnb, which is consistently being named as one of the best places to work at, makes their business of travel and exploration a part of their PTO package by offering their employees quarterly stipends to travel and stay at Airbnb-hosted homes around the world.

Employees can get some time off, travel the world, and use the product that they work on.

Another great example is how REI, an outdoor gear company, offers their workers what they call ‘Yay Days’. For two days a year employees are paid to go outside, enjoy nature and have fun. They are encouraged to try something new, or immerse themselves in a favorite outdoor activity, while using REI equipment.

It’s a perk that directly relates to the REI company identity and allows their employees an opportunity to actually live the lifestyle that their company promotes.

Among other interesting vacation trends are paid leaves for volunteer causes. This way employees can use their working hours to give back and make a difference in the community while promoting a great company image.

There are plenty of other interesting instances of out-of-the-box PTO policies, but we’re trying to say here is this – with a little creativity you can make your policy a reflection of your company culture too.

Cool Time off Perks


PTO: Making it Happen

With everything we’ve covered so far, it’s time to put it all into an actual plan. Take a look at your available options and decide which PTO policies would be the best fit and make the most sense within the context of your company culture and HR practices.

Once you pick specific rules, take a moment to examine whether they would work in your specific case. Unlimited PTO is great and everything, but if excessive time off is usually frowned upon in your company, that basically renders the whole thing pointless.

And finally, make sure that when people use PTO they are actually off from work. It’s far too common for Americans today to be working while on vacation, and it’s a very alarming trend. It goes against the very point of vacation – to recharge and boost one’s performance. If an employee is not getting any actual time off while on vacation, they’re not getting any of its benefits. And that’s not what you want for your team as an employer.

PTO: Keeping Track of It

With the actual policy out of the way, you’ll need something to help you monitor and manage your employees’ absences. Should you do everything old school or implement something more modern?


Your choice could mean the difference between a paperwork-ridden slog and a simple stress-free procedure. And since this guide is aimed at making your life easier, we’ll just assume that you’re going with the latter approach.

Adopting a third-party absence management solution could bring tremendous benefits – reduced paperwork, better structure, more accurate data, and automated PTO accruals among other things. But it could also be a little intimidating, not least because there are just so many of them available. Here’s what you should keep in mind before you pick one:

  • Do you need a dedicated solution, or do you already use a service or a piece of software that supports similar functionality? A lot of HR systems and time-tracking tools offer leave time management capabilities as well, so you could take advantage of these features without significant additional costs.
  • Are you looking for a cloud-based solution or would you prefer to host it yourself? If accessibility is important to you, then the former option is the one you’re looking for. With your data in the cloud, everyone in the company can easily access the application at the same time and request time off from their phone or a home computer.
  • Depending on how extensive your PTO policy is, you’ll need the software to be as flexible as possible to accommodate your requirements. Ideally it should support multiple different leave types and balances, as well as automated accruals that can be configured individually for each specific user or a group.
  • A good tool should also provide basic reporting features, so you could quickly review a summary of your team’s PTO, see the history of leaves they’ve taken, and plan ahead.
  • Last but not least, make sure that the software is easy enough to use. If it takes a week to set up and requires your employees to jump through hoops just to see what their current balance is, no one’s going to use it. The less effort it takes to do basic things like submitting a request or checking who’s out of office the quicker your team will get onboard.

Introducing a new PTO rulebook or even updating your existing one can be a serious undertaking. But if you use our guide, you’ll be able to create a PTO policy that will attract new employees, engage your existing staff, and streamline the entire procedure while staying legally compliant.


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