By Lars Lofgren
Regardless of your business type or industry, everyone needs a break. If employees are working around the clock 52 weeks per year, they’ll suffer from burnout, and the work will suffer along with them.
That’s why companies need to create good paid time off (PTO) policies.
The best PTO policies attract and retain top-level talent while ensuring your staff has an outstanding work-life balance. This keeps everyone happier and more focused when they’re on the job.
What Are PTO Policies?
PTO stands for paid time off.
Rather than having separate categories for vacation, sick time, and other personal needs, PTO groups all time away from work into a single category.
PTO policies offer more flexibility and privacy to employees as well. Instead of accrued sick time going to waste, employees can use that time for a long weekend or personal day at any point throughout the year—as long as it falls within the policy rules.
In short, a company PTO policy defines the rules for how employees can take time off of work.
The Basics of PTO Policies
Before you implement a PTO policy, it’s essential to have a firm grasp of your options. We’ll take a closer look at the core components of PTO policies below.
Types of PTO Policies
Every business is different, so PTO policies will vary across the board. With that said, most PTO policies fall into one of three categories:
- PTO Banks — PTO banks offer employees a certain amount of paid time off per year that employees can use for any purpose. There’s no difference between a sick day, vacation day, or personal day.
- Traditional Time Off — Traditional time off policies separate work leave reasons into different categories. For example, companies might offer ten vacation days, six sick days, and four personal days per year.
- Unlimited PTO — As the name implies, unlimited PTO allows employees to take as much time off as they need with no predetermined number of days. Time off approval is typically granted by the employee’s direct manager when an unlimited policy is in place.
There are pros and cons to each method. For example, PTO banks don’t force your staff to fake an illness if they need a day off. But they could use all of their days for a summer vacation and be left with no time left when they’re sick in December.
Traditional policies are less flexible and can create problems for how and when the time gets used.
Let’s say an employee has ten sick days that don’t get used all year. Come December, they might call out “sick” for two weeks straight because those days will expire when the calendar year turns. If they don’t get used, then they are wasted. Wouldn’t you rather have your staff use that time sporadically instead of hoarding it?
Not everyone in the company will necessarily have the same amount of PTO every year. Many organizations reward employees with extra PTO days depending on how long they’ve worked for the company.
For example, employees who have worked for less than one year might be eligible for ten days of PTO, while employees working one to four years get 15 days. Your staff with over five years gets 20 days, 10+ years get 25 days, and so on.
Rather than starting a PTO calendar on January 1st and ending it on December 31st, you could base PTO on the employee’s anniversary date—especially if you’re using the sliding scale approach in the example above.
If you don’t like the idea of offering a lump sum of PTO to employees, you can set up a PTO accrual system instead.
With an accrual PTO policy, your staff can earn PTO hours based on how much time they work. For example, an employee might accrue and bank two hours of PTO for every 40 hours of work.
Types of Paid Time Off
It’s important to understand the different types of paid leave that could qualify for your company’s PTO policy. Examples include:
- Vacation — No state or federal laws require employers to offer paid or unpaid vacation. But allowing your staff to take vacation time is a great way to attract talent and keep morale high in the company. If a company provides no vacation time, it will be very difficult to retain employees.
- Sick Leave — There are many different sick leave laws throughout the US, especially at the state and local levels. Make sure to consult with an attorney to ensure compliance regarding sick time in your policy.
- Personal Days — Some companies might have different qualification rules for a personal day compared to a vacation day. For example, observing a religious holiday or taking time for an urgent non-medical situation might fall into this category.
- Parental and Maternity Leave — Certain laws require employers to offer job protection and benefits to employees who have a baby or adopt a child. Depending on the circumstance, some parental leave might be unpaid.
- Jury Duty — Employees are entitled to time off if they’re called for jury duty. Employers aren’t necessarily required to pay or compensate for that time, but employees can’t be penalized if they miss work due to jury duty or a court subpoena.
- Voting — Whether it be for presidential or local elections, many companies allocate time for voting PTO. Generally speaking, voting PTO might be limited to just a few hours, as a full workday isn’t typically needed.
- Military Leave — The Uniformed Services Employment and Reemployment Rights Act (USERRA) defines the policies to protect employees for active duty services, active duty training, and inactive duty training. Employers are required to offer an unpaid leave of absence to employees who meet specific military leave criteria.
- Bereavement — Bereavement PTO is time off related to a family member or friend of an employee passing away. This time can be used to make arrangements, attend services, and mentally cope with the loss.
Again, in many cases, it’s easier just to bundle PTO into a single category. That way, you won’t have to worry about identifying why employees are taking time off.
PTO Laws and Regulations
You need to consider local laws when you’re creating a PTO policy for your business. Certain states require companies to offer paid sick leave. This can create complications if sick time isn’t specified.
In addition to sick leave, employers with 50 or more employees need to offer FMLA (Family and Medical Leave Act) Benefits.
Certain states also view accrued time off as unpaid earned wages. So if the employee leaves or quits, the business must pay them for accrued PTO. To minimize this risk, you could define a maximum amount of accrued PTO balances and payout unused time when the max amount is reached.
Always verify that your policy is compliant with the US Department of Labor and any other local labor laws. It’s definitely worth consulting with an employment attorney to ensure your policy isn’t in violation.
In addition to leave days that can be used at the employee’s discretion, many US holidays fall into the PTO bucket.
You might decide to offer paid or unpaid time off for holidays like:
- New Year’s Day
- Martin Luther King day
- Memorial Day
- Independence Day
- Labor Day
- Christmas Day
Some companies offer floating holidays for days like President’s Day, Columbus Day, or Veterans Day. Your staff could choose to work on those days and use the time off at any other point during the year.
3 Tools to Improve PTO Policies
Creating an effective PTO policy for your business is much easier if you’re using the right software. These are three of the best solutions to consider:
#1 — Gusto
Gusto is best known for its payroll service designed for small businesses. But the platform has grown over the years and comes with extended functionality for other HR purposes. You can easily use Gusto to create a customized time off policy based on your company’s needs.
The software also offers simple time-off tracking and reporting tools as well. Your staff will be able to view all PTO changes directly from Gusto’s employee self-service app or online dashboard. Plans start at just $6 per person plus a $39 monthly base price.
#2 — Deputy
Trusted by more than 250,000 organizations worldwide, Deputy is one of the most popular scheduling and timesheet solutions on the market today. The software comes with built-in tools for time off requests, approvals, and PTO tracking. Your staff can easily request time off directly from the Deputy mobile app.
The cool part about Deputy is that managers can quickly fill shifts and find replacements when someone calls out of work, regardless of the reason. Deputy integrates with other HR tools like BambooHR, Gusto, ADP, and more. Plans start as low as $2.50 per user per month, and you can try it for free with a 31-day trial.
#3 — Zenefits
Zenefits is an industry leader in the HR software space. It’s an all-in-one solution for managing payroll, employee benefits, onboarding, and other aspects of HCM (human capital management). The software comes with tools for creating PTO policies, managing and approving PTO requests, setting blackout dates, and more.
The platform automatically calculates earned PTO days, so your employees and HR team won’t have to track time earned manually. I like Zenefits because the PTO management system automatically connects with other areas of the platform, like scheduling and payroll. Plans start at just $8 per employee per month, and you can try it free for 14 days.
3 Tricks For Creating and Managing PTO Policies
If you’re feeling overwhelmed about creating a PTO policy for your business, applying these quick tricks and best practices will make your life much easier.
Trick #1: Keep it Simple
The terms “paid time off” and “vacation time” are typically used interchangeably. But technically, PTO refers to the PTO bank in which all time-off hours are grouped into a single category.
For most businesses, this approach is the easiest way to create a PTO policy.
Otherwise, you’ll be forced to set qualification rules for what is considered vacation time versus a personal day or sick day. There’s just too much confusion here, and it complicates the policy. This can lead to problems when it comes time to track PTO usage as well.
Segmenting PTO into different categories can also create frustration amongst your staff. People feel like they’re being penalized if they don’t get sick—that’s not the type of company culture you want to create.
As long as you’re following all local, state, and federal employment laws, a single bucket for all PTO time will likely be your best option.
Trick #2: Use Software to Manage PTO
It might be easy for a startup or small business with just a handful of employees to track time-off requests on your own. But at scale, this is nearly impossible to do efficiently without using software.
HR software and time-tracking tools can automatically calculate earned PTO. Your staff will know exactly how much time they can take off and manage requests online without having to call or email the HR department.
By using software to create a PTO policy, your staff can also access these policies at any time through an employee self-service portal. This is much easier than referring to a physical employee handbook that gets buried at the bottom of a drawer somewhere.
Trick #3: Advertise Your PTO Policy to Attract Top-Level Talent
Job seekers value time off and good work-life balances. They want to work for businesses with an employee-friendly PTO policy.
Once you’ve established a plan, make sure to mention these perks when writing job descriptions. This should be included in the employee benefits section of any new offering, and you should display it proudly on the careers page of your website.
What to Do Next
Now that you understand PTO and how it works, it’s time to officially create your company’s PTO policy.
To get started, make sure you’re using solid HR software. This will make it easy for you to create the policy rules and share the information with your employees.
It’s also worth getting a modern time and attendance system, especially if your HR solution doesn’t come with built-in time tracking tools. You can use this to track PTO accruals, time-off requests, and manage employee scheduling.