7 Best Guidelines for Creating A PTO Policy For Your Business

When providing benefits to employees, one that ranks highly on the list is paid time off (PTO). As an employer, it’s essential to craft a clear policy that outlines accrual rates, usage requirements, the process for requesting PTO, and other critical topics. Review our seven guidelines for creating a PTO policy for your business to avoid missing anything important.

What is a PTO Policy?

A PTO policy is a written document that details paid leave benefits and how to use them. Any company that provides paid time off as a benefit to its workforce must have a detailed policy in place to ensure consistency, fairness and transparency.

PTO can typically be taken for a variety of purposes. Some employers offer PTO in different buckets, such as vacation vs. sick time, while others offer a lump sum for use when needed. But the purpose of the policy is to outline when and how an employee can take time off, as well as describe the process for requesting PTO hours and accrual methods.

7 Guidelines to Create a PTO Policy for Your Business

When creating a PTO policy for your business, it’s helpful to know where to start. These seven guidelines can serve as a starting point for your process.

Decide on an accrual method and rate

Companies that offer PTO to eligible employees must determine the accrual rate and method. The rate of accrual refers to how much PTO an employee earns at a specific time. For example, you might align the accrual schedule with your company payroll schedule, allowing an employee to earn a set number of hours per pay period. Some companies offer all PTO hours at the start of the year.

Deciding on an accrual method and rate often requires a careful assessment of business needs. For example, if the first months of the year are the busiest for your company, it may not make sense to offer a lump sum on January 1, thus encouraging employees to take time off right away.

Choose a PTO system

Another decision to make involves selecting the PTO system. Examples include:

• Unlimited (open) PTO: Allows employees to take as much time off as desired
• Bank: Employees receive all paid time off in a single bank or bucket, which they can use for various purposes (sick leave, vacation, etc.)
• Accrued days: Permits employees to take the number of days off that they have accrued

Each system has its own pros and cons. Assess business needs and scheduling to determine which will best align with your company culture and workforce.

Identify approved types of time off

Depending on location, regulatory requirements and even preferences, PTO policies can vary drastically. The next guideline for creating your business PTO policy involves identifying what types of time off are approved. Examples of recognized paid leave include:

• Vacation
• Sick
• Personal
• Parental leave
• Bereavement leave
• Jury duty

Determine the policy for requesting PTO

In order to ensure proper scheduling and avoid issues, employers must establish a consistent policy for request or using PTO. Your policy should outline the process for requesting PTO and details around the approval process. Things to consider include:

• How much advance notice an employee needs to provide for non-urgent PTO usage
• The process for requesting urgent PTO usage (sickness, injury, childcare issues, etc.)
• Whether employees must provide proof for urgent PTO usage, such as a doctor’s note
• Who approves PTO requests
• How PTO is requested

Decide on paid holidays

Most companies also offer paid holidays, or specific days where eligible employees receive normal pay when the business is closed. Make sure your PTO policy includes a comprehensive list of paid holidays.

Even if a company doesn’t close for holidays, offering paid holidays can permit an employee to take a specific holiday off without using their PTO. Employees who do work on paid holidays are typically paid at a higher rate.

Assess payout/termination rules

Will your employees be able to cash out unused PTO? Can they receive pay for accrued PTO hours if they are terminated or resign from their position? The answers to these questions should be clearly defined in your policy.

Ensure legal compliance

Part of ensuring compliance is maintaining consistency across all eligible employees. Identify which employees are eligible to earn PTO, whether based on status (full-time vs. part-time, etc.) or hours worked during a pay period.

It’s also essential to track PTO accruals and usage. Failure to do so could put your business at risk of legal action, particularly if some employees have access to more time off than others.

PTO Policy Examples

Do you need a little more inspiration for creating your PTO policy? Check out these examples!

• Isaac’s Deli (restaurant)
• SSMHealth (healthcare)
• Enviro-Clean Building and Maintenance Services (cleaning)

With a clear PTO policy crafted, your next step is implementing the plan and process. With WorkforceHub on your side, it’s easier than ever to manage accruals and implement consistent PTO policies. Check out how it works with a free trial.