How to Create a Paid Time Off Policy for Your Business

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Is your team counting down to their next vacation, or saving up their PTO (paid time off) days to enjoy a break during the winter holidays? Perhaps they're interested in sprinkling their paid time throughout the year for continuing education opportunities. Whatever the reason, they deserve a PTO policy that caters to their needs. An effective PTO policy provides a boost to their total compensation package and the confidence to plan ahead.

Creating a successful PTO policy means managing several variables. This can be a daunting task for HR managers, business owners, and decision-makers.

Different Types of PTO Policies

Paid Time Off (PTO) policies have evolved significantly over the years to cater to a changing workforce. An effective PTO policy should balance the needs of the business with the demands and well-being of employees. Let's delve deeper into different types of PTO policies, providing you with a more comprehensive understanding to facilitate policy decisions for your business.

Traditional PTO Policy

The traditional PTO policy is the most common type, especially among established companies. In this structure, employees accrue PTO hours over a given pay period. The hours typically vary depending on factors such as the length of service and job level. A noteworthy aspect of this approach is the categorization of time off into different buckets, such as vacation days, personal days, and sick days.


  • This policy provides a predictable and structured framework for both employees and employers.
  • Employees can plan their time off well in advance.
  • It's easy to monitor and manage accrued PTO.


  • It might not offer as much flexibility as some employees would prefer.
  • It may lead to unscheduled absences if employees "use up" their sick days for other reasons.

Example: A retail corporation may have a traditional PTO policy where hourly employees accrue a certain number of vacation and sick days per calendar year. Unused PTO may be rolled over into the next year, up to a certain limit.

Unlimited PTO Policy

Some innovative companies have adopted an unlimited PTO policy, a progressive approach that, in theory, allows employees to take as much time off as they need.



  • If not managed properly, it can lead to abuses or even discourage employees from taking time off due to perceived pressure.
  • It's not suitable for all types of businesses, especially those requiring a consistent physical presence.

Example: A tech startup might offer unlimited PTO, emphasizing trust in their employees' judgment to take time off when necessary while still meeting their performance goals.

Combined PTO Program

A combined PTO program, also known as "paid time off banks" or "PTO banks", merges all types of leave—like vacation time, personal time, and sick time—into a single bucket.


  • Employees appreciate the flexibility it provides, as they can use their time off for any purpose without differentiating between vacation or sick days.
  • It discourages "sick day" misuse since all time off comes from the same pool.


  • An employee experiencing a year with significant medical issues could potentially exhaust their PTO, leaving no time for vacation or personal days.
  • It can be complicated to manage, particularly if state laws require sick leave to be paid out differently from other types of PTO.

Example: A medium-sized marketing firm could offer a combined PTO policy, granting all employees a set amount of PTO days per year to use as they see fit. The aim would be to encourage a healthier work-life balance and reduce the administrative burden of tracking different types of leave.

Choosing a PTO policy is a significant decision that affects the wellbeing of your employees and the smooth operation of your business. By considering the unique needs and expectations of your workforce, as well as the specific demands of your industry, you can implement a PTO policy that contributes to a satisfied and productive workforce. Remember, each policy will have different requirements for PTO requests, so it's crucial to communicate these clearly to your team.

Standard Holidays Employers Offer

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Alongside a flexible PTO policy, it is customary for companies to provide paid time off for national holidays each year. Although there are exceptions, most employees expect to have holidays like Independence Day and Christmas Day off.

Below is a list of major US national holidays for 2023, when some businesses offer time off. Companies typically select around seven holidays for their employees and may also offer floating holidays.

Date Holiday
Sunday, January 1 New Year's Day
Monday, January 16 Birthday of Martin Luther King, Jr.*
Monday, February 20 Presidents Day
Monday, May 29 Memorial Day
Monday, June 19 Juneteenth*
Tuesday, July 4 Independence Day
Monday, September 4 Labor day
Monday, October 9 Columbus Day*
Saturday, November 11 Veterans Day*
Thursday , November 23 Thanksgiving Day
Monday, December 25 Christmas Day


*Please note: These holidays are Federal holidays that may not commonly be observed by businesses.

Every company has its unique way of managing holidays, often dictated by their industry, state laws, and company culture. Some companies offer "floating holidays", which are typically one or two days that employees can take off at their discretion, in addition to their regular PTO.

Remember, the holiday schedule should be clearly communicated in the employee handbook along with the PTO policy to avoid any confusion.

By understanding the needs of your employees and considering federal laws, state laws, and company culture, you can create a PTO and holiday schedule that respects and values your employees' time and contributions. This approach will boost morale, increase employee productivity, and help you maintain a happy and efficient workforce.

Useful Read: Staff Holiday Planner: Definitions + FREE Template

Creating a PTO policy for your business: A step by step guide

A good PTO policy should encourage growth, account for operational demands, and make sure your teams are taken care of. Crafting a policy that promotes a positive work culture while maximizing productivity isn't a corporate unicorn. It's a process we'll guide you through below.

Start creating the right PTO policy for your team with this step-by-step guide from draft to launch.

Step 1: Review the Legal Regulations for Your Employees

Firstly, familiarize yourself with PTO regulations in your area, which are determined by federal law and state's laws. For example, "most workers who work a 5-day week must receive at least 28 days' paid annual leave a year. This equates to 5.6 weeks of vacation time." Although part-time employees are subject to the same standard, the total annual leave will amount to less due to fewer working days and PTO accrual. Usually, part-time staff can expect an average of 16.8 PTO days per year.

Employers can offer PTO beyond the annual minimum. Before finalizing a PTO plan, review any unique labor situations within your organization. Making leave fair and equitable for all employees is crucial in a good policy.

Useful Read: The 4-day work week schedule - An Implementation  Guide

Step 2: Research and Compare Your Competitors

Almost a third of all employees consider PTO as a top benefit when joining or staying at a company. Crafting a competitive PTO package is essential for employee satisfaction.

The next step in your process should be to research companies in similar industries and compare their PTO policies. Don't just focus on businesses in your geographic area or with similar schedules. Consider PTO trends across various sectors and locations. This will help you understand where your policy stands. It's equally important to consider whether your policy allows for growth.

Your organization should aim to be a trendsetter. Invest time in research now to secure your position as a top workplace in the future.

Also, consult with your accounting team. Once you've done your research and developed a few potential PTO plans, discuss these options with your financial experts.

Step 3: Choose Holiday Dates and Special Coverage Options

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The best part of drafting a PTO policy for your business is choosing your own holiday dates. Incorporate all major holidays within your PTO plan as your budget allows, typically including bank holidays. If your busy season falls on a minor holiday, consider offering flexibility around holidays during slower periods. Employees appreciate the ability to make up holidays once the rush has passed.

Floating holidays have become popular in many organizations. These are extra days off that employees can take at their discretion. Having the freedom to elect a few extra personal days off is an effective way to account for a broader diversity of religious observations and personal life needs.

Your company might consider adding paid volunteer time off (VTO), extended grievance leave, and extended family leave to your employee benefits plan. Supporting employees to lead their best lives outside of work allows them to be their best selves during office hours.

Must Read: What is a Workplace Grievance? A Guide for Managers

Step 4: Understand Accrual and Rollover

Making decisions about PTO accrual and rollover can be challenging. First, decide how you'll transition long-term employees into the new plan. Many companies allow senior employees to keep their bank of holidays when transitioning to a new PTO system. Balancing respect for historic policies while ensuring fair PTO accrual for new hires is important.

You will need to consider the following:

Accrual vs. Allotment

PTO can be awarded based on hours worked or all at once. Accrual refers to earning PTO for each hour worked, a fair standard. Allotment is when a company awards annual PTO at the start of the year. This benefits the employee as PTO can be used immediately, but employers risk employees using all their PTO and then leaving the company.

Use It Or Lose It vs. Rollover

With the former, employees are encouraged to use their PTO within the year, or those hours are forfeited. Rollover allows employees to carry unused PTO into the next year, providing more control over their schedules.

Consider factors like the ratio of old to new hires, hiring plans, and attrition rates. The best system is the one that suits your business. Collaborate with management to understand team dynamics and choose suitable guidelines.

Step 5: Draft Your Policy and Finalize

This step requires a closer look at how your PTO policy integrates with other workplace policies. Examine details like how many vacation days are permitted at once and how much advance notice is needed for PTO requests. How should an employee communicate their PTO requests? Determine how your policy interacts with the Family Medical Leave Act (FMLA) and other existing laws and regulations. A careful review will ensure you have covered all the bases.

Consider using a sample PTO policy as a starting point. There are many PTO policy examples available that can be used as guides, but it is essential to customize your policy to match your specific needs and circumstances.

Step 6: Launch The New PTO Policy! Training and Beyond

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Once you've drafted and approved your PTO policy, the next step is to communicate it clearly to your employees. Send out an all-staff email, hold a meeting, or schedule one-on-one conversations to ensure everyone understands the new policy.

Remember to update your employee handbook and training materials with the new information. All employees, whether full-time, part-time, or hourly employees, should understand the policy and their PTO accruals.

Step 7: Conduct a Yearly Review of Your PTO Policy

Every policy is fluid and must allow for growth and review. While we wish we could clap our hands and say we're done, we haven't seen the last of our PTO policy. A yearly review is an essential due diligence for HR managers. Ask the important questions; is the policy still serving employee needs? Are there areas for improvement? What is the cost-to-benefit ratio of this policy in terms of employee well-being and budgetary considerations?

A few tools to simplify your analysis include tracking how and when staff uses time off and how this usage benefits the company. Keep a pulse on productivity during peak periods. Have there been scheduling conflicts? Are employees reporting burnout or difficulty taking their PTO? Self-assessment can be tricky, but an annual review will keep your company firmly in position as an industry leader while boosting employee satisfaction.

Creating a PTO policy is certainly not a holiday on the beach. Designing a fair and equitable standard takes time, research, and careful execution.

Final Thoughts

A comprehensive PTO policy is an essential part of an employee benefit package that respects work-life balance, promotes a productive workforce, and treats employees fairly.

While the process may seem complex, remember the goal: a policy that works for everyone. With some careful planning and a lot of input from your team, you can create a PTO policy that helps make your business an excellent place to work.

Developing a PTO policy for your business is a significant undertaking. It’s also a rewarding one. Your policy will be a statement of how you value your employees' time and well-being.

Don't be afraid to reevaluate your policy regularly. You may not get everything right the first time around, and that's OK. The most important thing is to listen to your employees and be willing to make adjustments as needed.

Remember, a well-crafted PTO policy can contribute to a more engaged and satisfied workforce. It can also help attract top talent to your organization, providing a competitive edge in the market. So take the time to create a policy that truly reflects your company's values and culture.

Streamlining PTO Policies with Shiftbase

When considering the creation and implementation of a PTO policy, it's crucial to remember that the process can be simplified using the right tools. Shiftbase is an innovative workforce management software-as-a-service (SaaS) solution designed to streamline operations like employee scheduling, time tracking, and absence management. The platform provides an easy and efficient way to manage your team's time off, track their hours, and schedule them effectively.

One standout feature of Shiftbase is its intuitive absence management system. You can seamlessly handle PTO requests, approve leave, and keep a tab on accrued PTO, all in one place. This not only saves time for your HR team but also allows for transparent communication with your employees regarding their time off.

In a world where time is money, ensuring that your business runs smoothly and efficiently is paramount. Give Shiftbase a try for 14 days, completely free, and experience firsthand how this powerful tool can revolutionize your approach to managing Paid Time Off and other crucial aspects of your business operations. Witness the positive change it brings to your business and the improved work-life balance it offers your employees.

Absence Management Policies
Topic: Policies / Paid Time Off Policy