Best Practices for Creating a Paid Time-Off Policy

Struggling to create a suitable paid time off (PTO) policy for your employees? From sick leave to bereavement leave, deciding on the right number of days can prove challenging for a busy small business owner.

The law may require a set number of days in the state your business operates within. Law aside, your ideal policy should suit both your business and employee needs:

What Types of Paid Time Off Do Companies Offer?

The types of PTO time offered by many businesses may leave you scratching your head, especially if you just started your company. Here are the five types of PTO that most companies offer in greater detail:

  • Sick Leave: This time is taken when employees or immediate family are sick.
  • Vacation Time: This PTO is used for a planned getaway or in case of unplanned emergencies.
  • National Holidays: This typically includes national holidays such as Christmas Day and New Year’s Day.
  • Personal Holidays: This newer option covers previously left-out times, such as additional religious holidays or personal emergencies. Wedding anniversaries and relative birthdays also count.
  • Bereavement Leave: This includes set-aside PTO time in case of a death in the immediate family.

About 98 percent of American companies offer paid vacation to their full-time employees, while the typical worker receives 15 paid days off. Vacation time will make up 40 percent of the regular PTO policy, and most companies offer major holidays as paid time off. Many companies require employees to take alternative religious holidays as PTO. The amount of days given for sick leave is prioritized by how long an employee has worked at the company.

What Questions Must PTO Policies Address?

PTO policies must cover different types of paid leave, from sick leave to bereavement leave. Consider the following to create an efficient and effective time-off policy for your employees:

  • Find out how many days you must provide by law, and consider if you’d like to provide more. PTO statewide laws exist, but some cities have their own requirements: California requires accrual or lump-sum PTO policies, which apply to all businesses, and Oakland specifically mandates five minimum sick days.
  • How many paid vacation days will your company provide?
  • What national holidays will employees take off? Will you close the office only or pay for this time off, too? Will you also allow personal holidays?
  • Will your company offer paid bereavement leave? If so, which types of family relationships apply? Is it only immediate family members, or does extended family apply to the policy?
  • Can employees let PTO accrue, or will it be a flat rate? Will PTO time run out at the end of the year, or can they carry it over to the next year?
  • Does PTO apply to all employees, or will new employees need to fulfill a certain number of hours?

What if You Develop an Unlimited PTO Policy?

An unlimited PTO policy appeals to new recruits, saving HR an average of 52 hours per year. Many new startups and tech companies implemented an unlimited PTO policy that inspired a revolution among businesses in creating their own unlimited PTO policies. These policies offer true returns on investment, since employees indicate higher job satisfaction and productivity, plus greater work-life balance.

Unlimited PTO shows your company trusts and values each employee and their contributions. Your employees possess lives and passions outside of work, which will empower them to do their best on the job. Establishing a required minimum PTO policy will ensure employees take time off for their health and self-care. Your company should also track paid time off and develop a policy around how managers should be notified and work conducted during absences.

Use these best practices to create an efficient and effective time-off policy, fair to your business and employees.  A generous PTO policy shows employees you value their work-life balance and trust them to not abuse the system. Consider offering personal holidays and unlimited PTO to attract new recruits and retain existing employees as an innovative move.

Be sure to abide by state law mandates regarding PTO time, and consult with a lawyer when you’ve finalized the draft of your time-off policy. These best practices will get you started on the way to creating an innovative and fair PTO policy for all.


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Nathan Sykes is a business and technology writer from Pittsburgh, PA. To read more by Nathan, check out his blog, Finding an Outlet.