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The Complete Guide to PTO Policies

Disclosure: This content is reader-supported, which means if you click on some of our links that we may earn a commission.

Your employees need time off. Whether it’s due to an illness, a home emergency, or a long-overdue vacation to prevent burnout, it doesn’t matter.

At the same time, you don’t want them to start taking advantage of these leaves. Discipline still needs to be maintained. 

Having reasonable paid time off (PTO) policies will help you strike the right balance.

Below, we’ve put together a complete guide to PTO policies to help you understand paid time off and how to make it work so that everybody wins.

Why PTO Policies Are So Important

PTO stands for paid time off, and PTO policies are different from a traditional leave policy. It is not a mandated regulation, such as FMLA (the Family and Medical Leave Act). United States law does not require employers to provide paid time off to their employees. However, most companies offer at least full-time employees PTO, and it is a reasonable expectation from potential employees.

PTO is a paid leave program that groups all time away from work together instead of having separate categories for illness, vacation, and other personal needs. Think of it as setting rules and expectations regarding all your employees’ paid vacation, sick days, and personal time in a calendar year.

Should you take the effort of drafting PTO policies for your business? Absolutely.

Below are some ways businesses benefit by creating PTO policies.

Better Employer-Employee Relations

Having time off makes employees happier and healthier, and therefore, more productive. It gives them the autonomy to use their time as they see fit, without having to ask for permission—yours or anyone else’s.

Basically, this is your company telling employees you trust them to take time off as they need without compromising work quality.

The fact that employees don’t have to explain themselves also helps build mutual trust between you and the employee. You won’t find them lying just to take an extra day off.

Reduced Absenteeism

Probably the most significant advantage of a PTO policy is reduced absenteeism.

We’ve all seen cases where employees have taken off the next day after their vacation was over because they were “sick.” 

The issue with these “sick days” is that employees end up using a sick day that hasn’t been approved in advance, resulting in unscheduled absences. According to research, these unscheduled absences can cost a business an average of $2,666 per full-time employee per year. Yikes.

Luckily, PTO policies can exercise control on this kind of behavior and reduce absenteeism. Research conducted by Alexander Hamilton Institute found that 54% of companies that switched to a combined PTO program saw a 10% drop in unscheduled absences.

Saves HR Time

HR teams of small businesses have tons of things on their plate. They are responsible for recruiting and hiring, maintaining employee relations, ensuring compliance, and keeping a business functioning at all times.

Tracking traditional paid leave is another item on their to-do list that can get very time-consuming. Imagine chasing after employees trying to figure out whether they used a personal day or were sick the day before. 

This won’t be an issue if you decide to implement PTO. These policies categorize all types of leaves as one, which considerably simplifies an HR manager’s job.

Attracts Employees

A good PTO policy can be a massive selling point when hiring new employees or retaining current ones.

Benefits play a large role in an employee‘s total compensation package. When you give employees the flexibility of a PTO bank, you get an edge in your hiring efforts. More employees will be interested in working with you.

Other employer benefits include greater cost-effectiveness and improved employee morale.

Quick Tips to Improve PTO Policies Today

Here are some excellent tips you can implement now to help you create a good PTO policy pronto.

Think From the Employee’s Perspective

Today’s workforces are primarily made of millennials and Gen-Z, who are notorious for being picky when it comes to jobs.

Precisely why you must consider their viewpoint when creating a good PTO policy, especially if you want to attract top-quality talent. If there’s one thing that attracts them both, it’s job flexibility.

Millennials stay longer at jobs that offer more flexibility and better employee benefits. Try to ensure your policy meets these expectations by bundling all different types of PTO. Then you can give employees the chance to select the type of leave policy they prefer.

A flexible PTO policy should accommodate a diverse workforce by making provisions for various religious and national holidays and an alternative day off for, say, a doctor’s appointment or mental health day.

Ensure Clarity and Digestibility

Your PTO policies must be clearly defined and understandable. Employees should have no questions regarding what’s permitted and what isn’t after going through it.

Ensuring this will not only protect you from getting into trouble, but it’ll also make employees more informed. This, in turn, will help them make better decisions when taking time off.

Write your PTO policy clearly, and make it detailed and accessible to everyone employed at your company. Make sure you cover every type of employee (full-time, part-time) you have in the policy.

Use HR Software to Manage PTO

If you’re a small business with a handful of employees, you can take on the job of tracking time-off requests. But when you have 50 or more employees in the mix, being self-sufficient is a risk you don’t want to take.

Plus, why complicate things unnecessarily?

Today we have some excellent HR software and time-tracking tools at our disposal that can automatically calculate earned PTO and keep track of your employees’ time-off requests. 

Software like BambooHR and Gusto will always keep your staff in the loop, letting them know exactly how much time they can take off. These tools can also manage any customer requests online with absolutely no involvement from the HR department. A great HR software can solve many problems and streamline processes for HR departments of any size.

Reach Out to Your Employees

We’ve already established the importance of offering employees paid time off. 

But when it comes to drafting an effective PTO policy, you need to have a good understanding of your industry, your employees, and, of course, your company or business culture. It’s the only way to determine what policy style will work best for you and your employees. You don’t want something generic; you ideally want a policy that takes into account your employee’s actual needs.

Another great tactic when creating PTO policies is sending an anonymous survey to employees asking for feedback. Anonymous surveys allow for honest feedback without fear of retaliation or being singled out.

This will help you understand how employees view the time-off culture in your organization and provide you feedback about what they would like to see in a policy. Moreover, incorporating their feedback will make employees feel valued, which, in turn, boosts morale and motivation.

Long-Term Strategies for Maximizing Results From PTO Policies

Whether you plan on drafting a PTO plan from scratch for a startup or want to refresh an existing policy for an established business, here are a few long-term strategies that will help you stay on track and ensure better outcomes.

Outline the Policy in Your Employee Handbook

Suppose you already have a detailed and straightforward PTO policy in place. What use is it if your employees don’t read it?

Exactly.

Since reading company policies isn’t exactly on everyone’s to-do list, you have to brainstorm ways to communicate your company’s paid leave policy effectively. The best way to do that? Your employee handbook!

Different employees have different mindsets. While some want to dive deep and understand the technicalities of how the policy works, others are only interested in how much time they can take off from work while still getting paid. 

That’s why you should outline the PTO policy in a digestible paragraph, so it covers all the main points to keep both sides happy. You can always elaborate on the specifics below, letting employees decide whether they want to learn more about a specific issue or not.

Make sure you use simple layman terms and avoid jargon as much as possible. Even better if you can share your company’s policy on unused PTO payouts in detail to avoid any confusion.

Note: Some states require business owners to compensate employees for unused vacation time, but not sick time. Keep this in mind when drafting your PTO policy, and make sure to review your state’s requirements.

Advertise the Policy to Attract Candidates

As mentioned before, having a PTO policy can help attract top-performing employees.

Jobseekers, especially millennials, value time off and appreciate companies that assure a good work-life balance. It’s why they prefer working for businesses with an employee-friendly PTO policy.

Once you develop your PTO, make sure you include it when writing job descriptions in the Employee Benefits section and display it proudly on the Careers page of your website. An attractive PTO policy is part of an overall compensation package.

Encourage Employees to Make Most of PTO

Most employees are unwilling to take vacations. Whether they want to seem dedicated to upper management or can’t afford to take time off due to a heavy workload, they keep working round-the-clock without fearing burnout. Some employees think taking vacation days makes them look less productive, unreliable, or even disloyal.

Unfortunately, this attitude only causes them to be overworked, overstressed, and under-vacationed, which, in turn, spells out disaster for your business.

What’s more, there’s solid evidence that states taking time off from work is actually good for employees and the organization. For instance, a 2017 report published by the U.S. Travel Association found that employees who take vacations are more likely to get promoted. Taking time off also helps decrease burnout and increase mental well-being.

The other reason why employees may shy away from taking time off is the work culture.

Think about it: Are working nights and weekends the norm in your company, with employees seldom taking any time off? Does your manager also not encourage team members to take their accrued paid time off?

If yes, it’s natural your employees feel stigmatized when it comes to cashing their PTO.

As a business owner, you should encourage all your employees to take their PTO. Encourage them to recharge their batteries, refresh and rejuvenate, and return to work with renewed vigor to smash their quotas and meet their deadlines. You should also individually encourage managers to take their own vacations and let their teams know they absolutely should be using the time off they earn.

Once you do this, you’ll see an evident change in your company culture and, hopefully, fewer overstressed employees.

Invite PTO Problem-Solving

If you ever find yourself stuck in a situation where too many employees request days off at the same time, don’t panic.

You have a couple of options. First, instead of deciding for your employees, you can encourage them to reach a conclusion amongst themselves. For example, they might have a quick meeting to work out their days off to have minimal overlap.

However, a better option may be to let your employees know that time off approval is on a first-come, first-serve basis. Whatever you choose, just make sure it is included in your written PTO policy.

It is also important to ensure that you are considering any extenuating circumstances. If an employee has a fever and needs the day off suddenly, that is clearly not going to fit a first-come, first-serve policy.

Next Steps

At this stage, you know all about PTO policies—how they work, how to improve yours, and how to get the best results from your employees.

It’s time to create your own PTO policy now or refresh your existing policy if you already have one. Make sure you encourage open dialogue and create department calendars to avoid misunderstanding and encourage feedback while you work on your first draft.

Looking to maximize your company’s productivity levels? Check out these Crazy Egg guides where we round up the best software to streamline day-to-day processes:


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