A PTO policy describes how paid time off (PTO) works at your company. It includes all the details on how PTO is earned, the limits, and anything that employees need to do in order to use their PTO.
It’s a written policy that should be documented in the employee handbook or wherever you store your benefit policies. I typically use an internal company wiki for things like this.
I’ve listed a few real PTO policy examples here.
Decision #1: Should you offer PTO at all?
Most states don’t require that companies offer PTO, like Tennessee. So for most companies, you can decide whether you want to offer PTO at all.
A few things to watch out for:
- Even if you’re not required to offer PTO, lots of states do require sick leave. You can always offer PTO instead as long the PTO is equivalent or better.
- There are a handful of states that do require PTO like Nevada.
- Even if your state doesn’t require PTO, you’re on the hook for whatever your policy says. Whatever policy you adopt, always follow it until you change the policy.
The first step is to always check your state PTO and sick leave laws. That tells you the bare minimum that you’ll have to offer.
My Recommendation: Regardless of your state laws, definitely offer PTO. People need to take time off in order to operate at their best.
Decision #2: Do you want separate sick leave and PTO policies? Or combine them?
PTO and sick leave overlap. PTO can include any type of leave, sick leave only covers leave for medical reasons. Some companies will choose to have different policies for every type of paid leave: sick leave, personal time (PTO), mental health days, vacation days, etc.
You can certainly do that if you want. I find this unnecessary though.
If an employee has sick days and vacation days, what do they use if they’re feeling stressed out and need a long weekend? Where do we draw the line on “sick time?”
Extra leave buckets also compound the complexity of your benefits program. For every type of leave, you’ll have to figure out ALL the mechanics for how it works:
- Accrual rates
- Payout rules
- Approvals
- Limits
I’d rather figure out the details for as few types of leave as possible, that’s why I use PTO.
Some types of leave do need their own buckets since the circumstances and expectations are so different from standard PTO. The main examples are bereavement leave, jury duty, and parental leave. I always put together custom policies for those.
My Recommendation: Keep everything simple and just offer PTO instead of having a separate sick leave policy.
Decision #3: What type of PTO system do you want to use?
There are 3 types of PTO systems you can choose from.
Unlimited PTO lets employees take as many days off as they want. While there are a few unlimited PTO examples where it’s truly unlimited, most companies will put a limit in place like needing a manager’s approval. In this system, PTO is not tracked. Employees are told to take time off when they need it and to keep PTO requests “reasonable.”
Lump Sum PTO provides a set number of days, usually every calendar year. For example, employees get 15 new days of PTO on January first each year. They can use those days however they want throughout the year. This is an old-school approach to PTO and isn’t used as often these days.
Accrual PTO is when employees accrue or “earn” PTO hours, generally a set rate per hour worked. For example, if you offer three weeks of paid time off per year (15 days which is 120 hours), each employee will earn 0.058 PTO hours per working hour. PTO can also be accrued by pay period or month.
My Recommendation: I strongly recommend adopting an accrual PTO system. Yes, the accrual rates are a bit complex in the beginning but once you have the system set up, it’s extremely easy to manage. It’s the most fool-proof PTO system for HR, managers, and employees. There’s no advantage to offering lump sum over accrual and I really dislike unlimited PTO myself.
Decision #4: How much PTO do you want people to take each year?
I’ve framed this question very intentionally. How much time do you WANT employees to take?
As opposed to how much time you should LIMIT employees to.
For me, vacation serves a vital purpose. We push employees to take time off so they take the time they need to recuperate. This keeps our best employees fresh and reduces their turnover. When your best employee takes 2 weeks of vacation, no one remembers after a month. But when they leave from burnout or frustration, everyone feels that gap for years afterward.
So I focus on setting a goal for how much vacation I want people to take. Then I build the mechanics to encourage that.
If you’re not sure, start with 3 weeks of PTO per year (120 hours). Most companies provide 10-15 days of vacation per year in the USA. If you provide 15 days, that’s basically 10 days of vacation (2 weeks) plus 5 days of potential sick time (1 week). Pretty standard.
My Recommendation: Start by setting a goal of everyone taking 15 days of PTO per year.
Decision #5: When do people earn their PTO?
This will depend on what type of PTO you’ve adopted (accrual, lump sum, or unlimited).
For accrual, you’ll need to decide how many hours of PTO are earned per hour worked. You can also have PTO accrue by week, pay period, or month. I prefer to use working hours because it covers more situations:
- Overtime earns PTO
- Part-time work automatically earns fewer PTO hours
Get the accrual rate right and tons of other stuff gets solved at the same time. Figuring out the amount is easy, just work backwards from your annual PTO goal. Take your annual PTO days (15 in this case), multiply by 8 to get total PTO hours (120), then divide by the total number of annual working hours (2,080). This gives you a PTO accrual rate of 0.058 PTO hours per working hour.
For lump sum, most companies will give PTO on January 1st of each year. You could also use your fiscal calendar if it’s different. If you go this route, you’ll have to decide what to do for new employees. Most companies prorate the PTO amount based on the employees start date for their first year.
Unlimited PTO is easy, there’s no earning so you can skip this step.
My Recommendation: Set up your accrual PTO to offer at least 15 days of PTO per year. If doing lump sum, top up everyone’s PTO balance to at least 15 days on January 1st.
Decision #6: Does PTO increase based on tenure?
Some companies will choose to give more PTO to employees based on how long they’ve been employed. Like this:
- 10 days/year for new employees
- 15 days/year starting with the 3rd full year
- 20 days/year starting with the 5th full year
Can you do it? Sure. I don’t think it’s worth it though. It adds a ton of complexity to your PTO tracking. And I haven’t seen folks get super excited by this benefit. It’s a nice perk but I don’t believe it has a meaningful impact on turnover.
My Recommendation: I wouldn’t bother with additional PTO based on tenure. Look, it’s not a bad thing. I just don’t think it’s worth the squeeze. I’ve never come across an employee that advocated for this. And there’s tons of ways to push your time off package to a world-class level like winter or summer breaks, 4 day weeks during the summer, additional one-off holidays, sabbaticals, payouts for vacations, etc. Those benefits stand out. Tenure-based PTO doesn’t.
Decision #7: When do people LOSE their PTO?
Does PTO ever get taken away? These are the “use-it-or-lose-it policies” that used to be more popular. Most commonly, lump sum policies would zero out PTO balances on December 31, then top everyone up on January 1. So everyone had to use their PTO by the end of the year.
These policies are starting to become illegal, like in Colorado. PTO can’t be taken away for any reason. If you wanted to reduce a PTO balance, you’d have to let the employee use it or pay it out.
The tricky situation is when you’re changing PTO policies and need to switch from one type to another. Do you eliminate old PTO and start fresh? I’d avoid this. Whenever possible, I’d let folks keep their old balance and get access to the new system from there. If you really need to zero out PTO, pay it out.
My Recommendation: Never remove PTO unless it’s being paid out. As far as I’m concerned PTO is earned wages. That should never be taken away from an employee.
Decision #8: Does PTO get paid out when employees leave?
Definitely check the PTO payout laws for your state. Most states don’t require PTO payouts but some do. Be very careful with this and don’t mess it up, a mistake could result in a wage complaint with your state’s department of labor. Not a fun time.
I recently found a company in the steel industry that would pay out PTO unless there was termination for cause. I don’t agree with stipulations like this.
First, the employee earned their PTO. Even if they’re terminated for cause, they’re owed that money in my eyes.
Second, exceptions like this are VERY easy to mess up. Either someone isn’t going to get PTO paid when they should, or someone will get it paid when they shouldn’t. Little “exception” steps in processes get messed up all the time. Sooner or later, you will have a wage complaint on your hands.
My Recommendation: Always pay out unused PTO in all circumstances. The payouts are always immaterial compared to the rest of the company budget, it’s not worth trying to save a few bucks. More importantly, employees earned that time. They deserve to get paid for it even if it’s an involuntary termination.
Decision #9: Does PTO have a cap?
A PTO cap will stop granting additional PTO to an employee once their balance hits that limit.
Some of us have tendencies to hoard PTO balances. I was definitely like this earlier in my career. And from what I’ve seen, the BEST employees tend to hoard their balances. Often, it’s less about hoarding and more about wanting to go above and beyond constantly. Then they neglect their PTO and the balance gets insane.
Healthy PTO caps nudge employees and managers to take time off. “Oh, you hit your cap. Guess what that means? You’re not taking enough time off, I need you to pick a week of PTO by our next 1:1.”
I’ve found PTO caps to be extremely effective at getting top performers to take PTO, reducing burnout and turnover.
For me, I want people to use PTO every year. I don’t see any value in letting folks bank a few years worth of PTO. I set the PTO cap at the annual PTO amount. So people can bank up to a year’s worth of PTO. After that, they need to start using it.
My Recommendation: Set a PTO cap that’s equivalent to one year’s worth of PTO. Once someone hits their cap, they’ll no longer earn additional PTO until they’ve used some.
Decision #10: Do PTO balances roll over?
A PTO rollover (also called a carryover) is when a PTO balance carries over from one year to the next. This mattered more with lump sum policies, PTO didn’t necessarily roll over each year. PTO rollovers are a vestige of older PTO policies.
With accrual policies, it’s a nonissue. PTO is always accruing and the calendar year doesn’t really matter anymore.
You’ll still need to make a deliberate decision here, just for clarity’s sake. And your PTO system will likely ask you what you want to do.
Regardless, I’d always offer a rollover for any PTO balance that you have. Forcing people to use PTO by December 31 just creates a mad rush of PTO requests at the end of the year. Let people take time off when they want, there’s no need to set arbitrary deadlines.
My Recommendation: Always offer PTO rollovers.
Decision #11: Do you want to offer a PTO donation program?
PTO donations let employees donate their PTO to other employees or a pool of PTO that folks can draw from.
I REALLY hate PTO donation programs. They’re toxic, abusive, and a complete dereliction of duty by the HR department. If you need a PTO donation program, your PTO benefit is severely lacking. And instead of fixing it, a PTO donation places all the pressure on employees to beg for PTO from each other. Horrible.
Even for serious emergencies where employees need more PTO, that should be sorted out between HR and the employee.
My Recommendation: Never offer PTO donations in any circumstance.
Decision #12: Can employees have a negative PTO balance?
A negative PTO balance happens when someone uses more PTO than they’ve earned. If they have 8 hours of PTO (1 day) but take 24 hours of PTO (3 days), they’ll have a negative PTO balance of 16 hours.
For any PTO system, you will get the occasional employee that tries to take too much PTO. Even on an accrual system where your policy clearly states: “use PTO however you want but any request to go negative will be denied.” It’s rare but there’s always that one employee that doesn’t manage their balance well, has an emergency, and then tries to go negative.
You have a few options on how to approach this:
- Deny any request for negative PTO, no exceptions.
- HR approves requests on a case-by-case basis.
- Set a company policy that all employees can go negative to a certain amount.
This is one element of PTO that has no clear right answer, there’s just trade-offs. Never going negative is definitely fair but what about a true emergency from a great employee? Allowing negative balances just moves the baseline, you’ll still have the occasional employee pushing limits. Case-by-case approvals are difficult to scale and administer fairly.
You’ll have to pick the policy you’re most comfortable with.
My Recommendation: Only allow negative PTO balances on a case-by-case basis until your company is large enough that this no longer works. At that point, I’d ban negative balances outright.
Decision #13: Will there be any PTO blackouts?
PTO blackouts are a period where you deny all PTO requests. A common example is a retailer during the holiday season. If revenue is highly seasonal, they may need “all-hands-on-deck” during their busiest period.
You can have any PTO blackout that you want. There’s no law against them that I know about. But I advise companies to avoid blackouts if at all possible. They suck, no one likes them. In a few circumstances, they may be a necessary evil. Just be really careful about using them.
A few guidelines to make them more palatable:
- Make sure the reason for the blackouts are super strong. “We have so many customers during this week that the line wraps around multiple blocks” is a lot better than “we might be busy so you can’t take vacation.”
- Limit the blackouts to only essential periods.
- If possible, give everyone a break after the blackout ends. So if the holidays are insane, give folks extra time in January.
- Make everyone follow the blackouts, including managers and leadership.
- If your business has the capacity to have some PTO but it’s limited, consider doing a PTO lottery for the few slots.
My Recommendation: Only use PTO blackouts if they’re absolutely essential. And think very carefully on how to implement them.
Decision #14: Who approves PTO?
Your PTO policy should state that PTO is subject to someone’s approval, usually the manager.
You do want your policy to state that the manager can make the call. This helps protect the company in weird situations.
Usually, the policy will require a manager’s approval for all PTO requests. And for a PTO balance to go negative, it’ll require approval from HR.
In practice, a PTO accrual system makes this really easy. Your policy will say that managers must approve. And you tell all managers that almost all PTO should be approved as long as the employee has the PTO hours. If there’s even a slight pattern of PTO getting denied by a single manager, HR can dig and figure out what’s going on. Everything is in balance.
Manager approvals get a LOT trickier with unlimited PTO. Since unlimited PTO systems don’t give clear guidelines on what’s okay, every PTO request is open to the manager’s interpretation. And the manager’s approval is the only part of the system keeping PTO requests in check. Managers that avoid conflict will let folks on their team take way too much PTO. And hardline managers won’t let their team take any. You’ll need to spend a lot more time coaching managers on what the goldilocks zone of PTO looks like.
My Recommendation: Have all PTO requests require a manager’s approval. And for any requests that go outside your normal PTO policies, they need HR’s approval.
Decision #15: Where will PTO be tracked?
You can track your PTO however you want. Your payroll system, a dedicated PTO tracker, or even a spreadsheet.
Whatever you choose, you want to take this extremely seriously. Many states with PTO laws have specific requirements on PTO reporting. Often, employees need to be able to look up their PTO balance regularly. Either every month or payroll cycle.
Also, some states consider PTO to be earned wages and require payouts. Messing up your PTO balance will mess up payroll when employees leave. A missed update in a spreadsheet can easily lead to a wage complaint.
When I set up my PTO tracking, I strongly prefer to use a foolproof method so I don’t have to worry about this ever again.
- I highly recommend using your payroll system to track all PTO. Every payroll system has solid PTO tracking these days. And since PTO and payroll are intertwined, you want the same software handling both.
- You could consider using a dedicated tool for PTO tracking. Like if you have an unlimited PTO policy but still want to track PTO in order to make sure folks are taking enough.
- Yes, a spreadsheet is an option but I strongly recommend against it. I would never track PTO in Excel myself. Manual tracking is too easy to mess up.
My Recommendation: Use your payroll system for PTO tracking. If your payroll system is terrible at tracking PTO, that’s probably a sign you should consider switching to a better payroll system.
Decision #16: How much notice do you require for a PTO request?
You can add notice periods to your PTO policy. A common example: requests for 5 days of PTO or longer must be submitted at least 30 days prior.
Some companies also add notice mandates for PTO requests of a few days.
This isn’t required though. And most companies don’t add these until they get pretty large.
Do be careful with this, it’s easy to slip into a policy that lacks any humanity. Family emergencies and medical issues are usually surprises, you want people to have the flexibility they need to take care of themselves. If you have a 24 required notice period for all PTO requests, someone wakes up and has a very sick child, what are they supposed to do? Or what happens if someone gets sick during the work day?
I’d prefer a policy that allows a little abuse from the rare individual in order to take care of everyone else in a humane way. And if you require manager approvals for all PTO, you already have a strong guardrail in your system. No need to add another.
My Recommendation: I don’t add mandated notice periods to my PTO policies and I’d avoid them for as long as possible. I do add a “guideline” to our policy that says: for PTO requests of a week or longer, we prefer to get notified about a month in advance. And for requests of a day or so, no notice is fine.
Decision #17: What’s the minimum number of PTO hours for a request?
Another “in the weeds” detail you can add is a limit on the minimum number of hours that can be requested at a time. So PTO requests can only be submitted as half days (4 hours) or full days (8 hours) for example.
The goal is to avoid a bunch of requests that break up the day to a point where things don’t make sense. Like taking 1 hour of PTO in the middle of the day. Will that doctor’s appointment really only take 1 hour? Maybe. Or a 6 hour request in a single day. Will someone really get anything done in 2 hours?
Yes, these requests aren’t efficient. But I also don’t think it matters. This is another area where I don’t use a policy, I offer a few guidelines: in general, take PTO in half days and full days. But if someone has a reason for an atypical number, I’ll approve it.
Also, this is just extra complexity to your PTO policies and I don’t believe it makes a huge difference either way.
My Recommendation: I’d avoid setting any required limits around PTO increments unless you had an extremely good reason as a company.
Decision #18: Who’s responsible for monitoring PTO balances?
Someone in your company needs to be responsible for reviewing PTO balances on a regular basis. Small companies should do it annually, larger companies should do it quarterly.
As you grow and hire more managers, I guarantee two things will happen:
- Some of your top performers will get into a habit of not taking time off. They’ll eventually burn out if they’re not pushed to use their PTO.
- Some managers will push too hard and encourage a culture of not taking PTO within their team. This can happen accidentally if they’re a hard charger and don’t take PTO themselves.
Left unaddressed, burnout and turnover will increase across these sections of your company.
The only way to fix it is to check all the PTO balances. This is why I like an accrual system with a PTO cap, it’s extremely easy to find the problems across the org. Pull a list of all employees and their balances. Anyone at the cap needs to take time off immediately. Any teams with a higher than average PTO balance needs to get looked into.
I would not task your managers with this, many of them won’t do it. Someone in HR needs to be responsible for checking this regularly.
No need to add anything to your policy, simply add a SOP for your HR team. When they find PTO problems, they can bring it up with leadership.
My Recommendation: At least once per year, check all your PTO balances. For individuals not using their PTO, push them to put in a request. For teams with high balances, work with the manager to adopt a better PTO culture on that team.
Decision #19: Is there a probationary period for new employees?
Some companies will force new employees to wait a certain time before earning vacation, like waiting 3 months before earning any time off.
I think this is completely unnecessary. And the accrual model solves it by default. Accrued PTO slowly builds for every employee. New employees, by default, have no PTO on day 1. There’s no need to force them to wait even longer.
Even with lump sum, you’ll have to figure out how PTO works for the first year anyway, usually by prorating the PTO. So they won’t get the full annual amount all at once. Even if they did, I wouldn’t worry about it.
If someone joins and then immediately uses all their PTO (assuming there isn’t a legitimate emergency), you’re going to have tons of issues with that employee anyway. This is another situation where a limit to prevent abuse just harms all the normal employees without adding much protection for the company anyway.
My Recommendation: I wouldn’t bother adding a probationary period for new employees before they can earn PTO. It’s a punitive policy that doesn’t offer much protection for the company.
Decision #20: Do you want to have any mandatory time off (MTO)?
Mandatory time off is a policy that forces everyone to take a certain amount of PTO within a given time frame. I’ve seen some companies force 1 week of PTO per quarter for example.
If you already have a healthy PTO policy and a solid number of company vacation days through the year, this will be unnecessary. People will already be taking enough time off and there’s no need to force requests company-wide.
The one situation where this can be extremely valuable is with unlimited PTO. The biggest problem with unlimited PTO is people quickly adopt a culture of never taking PTO, or only taking 1-2 weeks per year. By having a quarterly MTO policy that’s a part of your unlimited PTO, you’ll solve all these problems. In that case, MTO takes care of the regular vacations and unlimited PTO is for personal time, emergencies, and sick time. If I was going to adopt an unlimited PTO policy, I would definitely include a MTO component.
My Recommendation: Use MTO if you have an unlimited PTO policy. This will cover the biggest problems with unlimited PTO. For an accrual PTO policy, it’s unnecessary.
Common Questions on PTO and PTO Policies
How does overtime and PTO impact each other?
PTO hours don’t count towards overtime thresholds. Overtime only considers hours worked.
Usually, PTO accruals will continue during overtime hours but this is company dependent.
How is PTO different for hourly employees?
Depends on the company. With a good accrual policy, just about everything can be the same. Many companies will provide lower amounts of PTO to hourly employees even if they work full time. I don’t agree with that but it is common.
What’s the best way to announce a PTO policy change?
Depends on the change. I have several announcement templates on PTO policy changes here.
What should PTO planning look like?
Most companies can ignore PTO planning entirely. If you have heavy seasonality or intense launch periods, then it makes sense. I only do PTO planning during extremely stressful periods.
How is PTO different from vacation time?
Technically, vacation time only includes vacations while PTO can include any type of leave (vacation time, sick leave, personal time, etc). In practice, most folks use the terms interchangeably.
Do you accrue PTO while on PTO?
You can set your PTO policy up either way. I’ve seen it both ways. For a standard PTO policy, the difference is about 1 day per year so it doesn’t really matter. But it does matter with longer leave policies like parental leave.
Did I miss something?
If you’re putting together a PTO policy and you have a question that I didn’t answer here, I’d LOVE to hear from you. I’m 100% serious. Please reach out via our contact page. Not only will I help as best as I can via email, your questions will help me make this page even better.
