Providing paid time off (PTO) for your employees is a critical aspect of your company’s benefits package. If your company is just getting started, you’ll need to create a PTO policy from scratch, however.

In this article, we’ll walk you through the most important aspects of a PTO policy so that your company can start to compete for employees based on the length of vacation time.

Your current employees will also be considerably happier when they can choose to take time off and still get paid.

PTO Basics

PTO is used for taking time off of work, but the way your employees can exercise that time off is up to you.

The first thing you should figure out is what the scope of your PTO policy will be. Will PTO equal vacation days? Or will it be a formal name for sick days? The answer depends on what the law mandates.

Some jurisdictions require you to offer paid sick leave. But your company isn’t obligated to make sick days part of your PTO policy.

Sick leave can be part of your PTO policy, or a separate policy depending on whether your company wants to lump sick days and vacation days into the same unit of organization.

Your company might also consider lumping in personal days with PTO.

Here’s a quick summary of the different kinds of time off which you should consider including into your PTO package:

  • Sick days
  • Vacation days
  • Personal days
  • Parental leave
  • Short-term disability
  • Bereavement leave

Importantly, for niche days off like when your employees have jury duty, there may be special laws regulating PTO, so be sure to check.

Why Lump PTO?

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Lumping together various types of time off has a few advantages, but also a few caveats.

First, by lumping the reasons together, you can simplify the HR aspect of PTO. It’s much easier to track one stat per employee — PTO — than it is to track vacation days, sick days, and personal days.

Second, some businesses, like hospitals, don’t follow the typical rules for releasing employees on holidays, nights, or weekends. For staff like doctors and nurses, taking holidays off requires using PTO.

It’s much easier to manage the staffing of the hospital if everyone has the same pool of time off resources which obey the same rules about when they can be used.

Be wary that if you lump together different kinds of time off into one single PTO policy, you’ll need to offer more PTO than you would otherwise to account for its multiple purposes.

Designing the Policy

Once you have decided the scope of your PTO policy, the next step is to decide how generous your company will be with time off of work. This is the biggest single step, and you’ll need to ask yourself a lot of questions about your company.

Encode your company’s answer to each question into your policy as one of its tenets.

How many employees does your company need at work to function in a given month?

This question addresses the maximum amount of time off that you could offer and still be profitable.

Furthermore, in your answer be sure to consider setting some limits to when your employees can take PTO.

How much notice should employees give before taking PTO?

Companies have different rules for when employees have to notify their supervisor before taking PTO. The rule of thumb is to mandate an earlier notification for longer periods of PTO.

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If your PTO is lumped in with sick days or personal days, your policy should differentiate between unforeseeable reasons for taking PTO and planned vacations.

You’ll need to allow for your employees to take time off without notice if they need it, but also prevent them from taking lengthy vacations during a time when you had planned to rely on them.

Is PTO a metric which companies in your industry use to compete for talent?

If it is, you’ll need to offer more PTO if you want to grab the best talent. Industries like software and finance are the most likely to compete on PTO.

Industries like retail and manufacturing are unlikely to be competing on PTO.

Do employees in your country or your industry expect a certain amount of PTO?

Generally, the higher paid the worker, the more PTO they’ll expect. Aside from this rule, social norms regarding PTO differ from region to region and from industry to industry.

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Europeans typically have at least four weeks of PTO, with many regularly securing up to eight weeks — not including sick days, paternal leave, or personal days.

In contrast, employees from East or South Asia expect minimal PTO.

Don’t minimize your PTO to suit your employees. Instead, make sure that your PTO exceeds their expectations.

What laws govern PTO in your jurisdiction?

In the US, many states have laws which govern various aspects of PTO.

As an example, in Massachusetts, employers are mandated to provide sick leave. Furthermore, sick leave time must accumulate at a rate of at least 1 hour for every 30 hours worked.

If your company neglects to obey the law, you’ll face a hefty fine and potentially other consequences.

Should employees gain more PTO as they gain seniority?

Providing more PTO to your veteran employees can be a great way of incentivizing employee retention and maximizing their productivity.

Graded PTO also allows you to get a little bit more mileage out of your newer employees.

Should PTO time be allotted on a yearly basis, or accrued constantly?

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Some companies prefer to dole out an entire year’s worth of PTO at once, whereas others give employees PTO in their “bank” after each week of work.

There are advantages to each approach; yearly PTO lets your employees plan for their vacations far in advance, whereas weekly PTO is more flexible.

Likewise, for companies with a lot of employee turnover, weekly PTO makes dealing with new employees much easier.

Finally, in jurisdictions where your company is obligated to pay out excess PTO when employees leave, providing weekly PTO prevents large liabilities for paying out to employees who leave.

Does PTO roll over from year to year?

If your company prefers employees to have full discretion about the amount of PTO they can take and when they can take it, consider rolling over PTO days from year to year.

In contrast, if your company prefers employees to be confined to a certain number of days off within a given year, don’t allow rolling over. Prohibiting rolling over can also be a great way to force your employees to take time off, which can improve their productivity in the long run.

Should your employees be obligated to take PTO?

This is the biggest question regarding PTO when it comes to employee satisfaction. One might assume that employees are more satisfied when they are not forced to take PTO.

Unfortunately, giving employees the discretion to use or decline their PTO opens the door for toxic incentives wherein the employees who take PTO are stigmatized.