How to Create a PTO Policy

LAST UPDATED: June 29, 2022

The work and stress of an employer never end. There’s always a new challenge or situation that must be faced, a new policy that must be created, or a new system or protocol to be trained. This is why some employers shy away from PTO policies: they feel like it’s one more task to add to their growing to-do lists.

The truth is that with the right strategies, a PTO policy can be a tremendous asset to your business and can help you improve your workforce in ways you may not have realized. Let’s dig further into PTO and how you can create a PTO policy that benefits everyone.

What Is PTO and How Does it Work?

“PTO” stands for “paid time off,” and it is exactly as its name suggests. PTO is a set number of hours or days an employee can take off of work while still getting paid for the time. You can implement PTO for both salaried and hourly employees.

Types of Time Off

Every employer’s PTO policy can break up employees’ paid time off into several categories. While these vary from one employer to another, they usually include:

  • Vacation: time off that the employee can use for any purpose, from traveling to simply working on a project at home
  • Holidays: days off that employees are paid for each year, which can include cultural holidays like Christmas and Hanukkah as well as governmental holidays like Labor Day, though the specific holidays can vary between employers
  • Sick Time: time off that is meant specifically for days when the employee or a person they provide care to, such as their child, is ill or has a medical appointment, and in some cases, employers require a doctor’s note to verify that the time off was due to medical needs

While the types of time off above are the most common, there are other unique circumstances that warrant time off too. These may include parental leave for the birth or adoption of a child, military leave, time off for jury duty, bereavement leave, time off to vote, and more.

Some employers group all their employees’ PTO together so that it doesn’t matter why they need time off. Others separate time off for different purposes, so employees have a certain number of sick days and a certain number of vacation days, for example. It all depends on the policy you choose.

Pros and Cons of Having a PTO Policy

With a clear view of what PTO is, should you implement a PTO policy for your employees? There are several pros and cons to weigh.

Pro: Attracting Better Employees

PTO has become a commonly expected part of a compensation package in many types of jobs and industries. Remember that as a business, you’re competing with other employers for the best candidates. An appealing PTO policy allows you to attract top-tier candidates who are worth their weight in gold.

Con: Added Expense

The largest disadvantage of PTO is that it can become costly because you’re paying for work that isn’t being completed. In the case of longer periods of time off, you may even need to hire a temporary employee to fill in, which costs even more.

Pro: Improving Employee Productivity

This may seem surprising, but research shows that employees are actually more productive when they take time off every so often. It reduces burnout and allows them to get the rest they need so they have the energy to truly give you 100% of their effort during their workdays.

Con: More Work to Maintain the Policy

When you give employees PTO, it becomes one more system and number you need to continuously track and maintain. You need to keep track of how much PTO each employee has, which can change on any given day. You also need a way to enforce your policy to make sure it isn’t abused. All this can take time and energy if you don’t have the right tools.

Developing a Paid Time Off Policy

If you want to implement a PTO policy for your team, the key is coming up with a singular uniform policy that everyone needs to follow. The first step is determining how your employees will earn their PTO. There are two primary options: accrual or banking.

The Accrual Method

In an accrual-based PTO policy, your employees’ number of PTO hours will increase at set increments. In many cases, this means they earn a certain number of hours each pay period.

For example, an employee may receive four weeks of PTO annually but they receive this by earning 6.67 hours of PTO with every bi-monthly paycheck.

The Banking Method

In a banking-based PTO policy, your employees have a set amount of PTO time every year. They have a singular “bank” of PTO time that they can use at any time throughout the year.

Additional Questions to Answer in Your Policy

Choosing your PTO calculation method is only one part of establishing your PTO policy. You have to answer other questions as well, such as:

  • Will unused PTO roll over into next year?
  • Is there a limit to the amount of PTO an employee can accrue?
  • Is there a limit to the amount of PTO an employee can use at one time (for instance, they may accrue six weeks of PTO but they can only take one week off at a time without special authorization)?
  • Are employees paid for unused PTO when it stops accruing or reaches the end of the year, or do they lose that unused time?
  • How do employees apply to use their PTO? How much notice do they need to provide? Who needs to approve their request?

All these details should come together as part of your company-wide PTO policy.

Clearly Communicating Your New PTO Policy

When you’ve created your detailed PTO policy, the next important step is to communicate it to all your employees. You need clear and specific documentation, with examples when appropriate; to be sure that everyone understands the rules. If employees come to you with questions, add those answers to the documentation so that everyone is on the same page.

The Perfect Middle Ground: PTO for Them, Simplicity for You

PTO can be a great investment in your workforce, and the best part is that it doesn’t need to be a hassle. Our Zeffry’s payroll system can seamlessly integrate your PTO accrual into your payroll process for a single system that’s easy to monitor and maintain. To learn more, find out about our advanced payroll system.