May 16, 2024

How to create your paid time off (PTO) policy


Effective paid time off policies can help organizations promote a positive employee experience, foster a healthy work-life balance, and establish an edge over their competitors. But while developing a policy that benefits both the organization and its employees is crucial, it can also be challenging. Chaotic processes that rely on manual or outdated methods for tracking, requesting, and approving time off can make it difficult to manage, and a lack of visibility, communication, real-time data, and effective accrual forecasting complicate matters even further.

Understanding the various types of paid time off policies and how to create one is the first step in developing an approach that supports compliance, improves operational efficiency, optimizes the employee experience, and protects your bottom line. Below, we’ll discuss everything you need to know about how to construct the right policy for your organization, including key considerations, foundational steps, and how powerful tools can alleviate the burden of managing the process.

What is PTO and how does it work?

Paid time off (PTO) is a benefit an employer offers that allows employees to take an allotted time off of work for vacation, illness, or personal reasons while still receiving their regular pay. Depending on the specific organization, role, or employment type (e.g. full-time, part-time, or contracted), PTO may be given to employees up front or accrued over time and can also be based on length of employment.

While it might seem like giving employees time away from work with pay would have a negative impact on your operations and goals, the right PTO policy can actually benefit both organizations and employees.

Benefits of offering PTO

A transparent PTO policy shows employees their employer cares about and supports their ability to maintain a healthy work-life balance. When workers can take time away from their professional duties without losing out on pay, they’re able to tend to important personal matters or take a much-needed break—which in turn allows them to return back to work refreshed and ready to put their best foot forward.

Since 62% of workers say it’s extremely important to have a job that offers paid time off, organizations shouldn’t ignore the competitive advantage that a generous policy can foster. But it’s not just about the ability to recruit top talent. Work stress can lead to physical illness and psychological distress, so time off plays a major role in keeping employees healthy. By providing PTO, you can promote the overall health and happiness of your workforce and equip them to do their best work.

The benefits that your organization can achieve by creating a PTO policy may depend on the approach you choose and whether it suits your agency’s unique needs, so it’s vital to thoroughly evaluate your options before taking action.

Types of PTO policies

There are several different types of PTO policies that your organization can implement, each of which offers their own advantages and disadvantages to both the employer and its workforce. Typical policies fall into one of three distinct categories:

  • Bank: With banked PTO, employees can take sick leave, vacation time, and other personal days from a pool—or bank—of available days or hours. Throughout the specified employment period (typically a year), employees can continue to pull from their paid time off bank until it runs out. Then, their PTO days or hours renew at the beginning of the next period.
  • Accrued: An accrued PTO model allows employees to earn time off as they work. Depending on the organization’s accrual period—such as weekly, monthly, quarterly, or annually—each employee will accumulate more PTO time the longer they’re employed up to a pre-established maximum. For example, rather than receiving a lump sum of available PTO, an employee may earn one hour of time off for every 40 hours they work until they reach a maximum of 15 paid vacation days for the year. Accrual rates may increase each year the employee stays with the organization, which entices workers to stay with the organization.
  • Unlimited: In recent years, some organizations have shifted to an unlimited PTO policy that allows employees to take off as much paid time as they please. Although there are typically some stipulations as to when and how employees can take their unlimited PTO, this type of policy offers the most flexibility. Still, only 6% of organizations offer this type of PTO model to their workers, as ensuring consistency and fairness across departments, teams, and individuals can be challenging—especially without the right tools.

When deciding which model is best for your organization and employees, it’s essential to account for several key factors that can contribute to the success of your PTO policy.

Considerations for creating a PTO policy

Based on your team’s specific functions and objectives, you’ll need to consider some elements that will impact how your PTO policy operates. These specific factors should guide your approach:

  • Requiring a probationary period: When a new employee starts at your organization, you may not want them taking time off right away. Many agencies include a probationary period in their PTO policies, which requires new workers to wait for a predetermined amount of time before taking sick, vacation, or personal leave days. It’s typically part of the training period, as employers don’t want new team members to miss out on the onboarding and support they need to succeed in their role.
  • Allowing PTO to roll over: While some organizations implement a “use it or lose it” clause in their policies, this practice is becoming more difficult to enforce as some jurisdictions have laws against it. For example, California law requires employers to roll over earned vacation time to the following year. Many organizations allow some or all unused PTO to roll over to the next period even if their local laws don’t require it. Organizations have their own rules as to how much PTO employees can roll over, and some have conditions around how much time employees have to spend their rollover PTO.
  • Automating PTO processes: Regardless of the type of PTO policy your organization uses, managing paid time off for every individual employee can be a time-consuming process. This is particularly true for those who still use manual methods or outdated tools for support. It’s important to keep in mind that your PTO policy and processes for management shouldn’t make it difficult for employees to request time off or for managers to track and respond to those requests. Automation can help you accomplish this by making the process of viewing, requesting, approving, and tracking PTO easy.
  • Deciding what to include in the PTO policy: There are a lot of factors to consider when determining what to include in your PTO policy. Will you offer an overarching time off policy that includes sick time, or provide a separate bucket of PTO for illness-related leave? How will your organization handle last-minute PTO requests? How do your state’s laws and rules dictate your policy? Take adequate time to discuss and evaluate all the details that may contribute to an effective policy. Then, record them in a clear, actionable, and easily accessible way.

Automated software can help your organization streamline the process of creating and managing a PTO policy that empowers your workforce without hindering operational productivity or your bottom line.

See how much you can save with a leave management solution from TCP.

How to create a PTO policy

Creating a PTO policy will look different for every organization, but here are some foundational steps to help you get started:

1. Choose the right type of PTO policy for your organization

While it’s smart to consider the PTO policies your competitors offer, it’s even more important to be sure the policy you implement will be the right fit for your organization. Take a close look at factors such as:

  • Your organizational culture
  • Your customer, community, or patient demands
  • The type of shifts or schedules employees work
  • Your overall priorities and requirements

Then, assess those factors against each type of policy you’re interested in to determine which will offer the most benefits to both your operations and your employees.

2. Make sure your PTO policy supports compliance

Compliance is a critical aspect of an effective PTO policy because it ensures employees receive the protections they’re entitled to and keeps organizations from facing non-compliance penalties. Don’t forget to examine applicable employment laws, union collective bargaining agreements (CBAs), and internal policies as you start crafting your policy. Once you’ve identified the regulations that apply to your workforce, using automated software can help take out the stress of staying in compliance and avoid human errors that can lead to financial and reputational risks.

3. Communicate the PTO policy clearly

Even the most well-crafted PTO policy won’t do your organization or your team any good if it’s not properly communicated. How will employees access policy documentation or receive notifications if and when relevant rules change? The ways you communicate and provide access to your PTO policy can directly impact how employees understand, plan for, and use their PTO. Be sure to implement reliable and consistent procedures to ensure everyone is aware of the current policy and any subsequent changes.

4. Establish rules for PTO requests and approvals

Fairness and consistency are crucial when it comes to enforcing PTO policies for your employees. If one manager handles requests and approvals differently than another, it can lead to serious instances of resentment and dissatisfaction among employees. This highlights the importance of establishing crystal-clear rules for both managers and employees about when and how they should request, approve, or deny PTO.

5. Use time and attendance automated software designed for PTO management

Tracking and managing all the details around a PTO policy and management process is enough to make any manager’s head spin. Fortunately, you can minimize the heavy lifting by leveraging the right tools. Automated time and attendance software can help you create and manage a PTO policy that suits the specific needs of your organization—no matter how complex they are.

The right solution makes it easy for employees to understand, access, and request available time off and enable managers to handle those requests seamlessly. That way, employees can take their well-deserved PTO, and managers can track the data they need to maintain operations while team members are out of the office—all without the time and hassle of manual processes.

PTO policy example

Here is an example of a PTO policy you can use as a reference when building your own:

All full-time employees will begin accruing paid time off after a 60-day probationary period. Employees will accrue one hour of PTO for every 40 hours they work, until they reach a maximum of 15 PTO days—at which they are no longer able to accrue PTO until their next year of employment with the organization begins. Accrued PTO does not include sick time, and should instead be used for vacation days or other personal reasons.

Employees must use their PTO during the employment year in which it is earned, and unused PTO will not roll over to the following year. In non-emergency situations, employees must request PTO a full 24-hours in advance. In the case of an emergency, employees should contact their direct manager as soon as possible to notify them of their absence. If approved, their time off will be retroactively pulled from their accrued PTO hours.

If an employee fails to provide adequate notice (except in an emergency) of their time off, they will be subject to disciplinary action or termination. All PTO requests, approvals, and denials will be reviewed and evaluated fairly based on company policy, employee standing, and relevant staffing needs.

No matter what your organization’s PTO policy looks like, using an automated platform that can integrate your accrual and leave rules is the most efficient way to manage the process.

Automate your PTO process with TCP Software

Insufficient, manual, or outdated processes can make it nearly impossible to develop and manage an effective policy. A lack of visibility into accrual banks and PTO forecasts means managers must waste precious time evaluating requests and risk approving PTO that the employee hasn’t yet earned. Add inadequate communication and transparency between managers and employees to the mix, and organizations are often stuck wrestling with inconsistent time off approvals, perceived favoritism, and reduced team morale. To top it off, lackluster systems fail to provide employee self-service access or automated workflows which can result in requests falling through the cracks and contribute to decreased job satisfaction, higher levels of employee turnover, and a negatively impacted bottom line.

But with TCP’s leave, absence, and accrual management software, organizations can manage their PTO policies and processes with ease. Our intuitive platform offers 24/7 self-service access across multiple devices (including mobile), so employees and managers have everything they need at their fingertips to understand, request, evaluate, approve, and track PTO without sacrificing their productivity. Automated request tracking and notifications and one-click request approval make it easy for employees and managers to handle all PTO-related tasks without wasting time and risking costly errors.

TimeClock Plus offers configuration based on complex rules, including internal policies, state and federal labor laws, and CBAs. It automates accrual calculations for different types of leave policies—including flat accrual rates, accrual based on hours worked, and configurable distribution periods—and accrual forecasting based on employee hours, accrual rules, and existing leave requests. Because you shouldn’t have to choose between meeting your goals and giving your employees the time off they deserve, regardless of how complex your needs are.

Learn more about our leave management tools by downloading our eBook, or speak to an expert today to discover how TCP can help you streamline your leave, absence, and accrual management processes.

Frequently asked questions (FAQs) about PTO

The average amount of PTO that U.S. employees receive after one year is 7 days for private organizations and 11 days for state and local agencies. However, the amount employees receive and when they receive it can vary greatly by industry, employment type, and individual employer. For example, while employees in some industries have to wait a full year to use PTO, others can start using it immediately or after their probation period ends.