How To Create a PTO Policy (And Pros and Cons)

By Indeed Editorial Team

Updated May 10, 2021 | Published November 12, 2020

Updated May 10, 2021

Published November 12, 2020

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Paid time off is a job perk recruiters and hiring managers use to attract new employees. In this article, we explain what a paid-time-off policy is, how to create one, provide the pros and cons of implementing one and provide a PTO policy template and sample to help you create your own.

Related: What Is PTO?

What is a PTO policy?

A paid time off policy is a written document that outlines a company's rules and expectations for paying an employee on days off from work. It often combines vacation, sick time and personal time into a single bank of hours for employees to use at their discretion.

Related: How To Calculate PTO

Potential pros of implementing a PTO policy

PTO policies offer several benefits for leadership, managers and employees. Consider these advantages if you are thinking about implementing a PTO policy for your organization. A PTO policy:

  • Ensures compliance: Many states have guidelines for employee time off and compensation. Check your local laws to ensure your policy accurately reflects and meets any regulations.

  • Saves time: With a PTO policy, you and the other human resources (HR) representatives remove employee confusion and limit extensive questions about when and how employees can be paid while being out of work.

  • Simplifies reporting: PTO, is a single entry to calculate—as opposed to having to calculate multiple entries for sick, vacation and personal days—and is much easier to track and report.

  • Improves planning: Knowing how many days you can expect employees to take off each year helps you plan and schedule work effectively.

  • Benefits employees: PTO can raise morale, improve employee retention and encourage a better work-life balance.

  • Reduces confusion: A written policy ensures everyone knows what’s expected from the company and the employee. Include the policy in the employee handbook as a reference for any questions or issues.

Related: Guide To Understanding How PTO Works

Potential cons of implementing a PTO policy

While there are several benefits to establishing a PTO policy, there are a few potential disadvantages. A PTO policy potentially:

  • Discourages sick employees: With a blanket PTO policy rather than specific days for illness and personal leave, some employees may come to work when they're ill to retain their PTO for other events.

  • Encourages saving days: Most companies allow their employees' PTO to roll over from year to year. Some employees may save their days and then take an extensive period off from work, which may cause challenges for overall productivity and deliverables.

  • Gives fewer hours: Often, without realizing it, companies give employees fewer overall PTO hours than they would do if classified sick, personal and vacation hours, resulting in less overall time off.

  • Takes more hours: Since employees can use all their PTO for any reason, they may use all of it. With a traditional time off plan, they may have left hours unused in vacation, personal or vacation time.

  • May cost company: Some states require employers to pay departing employees for their unused vacation time, but not for sick or personal days. However, because PTO policies make no distinction between types of pay, your company may end up paying out more when employees leave.

Related: Sick Time vs. PTO: Definitions and FAQs

What to consider when creating a PTO policy

Planning a PTO policy for your company can be time-consuming. You want to provide enough leave and flexibility for employees, reduce the burden on HR and ensure you meet all laws and compliance requirements. Here’s what to consider when creating a company PTO policy:

  • Control: Do you want to know why your employees want time off? If you do, consider a traditional leave policy with separate vacation, sick and personal time. With PTO, employees don’t have to give a reason for time off.

  • Time allocation: Before putting a PTO policy in place, decide how you want employees to receive their time. You could either give them their entire PTO time on the date of hire or have them accrue it incrementally throughout the year. If you prefer accrual, decide if it will be added on a pay period, monthly or quarterly basis.

  • Year-end rollover: Do you want your employees to be able to roll over and bank their unused time at the end of the year? Consult your state’s employment laws before making a final decision. Some states consider PTO as earned wages that cannot be “lost” if not used by the employee. If you adopt a rollover plan, your company may pay out hefty sums when longtime employees leave.

  • Departing employees: Some states may require that you pay the employee for unused vacation, but not sick or personal days. PTO has no distinctions between leave, so you would have to compensate departing employees for their entire unused bank of hours.

Template of a PTO policy

The content of a PTO policy can vary dramatically from company to company. However, many PTO policies use a similar framework to ensure the plan provides all the necessary information for the HR team and employees. Use this template or download a copy to help you structure your own PTO policy:

Purpose of the paid time off (PTO) policy

The purpose of this PTO policy is to give you the paid time you need away from work to manage any personal responsibilities, illnesses or vacations you have. It has been established so you feel confident in your decision to schedule time away from work without worrying about the reason why.

From this point forward, you will only accrue PTO time. Your PTO time will replace your current sick, personal and vacation days at an hour-to-hour conversion. This means if you have 24 total hours of sick, personal and vacation time, you'll receive 24 hours of PTO in place of your current hours.

Guidelines for using PTO

All full-time employees will accrue PTO at a rate of [rate of accrual] every [frequency of accrual]. Your PTO will automatically display on [location where employees can check their PTO balance]. When you use PTO hours, you'll see the number of hours subtracted from your total in the same place.

To accrue PTO, you must work or take PTO during the [accrual period]. If you are taking unpaid time off, including short-term disability, long-term disability or workers' compensation, you will not accrue your PTO.

You do not need to take PTO for [times when PTO is unnecessary].

When requesting PTO, please do so in [increments] and with [prior notice]. Use the [process for requesting PTO].

In the case of unexpected or sudden illness or a family emergency, contact [person to contact] directly to issue your PTO.

Exceptions to the PTO policy

Understand these exceptions to the PTO policy:

  • [Exception 1]

  • [Exception 2]

  • [Exception 3]

PTO accrual rates

Employees accrue PTO hours [rate of accrual]. Review this chart to see how many hours you can expect to accrue per [accrual period]:

  • [Accrual rate 1]

  • [Accrual rate 2]

  • [Accrual rate 3]

Related: Q&A: What Is the Difference Between PTO and Vacation Time?

Sample PTO policy

Review this PTO policy example to help you create your own:

Purpose of the paid time off (PTO) policy

The purpose of Jackson Grooming's PTO policy is to give you the paid time you need away from work to manage any personal responsibilities, illnesses or vacations you have. We've established this policy so you feel confident in your decision to schedule time away from work without worrying about the reason why.

From this point forward, you will only accrue PTO time. Your PTO time will replace your current sick, personal and vacation days at an hour to hour conversion. This means if you have 24 total hours of sick, personal and vacation time, you'll receive 24 hours of PTO in place of your current hours.

Guidelines for using PTO

All full-time employees will accrue PTO at a rate dependent on your years of service every two-week pay period. Your PTO will automatically display in your employee self-service portal. When you use PTO hours, you'll see the number of hours subtracted from your total in the same place.

To accrue PTO, you must work or take PTO during the pay period. If you are taking unpaid time off, including short-term disability, long-term disability or workers' compensation, you will not accrue your PTO during that time.

You do not need to take PTO for paid holidays, bereavement leave, jury duty or military service. Speak with the HR team for more information on the specifics of these time off situations.

When requesting PTO, please do so in hourly increments and with at least two business days' notice. You can request PTO through the employee self-service portal.

In the case of unexpected or sudden illness or a family emergency, contact your manager directly to issue your PTO.

Exceptions to the PTO policy

Understand these exceptions to the PTO policy:

  • If you miss more than three days of work in a row due to illness, HR may request a doctor's note to use additional PTO.

  • Using more PTO than you've accrued could result in disciplinary action and possible termination.

  • You must use all of your PTO before requesting unpaid time off, including time off taken under the Family and Medical Leave Act (FMLA).

  • If you do not request PTO and do not show up to work for more than two days in a row, the Jackson Grooming management team will accept that as your immediate resignation.

PTO accrual rates

Employees accrue PTO hours at a rate relative to their years of service with the company. Review this chart to see how many hours you can expect to accrue during each calendar year with the company:

  • 1 year of service: 144 total PTO hours per calendar year

  • 2-5 years of service: 160 total PTO hours per calendar year

  • 6-10 years of service:=17 total PTO hours per calendar year

  • 10 or more years of service: 192 total PTO hours per calendar year

For questions or more information, contact the HR department.

Download template

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