How to Create a Time Off Policy

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Paid time off is one of the most fundamental rights of any worker. Many locations don’t have a requirement for paid time off, however, so it’s up to employers to figure it out on their own. In this article, we discuss the best strategies to create a time off policy for your business.

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What is a time off policy?

There are numerous factors to consider when it comes to paid time off, so employers have to think about what’s best for their company, their managers and their workers. By creating a clear time off policy, everyone at your company will know exactly what they’re entitled to and how they can utilize the time off request policy. PTO policy should be easily understandable and accessible to everyone. You also have to consider an unpaid time off policy for employees who would rather save up their PTO for a longer trip or those who haven’t put in the necessary work yet.

See 14 more policies your business should have.


How do employers define paid time off?

To create the perfect time off policy for your business, you first need to grasp exactly what paid time off is. PTO is time in which an employee is not working but is still getting paid their typical rate either fully or partially, whether that be hourly or salaried. This paid time off can be broken up even further into categories like vacation time, personal time and sick time. Some employers will offer a specific amount of PTO for each category, while others offer a total lump sum of time that employees can use when they’re sick or need a vacation without any questions asked.

Paid time off is meant to cover any reason why an employee may want a break from work. Aside from illness, however, PTO policy is typically meant to cover vacations. When an employee is stricken with another obligation like becoming a parent, getting jury duty or going through bereavement, there is typically a separate policy covering those issues.


Types of time off policies and procedures

When you’re creating a time off policy for your business, there are three basic types of policies to consider. Each has its own benefits and downsides, so it’s important to consider which would be the best fit for your business’s unique needs as well as your employees’ happiness:

  1. Bank: The bank policy allows employees to pool all of their paid time off into a single source from which they can draw whenever they like. Under this policy, employees aren’t typically obligated to offer a reason for their desired paid time off. The only common rule is that the employer receives two weeks notice if the employee is seeking to take off several days in a row.
  2. Accrued days: If you’re looking for a PTO policy that allows employees to earn it, the accrued days model does just that. Employees earn time off in accordance with how much they work. For example, they could accrue 4 hours of PTO for every 40 hours worked, meaning they can get one day off every two weeks. Of course, the employees are free to work as much as they like and allow their accrued days to add up. Some employers also allow their employees to take PTO in advance without accrued days if they agree to halt the accrued days until the PTO is earned.
  3. Open: An open PTO policy is one in which employees are free to accumulate as much PTO as they want. Without a cap on the amount of PTO employees can save, they could potentially work for years, then take a whole month off at once. Because of this, employers often put some limits on how their open PTO accumulation can be taken, including how much advance notice must be given and how many days off in a row one can take.

Related: Why Employers Should Consider Unlimited Vacation Policy


What to consider when creating a time off policy

No two time off policies are alike, as each business has different demands and strategies. To determine which policy would work best for your business, there are several factors to consider. The first is how you plan to handle holidays. Holidays come regardless of your policy, so you have to decide which ones employees can take off without using their personal PTO. Then, you have to determine how you’re going to track time off. You can use a program to keep track of it, or you can assign it to someone.

Once the basics are out of the way, your policy has to include instructions for a few unique situations. Imagine you have a new hire and a policy of half a day of PTO accrued for every week worked. If a new employee wants to take a day off after working just two weeks, would you allow that, or would you implement a probationary period first? Additionally, will PTO renew every year, or will it carry over? If it doesn’t carry over, you have the option of simply paying out the allocated PTO to the employee.

An unpaid time off policy is typically much easier to manage. Put simply, unpaid time off is when employees don’t work and aren’t paid. This is most commonly used when the requirements for using PTO aren’t met. Perhaps an employee failed to give enough notice before taking the day off. It’s also sometimes used as a punitive measure, but that’s relatively uncommon because it produces limited results regarding productivity as opposed to PTO.


Paid time off policy sample

To best understand what a time off policy may look like, you can explore this sample policy:


PTO guidelines

General Atomics’ full-time employees, or those working more than 35 hours a week, can accrue 1 hour of paid time off for every 10 hours worked. That roughly translates to a day off work every two weeks.

The paid time off hours saved up must be used by the end of the calendar year through the company’s time off request template. While hours won’t transfer to the next year, the remaining unused PTO hours will be paid out to employees as part of their bonuses. Should an employee need to take PTO at the beginning of the year, they can use accrued time yet to be earned, provided they agree to stop accruing time until the debt is paid. 


Advance notice

Additionally, employees must notify management of their plans to take time off at least 1 hour in advance of their next shift, though it’s preferred that employees give a day’s notice when possible. Should multiple days in a row be taken off, the employee must provide notice no less than two weeks in advance of the first day off.


Paid holidays

General Atomics operates every business day throughout the year, but employees are free to take the following holidays off without taking from their PTO:

  • New Year’s Day
  • Martin Luther King Jr. Day
  • Memorial Day
  • Independence Day
  • Labor Day
  • Thanksgiving
  • Christmas Eve
  • Christmas
  • New Year’s Eve

Should employees decide to work on any of the aforementioned holidays, they will receive overtime pay for the hours worked that’s approximately 1.5 times their normal rate.


PTO exceptions

Religious holidays, jury duty, military leave, disability and bereavement are covered under separate policies and do not take from your PTO.


Family Medical Leave Act

Circumstances covered by the Family Medical Leave Act, such as the birth of a child, the adoption of a child or caring for a sick relative, do not take from your PTO.


PTO accrual rates sample

To get an idea of how PTO can accrue over time for an employee, here is a handy chart measuring years of service and how much PTO is earned based on hours worked at a company in which employees are paid every week. Remember, many companies allow employees to accrue more PTO hours per pay period the longer they’ve worked there.


Years of service PTO accrual rate per 40 hours worked Annual PTO accrual
Less than one year 2 hours 104 hours
1-4 years 2.25 hours 117 hours
5-10 years 3 hours 156 hours
More than 10 years 4 hours 208 hours


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