1. Eligibility requirements

Consider which employees can receive paid vacation time based on employment status. For example, exempt employees aren’t entitled to PTO, per the Fair Labor Standards Act (FLSA). You may also offer vacation benefits to full-time and part-time employees, but not contractors or interns.

Many companies also use a waiting period, or a probationary period, for new hires. Employees may need to work for the company for a set period, such as 90 days, before using their accrued vacation time.

2. How vacation time is earned

After defining who is eligible, you can explain the method for approving vacation time. You might provide vacation time in a lump sum, offering employees their full allotment of vacation days at once. Your policy can specify when this happens, such as on the employee’s work anniversary or the first day of the calendar year.

The other common method is an accrual system, allowing employees to earn vacation time as they work. For example, employees might earn four hours of vacation time for every two-week pay period. Your employee handbook may detail your chosen method.

3. Vacation accrual rates

If you use an accrual system, your policy needs to specify the rate at which employees earn vacation time. You can set different rates based on employment status. For example, full-time employees might accrue time off faster than part-time employees, given their higher hours worked each week.

You might also choose to reward long-term employees with higher accrual rates. A tiered system can help improve employee retention and loyalty since it helps show employees that you value their long-term commitment to the company.

Consider using this structure for your policy:

• Years one through four: Employees receive 80 hours of vacation per year.
• Years five through nine: Employees receive 120 hours of vacation per year.
• Year 10 and beyond: Employees receive 160 hours of vacation per year.

You may include these milestones and the corresponding accrual rates directly in your policy.

4. Time off request procedures

This policy section outlines the process for requesting vacation time, including the manager who approves all requests. Clear procedures help the leadership team plan for absences and maintain productivity by finding coverage and delegating tasks to other workers.

Your policy may include the following details:

• Advance notice: This specifies how far in advance employees need to submit their requests. Many companies require a two-week notice, but you may request a longer period for extended vacations.
• Request method: This explains how to submit a request, whether it’s through a human resources (HR) software system, an email to the department manager or a time off request form.
• Approval process: This describes which leader approves requests and how they communicate approvals. For example, the status may appear on the HR software portal, or employees may receive an email notification. You can also explain how you handle scheduling conflicts, such as by approving requests in the order they are received. For example, you may only allow one department member to be out of office (OOO) at once.
• Blackout periods: This identifies times of the year when you restrict vacation requests due to anticipated busy seasons or project deadlines.

5. Rollover rules for unused time

Your vacation policy can address what happens to unused vacation time at the end of the calendar year. For example, some companies may require employees to forfeit any unused time after a certain date. However, some states, like California, restrict or prohibit these policies, so you may review your local regulations before determining your rollover policy.

You might instead allow employees to roll over some or all their unused vacation time to the following year. Rollover policies often include a cap to prevent employees from accumulating too much time off. For example, you might allow employees to roll over up to 40 hours of vacation time per year.

Clearly outlining your rollover rules helps encourage employees to plan their time off while ensuring your company complies with local regulations.

6. Payout policies for departing employees

The final element of your policy is to explain what happens to an employee’s accrued, unused vacation time if they separate from the company. State laws may govern vacation payouts or require employers to pay out all earned vacation time upon termination.

If your state doesn’t enforce time off payouts, you might choose to provide compensation for all unused time or a portion of it. Applying this policy to all departing employees helps avoid bias during the offboarding process.

FAQs about vacation policies

What’s a typical amount of vacation time?

For employees who have been with a company for one to five years, you might offer two weeks of paid vacation per year. Some companies offer more vacation time as an incentive for longer service. For example, employees with five to 10 years of service may receive 15 to 20 days of vacation.

Consider your benefits package when determining the provided vacation period. For example, if your benefits package also includes health insurance, 401(k) matching, stock options and flexible work arrangements, you may offer fewer vacation days.

What’s the difference between PTO and vacation?

PTO covers any paid time an employee takes away from work. PTO can include sick leave, vacation days or personal time. Vacation is a specific type of PTO. Some companies group all paid leave into a single PTO bank, while others provide separate allowances for sick time and vacation.

What does it mean to accrue vacation?

Accruing vacation means earning it over time with each pay period, rather than receiving the full amount at the start of the year. For instance, an employee might earn a few hours of vacation time every two weeks.