A Small Business Guide to Offering Paid Time Off

by Suzanne Kearns

5 min read

In today’s competitive market, small-business owners have to do all they can to attract quality employees to their business, and one way to do that is to offer perks like paid sick leave and vacation time. In fact, a study [PDF] conducted by Oxford Economics shows that almost three-quarters of U.S. workers earn paid time off. Having this benefit not only makes a company more appealing to employees, but the study shows that after taking time off, employees come back more productive, focused, and dedicated. Here’s a guide to implementing sick leave and paid-time-off policies in your business.

Vacation Time

Employer law is mandated by The Fair Labor Standards Act, and it doesn’t require all employers to offer paid vacation time. However, if you have 50 or more employees, you are required by the Family Medical Leave Act to provide certain employees with up to 12 weeks of unpaid leave each year. In addition, many employers offer paid time off for some holidays, like New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas, but it isn’t mandatory. If you want to enact a formal vacation time policy at your business, you can create one that best fits your business, and make it official by including it in your written company policies. Here are some of the things you will need to take into consideration:

  • How much paid vacation time will you give? You can offer the same amount to all your employees, or associate how much vacation time they have with the number of years they have worked for you. For instance, you can give everyone two weeks a year of paid vacation time, or let them accumulate one week for every year on the job. Be sure to set a cap on the amount of time that can be accumulated.
  • Who is eligible? Many policies require employees to work for six months to a year before becoming eligible for paid vacation time. Likewise, some employers only offer it to full-time employers, while others include their part-timers as well.
  • How should requests to take vacation time be made? Should employees approach you or their manager directly, or do you prefer that they submit the request in writing?
  • How far in advance should the request be made? Depending on your business, employees who request time off only a week in advance could negatively impact your business. Decide how long in advance you will need to plan for an employee absence, and ask for at least that amount of notice.
  • Do you have the right to say no? Should the employee automatically expect time off to be granted, or should they expect that, if it’s not a convenient time for the business, the request may be denied? In addition, if you run a seasonal business, state in your policy that vacations won’t be allowed during busy times.
  • Will vacation time roll over? Some employers allow their employees to roll unused days over for a limited amount of time, while others enact a “use it or lose it” policy.
  • Will you pay for unused vacation time? What happens when employees leave your business with unused vacation time on the books? Some employers pay out the time in cash, while others expect employees to take the loss. In some states, you are required to compensate employees for unclaimed time, so be sure to check the labor laws in your state.

When putting together your company’s paid vacation policy, be sure to apply the same standards to all employees of the same classification, otherwise you could leave yourself open to a discrimination lawsuit.

Sick Leave

In 2012, Connecticut became the first state to require that all employers provide employees with paid sick leave. Today, there are two other states and 11 cities that have added such laws [PDF]. Details of these laws vary greatly, so be sure to check your state or city’s to ensure that you comply. If there are no laws in your jurisdiction, here are some of the things you should consider when making a sick leave policy.

  • How many days will you give each quarter or year? Before you decide on this number, do a little math and determine how many days per employee you can truly afford. Then set a maximum number of allowed days off with pay.
  • Who is the point of contact? If an employee is ill and can’t come to work, who should they call?
  • Will the days carry over? If your employees don’t use their sick days, and then get seriously ill the next year, will you allow them to claim the unused sick days from the prior year? Most companies don’t roll sick leave over.
  • Will you require proof? Some employers include a requirement that if employees take consecutive sick days, they must fill out a form explaining the sickness, or bring a doctor’s note to work when they return, though this is often considered overkill. (If you can’t trust your employees to be honest about being sick, why are they working for you?)
  • Do the days extend to family members? If employees’ children get sick and they stay home to care for them, does that count as a sick day? What if a spouse or parent is ill?
  • What happens if an employee is sick beyond his allotted sick leave time? Will you allow them to use their vacation time to cover the absences? Take the time off unpaid? Terminate them? The Fair Labor Standards Act says that an employer can make deductions from an exempt employee’s pay if the employee misses a full day of work due to illness, the employer has a bona fide sick pay plan, and the employee isn’t entitled to paid leave because he has used all his leave, or isn’t yet qualified for it. If you have more than 50 employees and fall under the FMLA, you must give a seriously ill employee twelve weeks off in a year’s time. If the employee has a condition that qualifies under the Americans with Disabilities Act, they may be protected from termination. Finally, your state’s worker’s compensation laws may prohibit you from terminating an employee who is sick because of a work-related injury or illness.

Some employers are choosing to combine vacation time, sick leave, holidays, and personal days, and create a single paid time off (PTO) benefit that can be used for any of these categories. If you take this route, you will set a certain number of days off per year for employees to use at their discretion.

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