Everything you need to know about paid time off (PTO) policies

A paid time off (PTO) policy allows your employees to receive ample rest for personal, medical, or other related reasons. It also helps to ensure your team doesn’t experience burnout, improving productivity all around. Plus, a competitive PTO policy can attract potential job candidates and reduce employee turnover.

Whether it’s your first time setting up PTO or you’re looking for ways to improve your current policies, this post can help. We’ll cover everything you need to know about PTO, including what PTO means, the PTO you can offer, and tips for establishing a comprehensive policy. Get started by reading our guide from beginning to end, or use the links to get the answers to your most pressing questions.

• What is PTO?
• Types of PTO
• Why should businesses consider establishing a PTO policy?
• Pros and cons of implementing a PTO policy
• Establishing a PTO policy for your business
• PTO best practices
• How COVID-19 has affected PTO policies
• Streamline your PTO policy with QuickBooks Time

What is PTO?

PTO encompasses various types of paid days, such as sick, personal, and vacation time. These forms of time off are typically allocated into a general pool of days that employees can use at their discretion. So, how does PTO work? We’ll take a closer look at these forms of PTO and others in detail below.

Types of PTO

When creating your PTO policy, you’ll have to decide what types of PTO you’re going to offer employees. There are numerous options available, such as:

Sick

Employees can use paid sick days when they are under the weather, injured, or need a mental health break. Some employees may be reluctant to take time off when they’re sick, especially if they need the money to pay for bills and essentials. However, a sick time policy encourages employees to stay home when they’re sick. Not only does this allow your employees time to rest, but it also hinders the possibility of illnesses spreading around the office.

• Some states have laws regarding sick time, so make sure to stay up to date with mandatory sick time laws in your state.

Vacation

Paid vacation time provides employees with days off that they can use to travel, spend time with friends and family, and so forth. Vacation days are typically accrued and depend on whether employees are full time and how long they’ve worked at a company. The amount employees can earn also depends on the employer’s vacation policy.

Personal

Personal PTO allows your employees to handle an array of activities without worrying about losing hours or pay. Personal time can be used for activities that don’t necessarily fall under sick or vacation time, such as:

• Doctors’ appointments
• Parent-teacher conferences
• Taking care of a sick relative, child, or partner

Holiday

Many organizations will give employees major holidays like Memorial Day, Thanksgiving, and Christmas off while still compensating them. However, there are no federal laws that require private employers to offer holiday pay. If you provide paid holidays, you can follow the federal holiday schedule or offer floating holidays.

Maternity and Parental

The Family and Medical Leave Act (FMLA) requires employers to provide eligible employees up to 12 weeks of unpaid leave annually. The FMLA covers expectant mothers who can no longer work due to their pregnancy, the birth of a child, or caring for a newborn. While it’s not required, many employers are choosing to pay workers for this type of leave and are also including new fathers in their policies.

Bereavement

Employees can step back from their work with paid bereavement leave should a loved one pass away. During this time, workers can mourn, make travel arrangements, and attend funeral services. Like many PTO policies, the amount of bereavement time offered depends on the employer.

Jury duty

Jury duty is mandatory for all U.S. citizens above the age of 18. That said, employers will often offer time off specifically for when employees need to serve on a jury. However, some states don’t require employers to pay workers for lost wages due to jury duty, while others have jury duty pay laws. A few states that require employers to offer jury duty compensation are Alabama, Colorado, Georgia, New York, and Tennessee.

Military

Employers can choose to offer paid military leave for military-related responsibilities. This includes active duty and reserve training and other similar obligations. In addition, employers must also follow the policies set forth by the Uniformed Services Employment and Reemployment Rights Act (USERRA) for military absences.

Sabbatical

Paid sabbaticals allow employees to take a break from work for an extended amount of time. They are one of the less common types of PTO. Most sabbaticals are offered at colleges.

You’ll have to think carefully about the PTO options you want to provide employees with. Not only does it affect the well-being of your workers, but also your company.

Why should businesses consider establishing a PTO policy?

Offering your employees time off could be required depending on federal and state laws. You must follow these laws to remain compliant and avoid fines and lawsuits. Make sure to check out the U.S. Department of Labor and your state labor department for more information regarding the policies you have to abide by.

Pros and cons of implementing a PTO policy

What exactly does a PTO policy mean for your business? Like any business policy, there are many pros and cons to weigh when offering PTO. Here are a few to consider as you create your paid leave policy.

Pros

PTO gives employees more control over their schedules, allowing them to pursue outside interests and handle personal matters while still receiving pay. Because of this flexibility, employees can focus on their work when they’re ready and worry less about losing money. Employees who worry less are happier with their work, and that satisfaction can morph into an increase in productivity and engagement. Other company and employee benefits include:

• Reduction in employee turnover, so you can save money.
• Decreased burnout, allowing employees to have a healthy work-life balance.
• Powerful recruiting tool that can attract top talent to your workforce.

Cons

Despite the many advantages of a PTO policy, there are a few drawbacks. For example, various states have payout laws. This requires employers to pay workers unused PTO at the time of their termination or furlough. When an employee leaves, you’ll have to be prepared to face this expense. Other drawbacks include:

• You’ll need more employees to cover those taking time off.
• Employees can pretend to be sick and abuse the system.
• If you bundle time off in one bank, employees may want to use it only for vacation, resulting in them working while sick.

How to create a PTO policy for your business

If you’re unsure about how to establish a PTO policy for your small business, we’ve got you covered. Here are some steps you can take to help craft your PTO policy:

Step 1: Determine the structure of your PTO policy

There are several ways to structure your PTO policy. Here are three of the most common PTO policies to consider:

• Traditional PTO: This allows you to categorize the PTO you offer. Employees can have separate PTO banks for sick leave, personal days, and vacation.
• Flexible PTO: Flexible PTO policies combine sick and vacation leave into one bank, so employees can manage their PTO as they see fit.
• Unlimited PTO: An unlimited PTO policy allows employees to take however much time off they want as long as it’s approved by a manager.

Step 2: Decide how much time off to give

Once you determine the structure of your policy, you’ll have to decide how much time off to give your employees. According to the U.S. Bureau of Labor Statistics, one-third of full-time employees with one year of service received an average of 10 to 14 days off in 2019. While PTO isn’t mandatory, it’s important to offer time off that aligns with this average to remain competitive. If you don’t, you risk losing employees to companies that can provide them with the PTO they expect.

Step 3: Outline your PTO policy

When creating your PTO plan, there a few things to ask yourself, such as:

• Will you limit the number of days off employees can take in a calendar year?
• What will the PTO accrual rate be?
• Will unused PTO rollover?
• How far in advance do employees have to request PTO?
• What will your request-to-approval process be for PTO?
• Will years of service affect PTO days, or can new employees start accruing PTO right away?
• Will part-time employees also receive PTO?
• What is the maximum number of hours employees can use?

It’s essential to be as specific as possible and make your expectations clear to avoid miscommunication.

Step 4: Implement the policy

Before implementing your policy, look it over to ensure you’re complying with federal and local labor laws. Then, you’ll want to connect with your human resources department and other stakeholders to finalize it. You should also give your employees a heads-up and inform them about the significant changes that are about to take place at your business.

Once an official PTO program is created, send it out to employees. If they would like to discuss it further, you can hold one-on-one or company meetings to ensure they understand how PTO will work.

Establishing a PTO policy for your business isn’t something that should be rushed. Instead, take your time and conduct careful research and analysis to ensure you’re doing what’s right for your business and employees.

PTO best practices

As you work on your PTO policy, ensure you’re using best practices. Regardless of the industry your business operates in, the following best practices can help you develop a PTO policy and manage it once it’s ready.

• Add your policy to the employee handbook. Employees should be able to reference their benefits guide to clarify any questions or concerns they may have. Make sure that the content describing your policy is also easily digestible.
• Use technology to your advantage. Time tracking software makes it simple for employees to view time off available and request PTO.
• Encourage employees to take PTO. There’s no denying the value of stepping back from work. Ensure your employees are comfortable asking for time off and encourage them to rest.

How COVID-19 affects PTO policies

Many businesses had to reevaluate their PTO policies during the COVID-19 pandemic. This is because many employees were unable to travel or see family members during this time. Employers that offer a “use it or lose it” policy may consider rolling over unused PTO into the following year. There was also legislation that impacted many small businesses—you’ve probably heard of PPP loan forgiveness—and their PTO policies. That said, the Families First Coronavirus Response Act came to an end in late 2020.

Streamline your PTO policy with QuickBooks Time

A good PTO policy can drive employee satisfaction and productivity, boosting your bottom line in return. In addition to implementing a PTO policy that works for you and your employees, use a time tracking system like QuickBooks Time to simplify PTO.

This automated time tracking software streamlines your PTO policy by allowing staff to submit time-off requests right from the app. Then, you can easily manage and approve employee PTO online. QuickBooks Time also seamlessly connects with your preferred payroll service to make payroll accounting easier. Start using QuickBooks Time today to see how it can help your business.