Paid time off (PTO), also called personal time off, is a vital benefit to offer to employees, regardless of company size. Of course, businesses aren’t required to offer PTO, but it’s certainly something that potential employees look at when considering whether to accept a job. If your business doesn’t currently have a PTO policy in place, this guide will walk you through how to create one that’s competitive, appealing, and fair to all team members.
How Does PTO Work?
Employees need the flexibility to take time off for various reasons. A PTO policy allows them to do so without losing out on their pay. Some companies offer a single bucket of paid time off, which can be used when an employee wants to take a vacation, recover from an illness or injury, or attend to other personal needs. Others split the time into vacation and sick leave for specific needs.
When an employee wants or needs to take time off, they typically submit a request to their supervisor to request to use PTO. Some absences will be pre-planned, such as those relating to vacations, while others occur without much notice. An absence management policy should plan for all types of absences, including those related to extended leave.
Creating a PTO Policy
If your company is creating or modifying its PTO policy, follow these steps to ensure compliance with legal regulations while keeping it fair across all departments.
Step One: Establish an accrual plan
Before you can create a PTO policy, you need to know how much PTO each employee will accrue and at what rate. Some companies offer all PTO at the start of the year, while others allow employees to accrue it with each paycheck. You might have a sliding scale based on company tenure. For example, employees who have worked there for over five years earn four hours per pay period, while employees with less than five years of experience with the company earn three.
Another option is offering unlimited PTO, which allows employees to take as much time off as they desire. However, if you choose this option, make sure to consider how it will be enforced fairly.
Step Two: Decide on a PTO policy type
Does your business want to provide a bank of PTO to be used for various purposes or split the time into different categories? Are you planning to offer unlimited PTO? Figuring out what type of PTO policy you want to implement is an important step.
Step Three: Set up the system
Tracking and managing PTO is a challenge when it’s done manually. You could end up with errors that impact the ability of employees to use their paid time off. It’s also harder to see who is already taking time off, which is vital for a supervisor to know before approving a request. Your business needs an automated system that tracks and manages the PTO policy.
Step Four: Create a written policy
Every employee should have the opportunity to review and sign off on the company PTO policy. New employees may do so during the onboarding process. If you’re introducing a new or revised policy, make sure all existing team members can review it.
You can use a template or create your own policy. Make sure it includes essential details like:
- How much PTO each employee receives or will accrue
- The accrual schedule for PTO
- The process for requesting PTO
- How much notice an employee should give when requesting PTO
- What happens if an employee needs to take time off but has no PTO available
- What happens to PTO at the end of the year (rollover vs. lose it)
All employees should sign the policy to indicate that they understand it.
If you need a system that can help you track and manage PTO, we can help. Our HCM solution is designed with the needs of your business in mind. It’s automated and easy to use, and all data flows between modules for accuracy and consistency.