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PTO Policy

I am a small business but would like to provide paid time off policy for the retention of my employees. I need a resource to develop one with hrs or # of days normally used for accrual.

Paid time off (PTO) continues to be one of the most sought after benefits by employees. Adopting a generous PTO policy will help you attract and retain good workers.

There is no federal legislation surrounding PTO for private employers. Some states have adopted such laws. Of these states, most simply require employers to adhere to their own established policies. However, some further regulate PTO administration including considering earned vacation time as earned wages. So, your first step should be to find out if your state has any PTO or vacation policy laws.

Next is to determine how much PTO time to offer. Remember to consider the needs/wants of your employees, your company’s culture, and what you can afford to provide. It’s fairly common for small businesses to offer 1-2 weeks of PTO. The benefit of being a small business is that you can talk directly to your employees. Feel free to inquire about their needs/wants from a PTO plan.

Determine whether employees will receive their PTO in one lump sum at the beginning of the calendar/fiscal year or will PTO accrue throughout the year. Lump sum is administratively easier but issues arise when employees use all their PTO early on and leave the company before actually “earning” the time. The accrual method requires more administrative work but is actually fairer to all employees and reduces the likelihood of employees taking large blocks of time off. Both methods have their pros/cons. So, it really comes down to company culture.

With an accrual based plan, how PTO is accrued must be determined. An accrual method based on hours worked is best for companies whose employees work a variable number of hours; whereas, a weekly or bi-weekly accrual method works best with employees who work more regular schedules. Your payroll provider may offer a PTO calculation service. If not, there are free worksheets or calculations available online (i.e.

Also, some employers allow employees to use PTO before they’ve actually accrued it. This is beneficial to employees but can create headaches if an employee leaves the company with a negative leave balance. Both federal and state laws would need to be considered before deducing a negative leave balance from an employee’s final paycheck.

Determine whether the policy will allow roll over or if it will be use-it-or-lose-it. A roll over policy allows employees to carry over unused PTO in to the new plan year. If this option is chosen it’s best to implement a cap on the amount of time employees can rollover or place a cap on the total amount of accrued time allowed. Once employees exceed the cap they can no longer accrue time until time is used. Use-it-or-lose-it policies are administratively easier but they can prompt excessive requests for time off at the end of the plan year from employees who don’t want to lose their time. Also, use-it-or-lose-it policies are illegal in some states.

The PTO policy should also include which absences are covered by the policy, the eligibility criteria, how to request time off, the approval process, and the payout or forfeiture of unused time when an employee separates from the company. Keep in mind some states regulate the payout of accrued vacation time.

Once the PTO policy has been written, review it several times! PTO can be a great benefit for small businesses but you want to ensure the policy works with your culture and the administration will not be overwhelming.

Lastly, communicate the policy to your staff. Use this time to thank them for their dedication and hard work.


This entry was posted on Sunday, August 28th, 2016 at 1:40 pm and is filed under
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