Sample PTO Policy: What You Need to Know About Paid Time Off

Last month, Piala Inc., a Japanese marketing firm based in Tokyo, made headlines when they implemented a new PTO policy that allowed non-smokers to take extra time off to make up for all of the extra hours they put in by not going out for smoke breaks.

“One of our non-smoking staff put a message in the company suggestion box earlier in the year saying that smoking breaks were causing problems,” Hirotaka Matsushima, a spokesman for the company, told The Telegraph.

“Our CEO saw the comment and agreed, so we are giving non-smokers some extra time off to compensate.”

Now, regardless of how you feel about the policy, there is something here that all HR managers and business leaders can learn: it’s time we all rethink our PTO policies to adhere to the modern times, making sure that policies align with what the current workforce expects and what will work best to retain and engage staff over the course of their tenure.

This can be a lot to take in. So, to help, we put together this complete PTO policy guide and have even created a sample PTO policy for you to get started. You can grab the sample here for free:

Now that that’s out of the way, let’s get started by looking at what PTO policy is and what it has entailed historically before we jump into what employees expect in 2018.

PTO Policy: A Brief Explainer

PTO, which stands for ‘paid time off,’ is the amount of paid leave an employee has while they work at a given company.

“Paid time off (PTO) provides all full- and part-time staff members with paid time away from work that can be used for vacation, personal time, personal illness or time off to care for dependents,” the Society for Human Resource Management (SHRM) states.

“PTO must be scheduled in advance and have supervisory approval, except in the case of illness or emergency. The PTO policy takes the place of sick leave, personal time and vacation.”

So, in other words, any time an employee wants or needs to take off from work, they use up a day of their PTO, which is the combined pool of all of their time off.

While this is a simple process on paper – all that is really required is a pool of days, right? – making a PTO policy is extremely important because it allows your employees to have the ability to take care of their life while also allowing you – the business owner or manager – to know how many days off any given employee will take.

There are countless reasons for an individual to use their PTO time, meaning it is important for an employer to allow them to handle the life moments that need handled so they can balance their work and life, which – in the long run – makes them better, more engaged employees at the end of the day. Managers just have to encourage PTO use for sickness and other ailments so their staff doesn’t simply horde them for happier uses, but we’ll get into this more in a little bit.

It’s important to highlight that many companies use different leave policies and PTO is just one form. For example, in the past, companies distinguished between leave days by giving employees a certain amount of sick time, personal time, and vacation time.

PTO, like we mentioned above, is the total of these days, which the employee can use as they wish. Sick? Take a PTO day. Want to just have a day off to relax and recharge? PTO day. A family matter popped up? PTO day.

In other words, PTO is a pool of days instead of a segmented amount of time.

Like all HR policies – or business policies, in general – there are some pros and cons that come along with using PTO compared to the traditional, segmented options.

PTO Policy: The Pros and Cons

While a PTO policy definitely gives the power over to the employee, allowing them to take the time when they need to and as they see fit, it can also backfire a little bit on the companies that implement the policy. So, like with everything, there are good and bad things about PTO.

Let’s take a look at some of these issues, starting with the pros.

One of the biggest benefits PTO policy can have for a company is that it cuts down the time a manager has to spend worrying about when their employees take off. Instead of trying to figure out if a person is taking a sick day, a vacation day, a personal day or whatever, the manager just have to know that the person has taken a day and they have so many left.

This makes reporting way easier and doesn’t take up a manager’s time as they chase after employees to report the proper day. It also keeps an employee honest because, well, it allows them to be. Instead of lying by saying, for instance, that they were sick when in reality they had to take care of their child, the employee is allowed and enabled to have a more open discussion without fear of reprimand.

PTO also gives employers more flexibility, too. They now don’t have to worry about a bunch of unscheduled call offs because they are expecting a certain number of call offs per years anyway. With those days noted and figured out in advance, HR managers can focus on other things like engaging their workforce and handling the day-to-day operations.

One of the other big benefits is that PTO allows the employee to be in control. Not only does this make handling life situations easier, it also shows that you – the HR manager or employer – trusts them to handle their time off by themselves.

PTO is freeing for employees and can be seen as a big perk, allowing the employee to make their own decisions without needing to talk with a manager at every turn, which – as we said above – frees up management, too.

However, as with all policy changes, there are cons as well.

Many of the noted problems with PTO leave are intricately connected. For example, many HR studies have found that employers typically give less PTO time than they would in a segmented system that accounts for sick, personal, and vacation time.

This is likely because employers think that employees will use more of their PTO time than they would if it was segmented. Like we mentioned above, an employee could lie and say that they are sick when they really have another reason for taking off. However, many employees will not do this, meaning they will work on those days instead of calling off.

By having open PTO days, that employee will be more likely to take the time off because they don’t have to lie or do anything in an ethical grey area to get leave. All in all, this leads employers to schedule less PTO time when it is freely available to get around the issue.

At the same time, without having designated sick days, employees are more likely to come to work sick and save their PTO time for more fun things like vacation. Like we said above, this leads to employees using more of their PTO time than they would when they have designated days for various reasons.

The biggest problem here is that employees forego taking time off when they are sick, though, which can possibly spread around the ailment.

The good news is that these issues can all be resolved if you have a proper plan in place that states that employees need to take time if they are ill or that they can’t take off a certain number of days in a row unless they schedule them well in advance.

Scheduling vacation, by the way, should always be planned in advance even though many PTO policies state that the employee can take off whenever they wish. It’s just the right thing to do so your employer can cover your work while you are out.

So, now that you know the pros and cons, you can develop a plan to make sure you hit all of these cons and make them work for your business because, in our opinion, the pros can easily outweigh the cons if a little planning is put in place, especially given the benefits of vacation time on employee performance.

Okay, let’s move on to how PTO time generally works.

PTO Policy: How Employees Get Days Off

With any leave policy, there needs to be a way for employees to get their days. For example, some places – mainly in retail – allow people to accrue ‘hours’ that they can take off when they need to. So, for instance, if an employee works a full time schedule of 40 hours per week for a month, they will have a certain amount of carry-over hours that they can use for PTO.

In other areas of business, PTO works the same where it is accrued over time but may use days instead of hours.

As SHRM reports:

“PTO is earned on a monthly basis and credited to an employee’s PTO bank on the first day of the month following the month in which PTO was earned.

Eligibility to earn PTO is contingent on an employee having worked or used PTO for the entire month. PTO is not earned for months when unpaid leave is taken or when short- or long-term disability benefits are paid.”

On the other hand, many organizations take a simpler route by having a designated amount of time per year depending on how long the employee has worked at the organization.

This is better with a visual aid. So here is an example of how many organizations break down their PTO leave for long term employees, according to a study by World At Work:

• Less than one year of service – 16 days
• 1-2 years of service – 18 days
• 3-4 years of service – 19 days
• 5-6 years of service – 22 days
• 7-8 years of service – 23 days
• 9-10 years of service – 24 days
• 11-15 years of service – 26 days
• 16-19 years of service – 27 days
• 20+ years of service – 28 days

Now, this is just an example for you to use as you see fit, but it does show a decent way to make sure your more senior staffers get something for staying with the company for such a long time.

Also, it’s vital to remember that when it comes to any HR policy, your corporate culture cannot be ignored.

What does that mean?

Well, just like your corporate perks package, your PTO policy needs to reflect what you want your culture to be inside the office. This is where new and exciting versions of PTO come in and how you can make your company stand out in 2018 and beyond.

PTO Policy: Other Forms of Leave

Other than a pool of PTO, there are more ways for you to give your staff some time off. Most of the time, these days off are on top of the PTO or a segmented policy.

The first, and the most important, is paternity leave, which is a hot button issue right now. Regardless of where you stand, it’s safe to say, according to countless studies, that the majority of Americans agree that new parents should have dedicated time off to spend with their newborn. On the other hand, many Americans disagree who should pay for this time off (the government or the employer).

That debate aside, it stands to reason that if your organization offers to take the financial hit to offer your staff paternity leave, your company will be valued and more sought after than a company that has a hard ‘no’ stance on it.

Another form of leave that needs to be a part of your PTO plan is holiday leave. Now, it’s typical that companies allow their staff to take off time for the big holidays – Thanksgiving, the Fourth of July, and others – while some allow their staff to have floating holidays as well.

“On average, organizations offer eight paid holidays per year. Most companies do not allocate floating holidays to employees; however, 17% offer one day per year and 16% offer two days per year,” reports the World At Work study from 2016.

Either way, employees expect to have holidays off on top of their PTO pool. How you handle those holidays is more about your corporate culture than anything else, which means it all depends on what your staffers specifically want and expect.

The last form of leave that some companies offer is sabbatical, which is a longer form of leave that is given to mostly senior staffers or ‘creative staff.’

That sounds weird, but it actually makes sense. Here’s what SHRM has to say about it:

“Exempt-level professional and creative employees working in designated “innovative” areas such as product development, research and design may apply for a sabbatical leave after five years of continuous full-time service. These employees may apply to take sabbatical leave for three months at full pay or six months at 50% of pay.

Employees at director and executive levels are also eligible to apply for sabbatical leave after six continuous years of full-time service to the company. These employees may apply to take sabbatical leave for six weeks at full pay or 12 weeks at 50% pay.”

SHRM states that sabbatical allows employees in these positions to fulfill self-development, giving them time to work on intellectual property away from the office. This is why sabbatical is often used in higher education and other academic, idea-intensive industries where employees can continue to work on their own away from the office, which might be more conducive for creative thought.

PTO Policy: Get Creative

In our corporate perks guide, which you should totally check out, we explored what some of the best companies used to engage and retain their talent. One of the most popular perks is getting time off for various activities that align with the image and brand of the company.

What does that mean?

Well, REI – the popular outdoor gear retailer – gives their staff time off every year to specifically go outside and enjoy nature, an activity that fully aligns with their brand and culture. Not only does this make a lot of sense, it also allows the employees to do something fun while also keeping the company in the back of their minds while they use the products they make and sell.

Another company doing interesting things with PTO policy is Airbnb, the house-sharing company who has been voted one of the best places to work multiple times. Since travel and exploration is at the heart of Airbnb’s business, they give stipends for their employees to travel and stay in Airbnb-hosted facilities.

What this does is allow employees to take time off, see the world, and also use the product they develop or sell. It’s a win-win for the company.

Other businesses – who want to follow vacation time trends – have started giving time off for their staff to volunteer for various causes, too. This allows the employee to spend their working hours making a difference in the community while also fostering a strong branding image for the company. Again, a win-win.

Now, you might be reading this and trying to think of interesting ways to use PTO as a corporate perk and coming up empty. That’s okay. Not all companies will have a product or culture that aligns with PTO policy, but looking into ways your company might implement something along these lines has the possibility to set you apart from the norm.

One thing that is becoming more and more popular across the board is unlimited PTO time, meaning that employees can take as many days as they wish as long as they get the okay from their manager.

This is a cool way to handle PTO time, though it also has problems like the the ones we mentioned with normal PTO policy.

First, let’s look at the positive side of unlimited PTO. According to Sarah Tann from Zenefits, the popular HR-outsourcing company:

“With unlimited policies, employees can take time off whenever they want, without worrying about reaching any caps. Of course, they’ll still need to get their manager’s approval. This also eliminates the expense of accrued time-off. When employees end employment with the company, there’s nothing to pay out.”

As you can see, this PTO policy lets workers truly have control over their time off while also benefiting the company because people will never accrue PTO hours or days that can be cashed out if they aren’t used.

But what about the downsides?

Well, as Tann points out, it can be quite hard to implement an unlimited PTO policy for all workers, specifically those who have hourly roles. The goal of unlimited PTO should be to have less headaches across the board instead of creating new ones. Also, if your company has had a traditional PTO policy in the past, it can be quite tricky to cash out all of the accrued time that senior employees have amassed over the years.

Like we’ve said before, it’s all about your culture and what you want to use, though understanding all of the options surrounding PTO policy is always a good move.

Now that we’ve explored all of the various options, let’s get into how you can craft your very own PTO policy.

PTO Policy: Putting It Together

It’s time we take all of the things we covered and put them into a concrete plan. One of the best ways of handling this is to examine what makes the most attractive PTO policies and then using them if they fit into your company.

According to Glassdoor, creating a PTO policy boils down to three things: making it attractive, making it sustainable, and making it happen.

The attractive stage is to make sure your current employees and your prospective employees will want to use the system you choose to go with. Using the many options above, you can go forth and decide what you might want to use, such as unlimited time off, accrued PTO hours/days, etc.

Making it sustainable means that if you have a plan – say, for instance, you give unlimited PTO time – you have to sustain that plan. Glassdoor reports that some companies have a great policy on paper but have a corporate culture that basically frowns upon people using their time off. This doesn’t make the PTO policy sustainable and could very well foster resentment in the company over time. So, basically, if you pick a policy, make sure you honor that policy.

The ‘make it happen’ stage is the one people get stuck on. When PTO is used that should mean that the person is actually off from work. As in, they are not working. Period. Many, many Americans claim that they still work over vacation. This is not what you want. Time off is proven to boost employee performance and if they really aren’t getting time off – just the illusion of time off – it’s not providing those benefits. So, you should encourage your staff to use their time off and when they do, actually let them have that time completely off.

A Sample PTO Policy

Since there is so much surrounding PTO policy, it helps to have a sample PTO policy for you to use in order to get started.

Luckily, we have you covered.

You can use our completely free PTO sample policy form to get your foot in the door and reevaluate your current policy to see if it stands up to the ever-changing HR landscape.

We recommend using the sample PTO policy as a framework but not the end-all policy you go for. Like any sample, it should be a jumping off point to get you started because, as we have reiterated time and time again, PTO policy – and pretty much every policy you use in HR – should be intimately connected to your corporate culture and what you want your company’s image to be internally and externally.

With these tools, you will be able to make a surefire PTO policy that makes your company stand out while engaging, recharging, and revitalizing your staff without managers having to do an increased amount of work.

Josh Hrala

Josh is an HR journalist and ghostwriter who's been covering outplacement and offboarding for over six years. Before pivoting to the HR world, he was a science journalist whose work can be found in Popular Science, ScienceAlert, The Huffington Post, Cracked, Modern Notion, and more.