When crafting your PTO policy, there are a few specifics you’ll always want to cover. These basics help establish your policy so there’s no gray area when it comes to taking time off.
Accrual Rates
It’s important to clearly establish how an employee can earn PTO. The most common way an employee accrues PTO—used by 37% of employers—is a set number of PTO hours for every pay period. Other methods include offering employees a full year’s worth of PTO at the start of the calendar year (used by 24% of companies) or on their hire anniversary (used by 22% of companies).
If you’re using the pay period method, calculating the number of hours to give the employee each pay period takes a little math. For a typical bi-weekly pay period, divide the total yearly hours worked by the total number of PTO hours available each year. Then, multiply the result by 80 hours.
Consider an example. Assuming your full-time employees work 40 hours a week for 52 weeks a year, that equals 2,080 total hours worked. The U.S. Bureau of Labor Statistics estimates that the average private industry worker gets 10 to 14 days of paid vacation after a year of service—in other words, around 96 PTO hours.
Divide 96 by 2,080, which gives you 0.046. Multiply this by 80 hours, and you’ll have an accrual rate of 3.68 hours per pay period.
Likely, you’ll be offering more tenured employees more time off, so it’s best to include a chart with all of the different accrual rates per period. This helps employees—and you—keep track of what their correct accrual rate is. You’ll also want to note any probationary periods where new employees won’t start accruing PTO yet.
Availability
PTO isn’t always immediately available for employees. In fact, employers have an average waiting period of 59 days before a new employee can take a day off. This ensures they don’t burn all of their PTO and then quit.
You might also want to limit PTO around certain times of year, such as Christmas or Thanksgiving—especially for part-time or seasonal employees. Noting this clearly in your policy can eliminate future frustrations.
Finally, you might also want to specify how an employee can use PTO they haven’t earned yet. Some companies let employees dip into negative PTO up to a certain point, while others prohibit taking days off without any available PTO. Make sure your policy is clear about what happens if an employee quits with a negative PTO balance. It’s common to have employees to pay that time back out of their final paycheck.
Rollover
If an employee doesn’t use all of their PTO during a given year, they need to know what will happen to it. About 77% of companies offer a rollover plan that lets employees keep some or all of their hours. In a study by the Society for Human Resource Management, the average rollover limit was 19 days.
Some companies don’t allow any rollover in an effort to get employees to take more PTO throughout the year. If you choose this policy, you may want to consider pairing it with a yearly accrual system rather than a pay period accrual system, as employees often won’t have time to use their final PTO of the year before it expires.
Scheduling Requirements
How and when employees can submit a PTO request is important to establish. Otherwise, you risk having an inconsistent and unreliable system that lets requests go overlooked. Usually, requests are approved by an employee’s direct manager, though you can create a policy that HR has the final say.
Create a system for employees to file their requests. We suggest using an official portal that automatically informs an employee how much PTO they can request, alerts managers when they have a new request to review and deducts used PTO from the employee’s balance. These are all common features in the best time tracking software.
You’ll also want to establish how far out an employee has to request PTO. It’s common to require some advanced notice, such as two weeks, so that the employee’s manager and coworkers have time to prepare for their upcoming absence.
Payment Upon Termination
Research from the Society for Human Resource Management shows that 85% of companies pay at least a portion of unused PTO back to an employee after a voluntary termination.
Some states—such as California, Montana and Nebraska—actually require you to pay out unused PTO. If you don’t comply, you could face a fine. It’s best to research the policies in your area and rely on your state’s laws when crafting this policy.
Likely, if you’re paying out PTO, you would do this on the employee’s final paycheck.
