Consider These Five Things When Creating A Paid Time Off Policy

Five Things to Consider When Creating a Paid Time Off (PTO) Policy


Creating a Paid Time Off (PTO) Policy
Creating a Paid Time Off (PTO) Policy

Do you run a business and now you have to create a paid time off policy? Before you create a PTO policy, there are a few things to consider. Here are five things you should consider when creating your policy.

Unused Days: Caps, Carryovers And Payouts

1. Carryover-

Carrying over paid time off to the following year usually is done so at the employer’s discretion. One solution businesses can choose is to allow days to carry over, but have a limit on the number of days that can be carried over. For example, you can allow a carryover of up to 3 days, but it must be used within the first three months after it has been carried over.

2. Caps-

Some states don’t allow employers to stop unused days from being carried over from year to year. However, employers may be able to cap the amount of vacation time that their employees can accrue. Consider putting the cap at 1 ½ times the annual allotment, as this is a good way to structure your paid time off policy.

3. Payout-

Consider paying out leave that has accrued when your employee leaves your company. Your policy must be in compliant with the jurisdictions that your employees work in, and this includes remote workers. Some states allows employers to determine payout, while others require payout.


Granted vs Accrued PTO
Granted vs Accrued PTO

Granted vs Accrued

You can structure your policy in a way that the entire bank of days can be granted from the first day of the year. You can also choose to do it in a way that the days are accrued. In other words, you can choose granted or accrued.

1. Granted-

This is very simple. You will have to pay the value of the entire year. This is regardless of when your employee leaves your company. Just remember, the state you work in may require you to make a payout of the days they have earned, when they are terminated.

2. Accrued-

Your policy may allow for days to be accrued. However, your employees may want to borrow days in order to take a vacation early on in the year. One issue is that if an employee leaves the company and they have a negative balance of days, then you might not be able to collect the value of those days. In fact, some states prevent you from collecting the value from employees’ final paychecks.


PTO Bank
PTO Bank

One PTO Bank & Multiple PTO Day Types

1. One PTO Bank-

The benefits of having a one paid time off policy include not having to determine why the leave is necessary and being able to create a feeling fairness in in the workplace. Another benefit is you can reduce the number of call-ins you get from employees who say they are sick.

2. Multiple Day Types-

The benefits of this type of policy is being able to classify the paid leave as wages. However, this really depends on the state you are operating in. Another benefit is it shows your company is in compliance with municipality legislation.


Work Anniversary Date
Work Anniversary Date

Anniversary Date vs Calendar Year

Asides from the day types, you need to decide the policy’s time period. You can base this off the calendar year or the anniversary year. Here is information about both.

1. Anniversary-

You won’t have to pro-rate in the employee’s first year when you choose this option. Also, employees tend to have an easier time understanding where they fall. However, choosing this option can create headaches for management, which is why it’s a good idea to use a paid time off tracking system.

2. Calendar-

Choosing this option lets you base your PTO policy on a calendar year. Your employees will be on the same schedule, but this doesn’t make calculating the amount of leave for your employees any easier. If the end of the year is a busy time for your business, then this option may not be the best because many employees end up trying to use their allotment at once. It also usually happens right towards the end of the year.

Tiered And Flat

Finally, many companies have different allotments for different groups of workers, and this is known as tiers. Companies must be able to encourage employee retention if they want to leverage their policies, but you can make it easier by grouping employees based on their job title or the type of position they are in. A flat policy may be the best option because they are not that complicated.

Now you know what to consider. Creating a PTO policy does not have to be difficult. Just keep the above information in mind and you will have a great policy written up in no time. And always keep a strict policy of using standard vacation request forms with employees. This ensure everything is documented and available for review at key times.


Article provided by Neches FCU, an Equal Employment Opportunity Employer.
Neches FCU is a top Texas credit union, with an attentive team of professionals ready to serve their 45,000+ members.
When its doors open, their single goal of Ultimate Member Satisfaction becomes evident in their focus creating a personal and positive environment for all clients.

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