How to Create a PTO Policy

Written by Asim Qureshi
By Asim Qureshi, CEO Jibble

Hi, I’m Asim Qureshi, the CEO and co-founder of Jibble, a cloud-based time and attendance software. I have several years of experience in building and scaling software products and teams across various industries and markets. Before I founded Jibble, I worked as a VP at Morgan Stanley for six years. I’m passionate about helping businesses improve their productivity and performance through smart time management practices. Let’s talk about how you can boost productivity and improve performance with a good PTO policy. 


Paid time off is an important employee perk that can unlock significant benefits for your company. If managed properly, PTO will improve your employees’ performance and help them maintain a healthy work-life balance according to the American Psychological Association. However, the benefits of paid time off are short-lived. For lasting benefits, employees need to take a few days off every few months.  

But how do you know when your employees need a break? Well, you don’t. Sure, you’ll see a few signs, but it’s best to let your employees tell you when it’s time for them to take a few days off. A solid PTO policy will allow your employees to take charge of their time off while you sit back and enjoy the resulting boost in productivity and quality of work. 

That said, creating the right policy for your company is not easy. After spending the past seven years perfecting the use of leave and PTO tracking software, I have prepared this guide with practical tips on creating an effective PTO policy for your business. Let’s dive in. 

This article covers:

What is PTO?

Paid time off (PTO) refers to any time that an employee takes off work but gets paid. Employees use this time to recharge, attend to personal matters, recover from illness, go on vacation, or take care of their children. Some companies offer a set number of paid days off for each type of leave. Others bundle all paid leave into one, allowing employees to decide how to apportion their days off to their needs. Learn more about PTO from this comprehensive guide. 

Why You Need a PTO Policy

Every company needs a PTO policy and here’s why:

1. Impact on employee productivity

Paid time off is a great way for employees to prioritize self-care, nurture their personal relationships, and explore their hobbies without worrying about losing their jobs or income. Their time away is considered a perk but it is really a necessity. Without it, productivity will plummet, your employees will call in sick more often, and you will lose employees faster than you can replace them. 

2. Testing operational efficiency

A PTO policy will do more than improve the quality of your employees’ work. If done right, your policy is the only analytical tool you need to test your operational efficiency. Once you create your policy, observe how your staff copes when each employee takes a few days off. Nothing will expose the inefficiencies in your organization more than operations slowing down when one employee is away on leave. 

3. Legal compliance

Fines and litigation can cripple your business or worse, put you out of business completely. Therefore, you must remain vigilant to avoid falling into trouble with the law. Compliance is the only way to protect your company. 

A PTO policy is a great way to get started by ensuring that your employees take all their legally mandated days off. Further, you will never miss an update on your country or state’s labor and employment laws since a policy requires you to keep up with changes in the law. 

4. Seamless management of employee absence

Finally, a well-structured PTO policy is the perfect solution to workflow disruption. The best policies use PTO tracking software to track and manage attendance. With the software’s calendar integrations that allow employees to book days off in advance and block out the days they will be away, you will be aware of all upcoming absences long enough to plan around them. 

Factors to Consider when Creating a PTO Policy

Now that we’ve established why you need a PTO policy, it’s time to start creating yours. But first, here are a few things to consider.

1. Sustainability and effectiveness

First, you want a policy that is sustainable but effective. You can have both by adopting an open PTO policy that lets your employees decide how to spend their days off. You will allocate a specific number of leave days to every employee without splitting them into different types of PTO. Your employees will do the rest. This way, they enjoy autonomy while you enjoy their loyalty for trusting them. 

2. The law

Second, brush up on the employment and labor laws in your state or country. Let them guide your policy but don’t let them limit the number of paid days off your employees can enjoy. Take a look at industry standards as well to know what other companies in your field are doing. Use this information to create a competitive PTO policy.

3. Corporate culture

Third, look at your corporate culture and answer this question.  Are your employees self-motivated or do they require supervision? If you trust your employees to work without oversight, consider offering them flexible or unlimited time off as long as they finish their work on time. However, have some guidelines to avoid understaffing.

If your employees need supervision or your business has high minimum staffing requirements, you need a more structured PTO policy. The best policy for you is a traditional model that requires employees to work a set number of hours. A typical traditional model provides a specific number of paid days off and requires employees to put in leave requests days in advance.

In addition to influencing the PTO model you adopt, your corporate culture will direct your leave application workflow. A formal process is best for a traditional model. If you adopt an unlimited PTO model, you can get away with a less informal process or none at all. 

With these considerations out of the way, you’re ready to create your PTO policy. 

How to Design Your PTO Policy

Create a policy easily by answering the following questions. 

1. What types of PTO do you offer?

To answer this question, outline the types of paid leave days your company offers. You can take the easier route and bundle all your employees’ paid leave days into one. Alternatively, you can offer separate leave days for employees when they are sick, bereaved, off on jury duty, or when they’re just plain tired and need a few days away from work. If your corporate culture allows, give them free rein to take as many days as they would like. 

Once you have decided on the types of PTO you will provide, you have created the first section of your policy. 

2. Who is eligible for PTO?

Next, determine who can take paid time off. Most companies require employees to work with them for at least three months to unlock PTO benefits. You can adopt a similar policy but adjust it to meet your needs. Think about your terms of employment. Do you have part-time staff or freelancers? If you do, determine whether they will be eligible for PTO. Write your decision down as the second section of your policy. 

3. How much time off will each employee get?

Third, determine how many paid days off your employees can take and whether you will roll over unused PTO to the following year. If you are bound by labor laws, this number should not be less than the mandated minimum to avoid exposing your business to unnecessary fines and other legal trouble. If in doubt, seek legal advice. 

In addition to the law, draw insight from your budget, HR and industry practices, and competitor practices. Above all, strive to offer enough days off for your employees to maintain a healthy work-life balance. 

Here’s a pro tip: Make this section of your policy reward-based. You can do this by awarding paid days off based on length of service and the number of hours worked. Employees who have been at your company longer will enjoy more paid benefits. Similarly, an employee will unlock more paid days off by working more hours. This is a great way of rewarding loyalty and reducing turnover. 

4. How will you calculate and track PTO?

Determining how to allocate PTO is easy but calculating each employee’s leave days isn’t. You need to outline how you will keep track of each employee’s hours, track how many days they’ve taken off, and determine how many paid leave days they can take for the rest of the year. 

If done manually, tracking PTO would take you forever. And if you’re anything like me, you don’t want to spend days adding up days and hours when you can have a simple employee absence tracker do it for you in less than five minutes. 

With the leave management solution, you can view your employees’ unused leave days, receive and approve leave requests, and block out booked leave days from multiple work calendars in minutes and without spending a dime! What’s more, your employees can review your PTO policy, put in requests for time off, and view how much PTO they have left for the year.

That said, there are several PTO trackers in the market. There are plenty of things to consider and you may need to try a few before finding the perfect one for your business. You can check out our quick guide on PTO trackers to get you started. 

5. How will employees request for time off?

Finally, outline how your employees will put in requests for paid time off. Your corporate culture and organizational structure will determine your leave request workflow. For a seamless process, it’s best to integrate your PTO request structures with the leave and PTO tracking software you chose. This part of your policy should also set the notice period required of employees for different types of PTO. Remember to make provisions for emergencies. 

6. How often will you update your PTO policy?

In a changing labor market, paid benefits are a powerful tool for attracting and keeping the best employees. Therefore, it is important to keep updating your PTO policy to keep up with emerging trends. But how often should you make changes to your policy? Consider scheduling regular audits to review changes in the law and industry practices and incorporate them into your policy. Once you have determined the ideal frequency of the audits, write it into your policy. And you’re done. You have created your PTO policy. 

Final Thoughts

Ultimately, a well-designed PTO policy is a great way to unlock your employees’ productivity and reward them for it. But as we’ve learned, there are a lot of factors to consider when creating the policy. Since these considerations are dynamic, it is important to review your policy regularly. Remember to let your employees know every time you change your policy. Most importantly, remind them to take their well-earned paid time off and you’ll have a happy, motivated, and engaged workforce.