How to Create a PTO Policy for a US Company

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.


After months of diligent work and a perfect attendance record, there’s only one thing your employees need: a good break. Ensuring that your team’s putting in the work needed to propel the company forward while providing them with the work-life balance they need to stay happy and healthy is at the heart of encouraging a positive work environment and keeping up the team’s morale. For that to happen, you need to set up a good PTO (paid time off) policy. But everything about setting up a PTO policy, from understanding US laws to ensuring a smooth PTO approval process, can be more than a little overwhelming.

But fear not, for in this guide, I’ll take you through everything you need to know about PTO policies and how to set them up to keep your staff – and the government – happy.

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What is a PTO Policy?

PTO, or paid time off, refers to any amount of time an employee takes off work but gets paid for by their employer. PTO is a paid benefit offered to employees as a legal requirement or as company policy. 

A PTO policy is the compass guiding your company’s employee benefits. It’s essentially a bunch of rules you, as a manager, need to decide on that regulate how your employees can take time away from work while still getting paid at their regular rate. This time off includes vacations, sick leave, parental leave, and much more. 

PTO Payout Laws in the US

There’s no federal law that requires you to pay your employees for time that isn’t worked. Rather, the Fair Labor Standards Act (FLSA) leaves the decision to offer paid leave up to you. You are free to enter private agreements with your employees or not offer any paid leave altogether. 

But wait! While you are not obligated to pay your employees for time not worked, they are entitled to unpaid but secured parental leave and sick leave. Furthermore, some states require employers to provide a set number of paid leave days yearly. So, be sure to check your state’s labor and employment laws. You can do that by choosing your state from the list here and scrolling to ‘What are [State] ‘s Leave Laws?’.

Creating Your PTO Policy

1. Determine the types of PTO to offer 

The first step in creating your PTO policy is determining the types of paid leave you will offer to your employees. Study your state laws to determine which types of paid leave you are obliged to provide and write them down. 

Don’t let the laws limit you. Consider some extra paid vacation days to allow your staff to rest and recharge. Let your employees know how much you value their work-life balance with a few paid personal days to run errands without fear of losing their jobs. While you’re at it, consider compensating them for time off on federal holidays and when they are called upon for jury duty. A few paid days off to mourn their loved ones, heal from illnesses, or care for sick family members are bound to make them feel valued, too. 

Nice job, that’s the first step done.

2. Identify the best PTO model for your company

Now, determine the model that fits your company’s needs. When deciding on a PTO model, you will also need to decide whether or not employees can push unused PTO over to the next year or if they need to use it before the end of the year. Some states may prohibit the latter, so it’s best to look at your local laws before deciding.

You can choose one of the following models:

  • Traditional Model

Under this model, your employees get a set amount of PTO and will unlock additional PTO for every year of service to your company. If you think this will be a great way of securing your employees’ loyalty, you’re right, and that’s what makes it a pretty popular model.

  • The PTO Bank Model

The bank system consolidates all types of paid leave into one pool. This is a great, simple way of letting your employees take charge of their leave. If you adopt the model, you will set aside a set number of days every year for every employee to spend as they wish. Every time an employee takes an hour or day off, the time is withdrawn from their bank. 

Tracking paid leave days under the bank model is a straightforward process. Plus, you get bonus points for allowing your employees the flexibility of deciding how they spend their leave days.

  • Unlimited PTO

A third model allows employees to take time off work whenever they wish as long as their time away does not interfere with their work. This model is one that employees just love and could be great for you, too, since it eliminates all the administrative work involved in PTO tracking. It is the perfect model for you if your employees have proven their work ethic and you want to show that you trust them. 

There is a possibility that employees abuse the system, but as long as you keep a close eye on PTO records, you can identify when this is happening and deal with it appropriately.

  • Company-Wide PTO

The idea behind this model of PTO is that the entire company takes leave at the same time, meaning business operations are down for a few days. No one needs to apply for time off, which makes things a lot easier from an administrative perspective. Although this doesn’t work for every company, many organizations practice company-wide PTO during certain periods, such as around Christmas and New Year’s break, when people across the country are taking time off and business is slow.

  • Accrued PTO

This is when your team earns their PTO based on the number of hours they’ve worked rather than having them handed out at the beginning of the year. Accrued PTO can be a bit more challenging to get your head around, but here’s an article with a simple table that explains the difference between lumpsum PTO and accrued PTO, as well as a step-by-step guide on calculating accrued PTO. 

If you do choose this model, make sure to use a free time tracking system that will then autofill timesheets for you. That way, you’ll know exactly how many hours each employee has worked, which means you can easily calculate how much PTO they’ve earned.

Once you’ve determined the best model for you, you’ve completed the second step in creating your PTO policy. 

3. Design the leave application workflow

Next, design your leave application and approval process. It is best to establish a simple step-by-step process based on your company’s reporting structure. Start by providing a channel for employees to submit their requests. 

You will then need to designate the recipient of the leave request. An employee’s immediate supervisor is usually the best choice. Once the supervisor approves or denies the requests, they can pass the information along to HR for final approval. A seamless leave application process will make planning for employee absences easier. 

You can either use a manual system or a PTO tracker and automate the entire process – don’t worry, there are highly rated, free PTO trackers that you can use. 

With a PTO tracker, your supervisors and managers will approve or deny leave requests within minutes of receiving them. You can also choose the settings that align with your PTO policy, giving you flexibility and assurance that your policy is being applied correctly. However, if you’re a very small organization with, say, less than five employees, using a manual tracker means you don’t have to bother with the hassle of setting up an account and getting everyone familiar with a digital PTO system. 

4. Enforcing the policy

Finally, it’s time to compile your policy into a document. There’s no one way to do this – just write down everything you’ve decided so far and then organize the information. You now have a thorough PTO policy that you can leverage to boost productivity, attract new talent, retain your best employees, and manage your employees’ schedules.

Complete the process by distributing your policy to your employees and responding to their concerns or questions. And most importantly, keep it up to date. Look out for trends in employee benefits, and don’t be scared to update your policy until you’ve got something that best fits your company’s needs. 

Final Thoughts

In conclusion, a PTO policy is a way of ensuring that your employees take care of themselves. You get your reward when they come back recharged and ready to take care of your client’s projects. The benefits of your PTO policy will be evident when your clients rave about the quality of your work. Remember, a good PTO policy is your secret weapon in a competitive industry with a shrinking pool of skilled workers. So be sure to keep updating yours to stay ahead of your competition.