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How To Create a Great PTO Policy: Best Practices for Employee Wellbeing

Updated: Feb 1

what is a good PTO policy

When it comes to PTO (paid time off) policies, there are so many options.

Accrued. Banked. Unlimited. Traditional. 

What is a good PTO policy for both you and your employees? Something that’s manageable for HR while also giving your team the time away from the office they need to strike a healthy work/life balance?

In this article, we reveal the key elements of an effective PTO policy that gives you peace of mind while elevating your company's employee experience.

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4 Types of PTO Policies You May Want To Consider

#1: PTO Bank Policy

PTO banks don’t differentiate between sick days, vacation time, or personal time. Employees receive a set number of days of paid time off (PTO) to use in any way they choose. 

For instance, an employee can withdraw from their PTO bank to take time off for illness, a vacation, or even jury duty. 

PTO banks may or may not include some forms of excused absences. A company may choose not to place things such as the following in their PTO banks: 

  • Federal holidays

  • Bereavement leave

  • Jury duty 

  • Familial leave

  • Medical leave

  • Short-term or long-term disability leave

  • Sabbaticals 

Some of these, however, such as FMLA (Family and Medical Leave Act), may have state and federal laws that must be adhered to.

PTO banks are easy to put into practice and keep track of and are common in larger companies.

Benefits of PTO banks include:

  • They’re easy to implement and administer. There’s no need for HR or employees to keep track of vacation days vs. sick days since it’s all wrapped up in a single type of PTO.

  • Employees have more control over their time out of the office.

  • They can be a powerful recruiting tool. 

  • Employees no longer feel the need to lie or make excuses (like claiming to be sick) when they want a day off.

  • PTO bank policies are flexible, so employers can decide how many days they want to allocate. This makes it easy to create a customized PTO policy that makes sense for your business. 

Drawbacks of PTO banks include: 

  • Potential ambiguity. Be certain your policy is comprehensive and clarifies any gray areas. 

  • Employees may hesitate to use PTO when they’re sick if they view their time off as entitled vacation days. They may be more included to show up to work sick than they would be with a separate sick day policy. 

#2: Accrued PTO Policy

Accrued PTO is the most common type of paid time off policy. 

Employees earn or accrue PTO each pay period. The amount of time accrued is generally standardized across all employees or based on time of service.

An accrued PTO policy allocates a specific number of sick, vacation, and personal days for each employee. When taking time off, the employee must specify the reason for their absence, such as going on vacation or recovering from illness. Once the hours have been accrued, employees can request PTO

Businesses often maintain a separate policy for mandatory time off, such as:

  • Federal holidays

  • Becoming a new parent (FMLA)

  • Bereavement

  • Military leave

  • Jury duty

  • Religious holidays

Mandatory days off don’t generally count towards an employee’s PTO. 

Companies typically maintain a 30-day waiting period before new employees are eligible to use PTO, even though they generally begin accruing days immediately upon hiring.

Benefits of accrued PTO policies include: 

  • Since it is such a common type of PTO policy, most employees are both familiar and comfortable with it.

  • Employees are motivated to work to earn PTO.

  • It rewards employee loyalty and is a great incentive for employee retention

Drawbacks of accrued PTO include: 

  • Since employees may not want to waste their hard-earned PTO, they may be more inclined to show up to work sick.

  • New employees may feel frustrated beginning with zero days of PTO.

  • Tracking and calculating PTO hours can be complicated and labor-intensive. 

  • Some states require employers to pay out unused PTO when an employee leaves the company. 

#3: Unlimited PTO Policy

As the name suggests, with an unlimited PTO policy, employees are able to take paid time off whenever they need or desire. However, unlimited PTO isn’t a free-for-all. Employees are still required to provide advanced notice before taking PTO for non-emergencies. 

Benefits of unlimited PTO policies include: 

  • It is easy to administer. There’s no need for HR to track employee time off or take the time to calculate payouts when an employee leaves. 

  • It’s a great option for startups or smaller organizations that don’t have the HR capabilities to track and manage an accrued PTO policy.

  • Lower financial payroll liability. Since employees aren’t accruing PTO, companies aren’t required to pay out unused days when an employee is no longer with the company. 

  • It can boost morale since employees feel trusted by their employer and in control of their work-life balance. 

  • It frees employees and managers to focus on output and job performance instead of time spent off the job. 

As with any PTO policy, employees with unlimited days still usually need to be approved by managers.

Drawbacks of unlimited PTO policies include:

  • Possible ambiguity when it comes to a reasonable amount of time off in a year. 

  • Employees may take less time off than they previously did under another type of PTO policy. Studies show this may lead to higher burnout rates.

  • There’s a high potential for employees to abuse the policy.

#4: Traditional Front-Loading PTO Policy

A traditional front-loading PTO policy is similar to accrued paid time off, with the major difference being that employees don’t have to accrue PTO. Rather, the business allocates (front-loads) PTO hours at the beginning of each year. Employees may then use their hours throughout the year at their discretion. 

Front-loading PTO is a popular choice for organizations looking to minimize the administrative burden of traditional PTO. 

Benefits of traditional front-loading PTO policies include: 

  • It’s easy to use and understand. Employees know exactly how many days of PTO they are entitled to each year.

  • No need to calculate employee PTO. 

  • Longer-tenured employees can be offered more PTO. For example, a new employee may have 15 PTO days in a year, while employees who have served the company for three years receive 18 days. 

  • This type of policy makes it easy for HR to collect data and spot trends in the use of PTO. For example, your business might discover most employees take PTO between Christmas and New Year’s. With this type of data, a company may opt to streamline its policy by offering company-wide PTO over the holidays, allowing employees to save their days for other uses. 

  • It’s a great recruiting tool. New employees can take PTO at the beginning of the year without having to stress over finances or wait until they accrue a specific number of hours.

Drawbacks to traditional front-loading PTO policies include: 

  • Some states require employers to pay out unused PTO when an employee leaves the company. Depending on your PTO policy, this may mean higher payouts. 

  • Employees may choose to use all their PTO at the beginning of the year and then quit. Employers can avoid this issue by implementing a waiting period before employees can utilize their PTO or requiring approval of PTO days before use. 

8 Tips for Crafting a PTO Policy Your Employees Will Thank You For 

Tip #1: Identify and Comply with Legal Requirements

Federal regulations don’t require businesses to offer PTO to their employees. However, there are sometimes local requirements businesses must follow. 

Be certain you investigate the legal factors in your state before creating your PTO system. 

Tip #2: Make It Flexible

The importance of flexibility in the workplace can't be understated. According to FlexJobs, employees with flexibility in their jobs reported better work-life balance and flexibility affected their decision to remain in their current position. 

A flexible PTO policy, such as a rollover or front-loading policy:

  • Gives options and allows employees to choose what works best for them.

  • Conveys that you trust your employees and don’t operate a controlling work environment.

Tip #3: Take Into Account the Company Culture

If you want to know what style of policy will work best for your company, you’ve got to be in tune with your company culture, including your business, employees, and industry.

If you don’t feel you have a solid grasp on this, try sending an anonymous employee survey asking them how they view your company’s PTO culture and what they’d like to see in an updated PTO policy. Then take steps to adjust your policy based on the results.

Tip #4: Don’t Forget About Inclusivity

These days, workforces can be diverse. 

Opting for an open, flexible PTO policy can go a long way towards helping to prioritize inclusion and diversity by giving your employees the option to take off for the religious and national holidays that are meaningful to them. 

Inclusivity also accounts for alternative days off, like:

  • Mental health days

  • Floating holidays

  • Doctor’s appointment 

  • Medical leave

Tip #5: Offer Extra Incentives and Benefits 

Extra stimulus benefits sweeten your PTO policy. Consider incentives such as:

  • Seniority bonuses

  • Sabbaticals

  • Opportunities for personal time off

  • Unused PTO roll-over

Tip #6: Encourage Employees To Take Advantage of Their Paid Time Off

As an employer, you likely understand the importance of employees making the most of their PTO. But that doesn't necessarily mean they need to take sick days or a weekend off. What if they could access their unused PTO, turn it into cash, and use it to meet other needs, like:

  • Paying off medical bills

  • Funding a 401(k)

  • Taking a chunk out of their student loan debt; or

  • Funding a real vacation

That's where Sorbet’s PTO cash advance comes in. 

With Sorbet, your employees can get an advance on their unused PTO without having to compromise on their regular salary. This way, they get to enjoy a little extra cash flow without dipping into their next paycheck or resorting to high-interest loans. 

Tip #7: Make It Clear and Easy to Understand

Be sure your PTO policy is clearly defined, so there’s no question when it comes to what is or isn’t included. This clarity protects business owners and helps employees feel supported and informed. 

Your PTO policy should be detailed and easily accessible to every employee, with clear instructions about how to inform HR about the PTO days they plan to take.

Tip #8: Implement an Approval and Tracking Process

Keeping track of employee sick days, vacations, and leave can be crazy, to say the least. 

Fortunately, with PTO tracking software, employers no longer have to put up with this time-consuming and tedious process of doing this chore by hand.

PTO software enables employees to digitally request PTO. Employers can then approve or deny requests in a matter of seconds.

Sorbet: Helping You Build Greater Employee Happiness With Our PTO Cash Advance

70% of all employees want the option to cash out their unused PTO, and Sorbet makes it a breeze for you to do just that. 

It’s easy and FREE! Here’s how it works:

  1. Introduce Sorbet to your employees as their newest, sweetest benefit.

  2. They can apply for our advance and get their funds to spend any time, anywhere. 

  3. They’ll simply pay a small monthly interest fee, and pay us the rest when they receive their PTO payout at termination or in two years—whichever comes first.

  4. They’ll sing your praises far and wide as the “best employer EVER!”

You’ve got nothing to lose, and your employees have everything to gain.

Discover more about Sorbet’s on-demand PTO cash advance today.

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