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by Jen Leigh on December 12, 2023

Best Practices for Creating a Paid Time Off (PTO) Policy

Paid time off, also known as PTO or paid leave, is an essential part of an employee compensation plan. Many businesses, if not most, offer PTO as a way to create a productive and supportive employee experience. Paid sick days encourage employees to stay home during those few days each year when they are under the weather and likely unable to do their best. Paid vacation days are a reward that can be earned with good work and consistent performance. Both paid sick leave and paid vacation leave fall under the umbrella of a Paid Time Off (PTO) Policy.

Core to an effective PTO experience for your employees, is a structured PTO policy that clearly outlines the details, including the type of policy, eligibility, allotment and exceptions. Let's explore the best practices for building a paid time off policy for your company.


Different types of PTO Policies

PTO comes in several different forms, depending on how you want to compensate and reward your employees. Here are some of the most common types of PTO policies and how they work.

Unlimited PTO - Unlimited PTO is a popular employee perk in which employees are trusted to take time when they need it, which encourages loyalty, engagement, and wellness.
Flexible PTO - Flexible PTO allows employees to take paid time off when they need it, without having to earn PTO days. However, the total flex days may be capped each year.

Accumulative PTO - Employees earn an increasing number of PTO hours or days based on the number of days they work or other performance metrics. They can then spend or collect PTO for later use on a larger vacation.

Lump Sum PTO - Employees are offered a monetary value in PTO which they can take in paid time off or cash out at the end of the year.

Choosing the Right PTO Policy for Your Business

The right model will depend on many factors, including company size, employee make-up, hiring and retention practices, pay and other employee benefits on offer. Unlimited and flexible PTO, while popular, are not for every business, especially where workers absolutely need to be on-site and where there is less help or redundancy in roles. Accumulative PTO is popular because it encourages consistency and performance, but PTO must be allowed to roll over if earned. Many organizations prefer the financial clarity of lump sum PTO.


Eligibility for PTO PoliciesNew call-to-action

PTO eligibility and policies are often dependent on employee status, classification and tenure among other factors. Many workplaces split PTO policies based on full-time vs part-time workers, with full-time workers typically granted more PTO or accumulate it faster. Additionally, many companies often have probationary periods in which PTO can't be taken unless previously agreed upon prior to hiring. Lastly, offering some PTO to part-time workers can have benefits for the organization, such as encouraging less absenteeism and greater responsibility to co-workers. Paid sick leave can be used effectively to encourage people who are unwell to stay home without financial penalties.


Tracking PTO Requests

It is important to keep track of PTO requests so that you can properly credit each person for the time they take off, pay the correct wages, and balance your staff on days that people schedule their days off.

Tracking historic PTO can also show you patterns and frequency regarding who is taking time off and how often. If two or more people request overlapping PTO, a good tracking solution can help you find the right approval solution or compromise.


Managing PTO with Cloud-Based Time & Attendance Software

The best way to manage your company's PTO policy is with a cloud-based HCM platform. Using a cloud-based time and labor management solution allows all your employees and managers to use the appropriate tools no matter where they are working - whether you have multiple offices or remote and hybrid workers. Cloud-based time and labor tools share the same core set of data, providing useful tracking and analytics across the board.

Software can also help you ensure that your leave and staffing policies are in compliance with specific state laws and regulations. Easily keep your policies aligned and up to date in a single management platform.

For more information on how cloud-based software can assist your business in creating PTO policies contact us today to learn how we can help with that and other challenges your business may face.

Arizona Leave Management Solution

Jen Leigh

Jen Leigh is a Senior Product Specialist with Inflection HR's Cloud Based HR and Workforce Management Solutions. Connect with Jenni and the rest of the Inflection HR Team on Twitter, Facebook, or LinkedIn.