Paid Time Off: Creating a PTO Policy for Your Staff

Summer worker smiling at camera on patio

No one can be their best selves when they feel depleted. This is why it’s so essential to provide your workforce with paid time off (PTO) to recharge their energy levels, imaginations, and stores of creativity.

Today’s most successful employers offer a wide range of PTO, from traditional vacation leave, sick days, and holidays to personal days, bereavement, professional development, community service, mental health days, and more. Also common are PTO policies that offer a bank of days that can be used for any reason.

More companies than ever are offering PTO, with 90 percent offering it to full-time employees and 77 percent providing it to part-time employees, usually on a prorated basis.

What Is PTO?

PTO can refer to any paid time off, including:

Increasingly, in HR circles, the acronym PTO refers to policies that bundle together all categories of paid time off and allow employees to use them as they see fit without having to attribute the reason for taking time off to any specific cause.

The idea is that undifferentiated PTO policies are more respectful toward employees and treat them as professionals with the autonomy to regulate their own leave for whatever legitimate purpose they see fit.

Why Is PTO Important?

Disengaging from the mental and physical strains of full-time work is necessary to optimize productivity, problem solving, creativity, and innovation. Well-rested employees are more effective, and time away can even fuel inspiration—80 percent of employees say they’ve experienced breakthroughs about work problems while on vacation.

PTO can also be an effective way to prevent employee burnout and increase retention. Even more important, making PTO available to your employees can be crucial to maintaining their health and reducing related costs, as evidenced by the fact that men who do not take vacation time are 30 percent more likely to suffer a heart attack than men who do take vacation time.

In addition, a growing number of job applicants are prioritizing flexible and generous time off benefits when considering a job offer. As a result, a growing number of employers are focusing on refining their PTO policy, recognizing that it outranks other considerations for today’s job seekers.

Different Types of Paid Time Off

In terms of how you grant PTO, you have a few options. You can “front-load” PTO so that all employees have access to their full allotment of paid time off for the year as soon as it starts, or you can implement an accrued time off policy, or you can offer unlimited PTO. You can allow employees to carry over unused PTO into the following year or require them to use all their PTO by the end of a calendar year.

Accrued PTO

Under an accrued time off policy, employees earn portions of their PTO as they work. For example, you might release seven days of PTO for every six months worked. You may require accrued time off for first-year employees and lift the requirement after one year of service, or you may choose to require accruals for all employees.

Front-loaded PTO

Front-loading PTO, on the other hand, allows for a level of mutual trust between management and employees, as it shows your workers you trust them to use their time off as they believe they need to.

Unlimited PTO

Some companies offer unlimited PTO policies, which allow employees to determine for themselves how much time off they need and to use it as they like. In addition to showing trust and respect for your workforce, this approach is an increasingly popular recruitment tool.

Whichever strategy you choose, you can still require employees to provide advance notice before they take time off, with the understanding that prior notice may not be possible under certain conditions, such as for sick days or bereavement leave.

How to Implement a PTO Policy

Increasingly, employers are working to demonstrate to employees that time off is an important aspect of a healthy company culture. You show that you value time off by making clear that employees will not be punished for taking vacation and personal days, nor will they be rewarded for failing to take time off.

Employers still have a long way to go in this arena, as even in workplaces that offer PTO, 33 percent of employees report that they fear they will be punished for using their earned time off. You can counter this trend by celebrating when employees use PTO and having managers remind direct reports to schedule vacation time.

Paid Time Off: Legal Considerations

There is no federal requirement that employers provide employees with PTO, though some workers who are contracted by government agencies may be eligible for mandated PTO under certain circumstances.

In addition, some states consider earned time off a form of compensation, while others don’t. It’s essential to familiarize yourself with state legal requirements before finalizing your PTO policy.

Use PTO to Gain a Recruiting Advantage

If you’re looking to stand out among your competitors in your efforts to attract and retain talent, consider implementing some of these popular PTO policies:

  • Offer paid parental leave separate from the short-term disability leave typically offered to employees following pregnancy, and make sure to offer the same time off to dads and adoptive parents.
  • Offer paid time off for employees who volunteer. This can be coupled with company-sponsored and team-based volunteer opportunities to increase your business’s ties to the community, underscore your corporate values and mission, support teambuilding, and boost employee morale.
  • Allow for immediate or near-immediate use of PTO, including vacation time and parental leave, for new hires.
  • Allow employees to donate unused time off to fellow employees in need, such as employees undergoing treatment for a health crisis, caring for sick family members, or facing other forms of hardship.
  • Allow employees to donate the cash value of unused PTO to charity (and offer matching funds as well).
  • Set up an easy-to-use automated platform that allows workers to track and make better use of their PTO.

Learn More About the Best Strategies to Attract and Retain Top Performers

Now that you know how to design a competitive paid time off policy, learn more about the latest hiring and management practices with expert advice from Monster.

This article is not intended as a substitute for professional legal advice. Always seek the advice of an attorney regarding any legal questions you may have.