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5 Things to Consider When Creating a Paid Time Off Policy

Time off policies

Whether your paid time off plan is complex or pretty basic, you should take the time to lay out the details and create a policy. Besides the amount of time and the rate at which that time accrues, there are other important considerations to consider. For example, a policy helps companies cover their bases legally. It also helps prevent misunderstandings.

Paid Time Off Eligibility – Probationary Period

In most companies, an employee can’t take time off as soon as they begin employment. They’ll have to wait through a probationary period. This might be three months or some other set amount of time. During this time, they will accrue time off but will have to wait before they can use it.

Which Accrual Rate to Use

Companies can choose a rate that best fits their business. There are several common options such as a once yearly rate or a rate that matches the pay period.

The yearly accrual rate is very common, as it’s the easiest to manage. It gives employees all their paid time off to use at once. This gives employees the flexibility to schedule their time off into the future based on their needs. The downside is paying out that time if the employee is terminated or resigns before the end of the year. Considering the fact that PTO is a benefit like a bonus, though, that’s not usually a concern. Accruing at a shorter intervals usually eliminates this if it is a concern. Check the link above for details of all the accrual rates.

Advance Notice

Employees need to know when it is acceptable to request time off. Some employers require anywhere from one week to one month advance notice and stick strictly to those rules. Other companies are more relaxed. For example, you might require that employees simply notify managers and take time off at non-disruptive times.

Cap on Roll Over Hours

Another important consideration is whether to allow PTO to roll over or not and, if so, how much. There really are no hard and fast rules here. It’s just up to the employer. But one thing to keep in mind in general is that the better the benefit, the happier the employee. So if employees can’t roll over their paid time off but it’s also difficult for them to take time off, they may not be satisfied with the benefit. This is often the case with use-it-or-lose-it policies.

A use-it-or-lose-it policy is the strictest type of cap and can rob the busiest employees of the benefit altogether. There is a more employee-friendly type of cap. This cap prevents employees from accruing more than a set maximum but never zeros it out.

Negative Accrual Balance

A negative accrual balance is essentially a loan but it’s a loan that you may not have the right to collect if an employee quits while that loan is outstanding. It might make the most sense to keep this option open by request only. This way, you can choose only the people you trust and know well. If you do add the benefit to the policy, stipulate that it might be allowed, by request, under certain circumstances.

Options for your time off policy are endless, but it does need to be consistent and fair. Whatever you choose to do, make sure that the benefits are clearly stated and fairly awarded.

How to Track Accruals

Once you’ve made a policy and chosen an accrual rate, you need to keep track of it. The easiest approach for everyone is to track it online. This way, employees can make requests on their own. Managers can check those requests against the calendar and then approve or deny them. Since the system does the calculations for you, any of the rates are manageable.


Let track accruals!

Free online timesheets

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