Paid Time Off: A Complete Guide for Small Business

• ✔ Define a clear PTO policy to avoid confusion, prevent burnout, and stay compliant with state and local laws.
• ✔ Choose the right structure, which could be combined, separate, or unlimited PTO, based on your team size, culture, and legal requirements.
• ✔ Automate tracking and accruals with tools like OnTheClock to reduce manual errors, improve transparency, and simplify approvals.
• ✔ Comply with state laws regarding accrual, usage, carryover, and payout rules, especially if operating in multiple locations.
• ✔ Communicate and review regularly so employees understand the policy, and update it annually to adapt to team needs and legal changes.

Paid time off (PTO) might seem like a simple benefit, but for small business owners, it’s one of the trickiest policies to get right. Offer too little, and you risk burnout, turnover, or even legal issues. Offer too much without structure, and you’ll end up buried in last-minute requests and payroll headaches.

With more than 33 million small businesses employing 61.7 million people in the U.S., understanding how PTO works and how to manage it well is essential. A clear PTO policy protects your business, supports your team, and gives you back control over scheduling and compliance.

In this guide, I’ll walk you through everything you need to know about PTO, including:

• What PTO actually covers (and how it differs from vacation or sick time);
• What state and federal laws say about offering it;
• How much PTO should you provide;
• How to build a policy that fits your business;
• The most common PTO mistakes (and how to avoid them); and
• How to track and manage time off without spreadsheets or stress.

Let’s start with the basics, what PTO really means, and why it matters more than ever.

What PTO Means for Your Business

As previously mentioned, PTO stands for paid time off, though, in some contexts, it may also refer to personal time off. +er way, it means time away from work that your employees are still paid for. That could include vacation, sick leave, mental health days, or personal reasons.

In the U.S., there’s no federal requirement to offer PTO, but many states and cities have their own laws around sick leave, PTO payouts, or accrual requirements. Even when not required by law, offering PTO is one of the most effective ways to attract and retain reliable employees.

PTO vs. Vacation and Sick Leave

Some businesses separate vacation and sick time, while others combine both into a single bank of PTO. While both models give employees access to paid leave, how that time is categorized can affect everything from tracking to employee trust and culture.

Let’s say your employee, Sarah, has a family emergency. In a traditional setup, she would need to use sick leave. The time would be deducted from her sick leave balance, so if she needed additional time later for illness, she’d have fewer hours left. However, her vacation time would remain untouched.

On the other hand, if your company uses a PTO bank, Sarah can simply use available PTO; there is no need to explain, categorize, or worry about which balance it affects. She gets the flexibility to handle what’s happening in her life, and you avoid micromanaging how time off is used.

For small teams, that flexibility can go a long way in building trust and reducing administrative headaches. Just make sure your policy clearly outlines how PTO is earned, tracked, and approved. Tools like OnTheClock PTO tracker make this even easier by letting you customize PTO categories to fit your business’s needs, whether you track sick time separately or keep everything in one bank.

How Is PTO Typically Used?

While every employee has different needs, there are some common ways PTO gets used across industries, regardless of how the policy is structured:

• Vacation and travel;
• Sick days or medical appointments;
• Mental health breaks;
• Family responsibilities; and
• Personal tasks and life events.

The Different Types of PTO Employers Can Offer

As a small business owner, understanding the different types of PTO helps you decide what to include in your policy and how to support your team while staying compliant.

Here are the most common types of PTO you might offer:

Vacation Days

Vacation days are PTO days employees use for rest, travel, or personal enjoyment. This time is usually scheduled in advance and approved by a manager to ensure coverage.

Some businesses offer vacation time as a fixed annual amount, while others let it accrue gradually based on hours worked or time employed. Either method works, as long as your policy is clear and applied consistently.

OnTheClock makes this easy by allowing you to set up vacation time as either an accrual-based system or a fixed allotment, depending on what fits your business best.

Sick Leave

Sick leave is PTO employees use when they’re ill, injured, or attending medical appointments. It may also cover caring for a sick child or dependent, depending on how the policy is written.

Some states require employers to offer a minimum amount of paid sick leave, even if the company already provides general PTO. These laws often define how sick time accrues, when it can be used, and whether unused hours carry over.

For example, California requires employers to provide at least 40 hours (five days) of paid sick leave per year. Accrual must be at least one hour per 30 hours worked, though employers using a front-loaded or unlimited plan can satisfy the requirement without accrual tracking.

If you choose to separate sick leave from vacation time, make sure your policy clearly explains:

• How much time off is provided each year;
• Whether unused sick leave carries over into the next year; and
• When documentation (like a doctor’s note) is required for extended absences.

Personal Days 

Personal days are PTO days employees can use for personal needs that don’t fall under illness or vacation, such as attending a legal appointment, handling a family matter, or taking a mental health day. They’re typically planned in advance and don’t require medical documentation.

Holidays

Holidays are paid days off that align with national, religious, or cultural observances. Common examples include New Year’s Day, Independence Day, Thanksgiving, and Christmas.

Some holidays are recognized by federal or state law, especially for government offices and public institutions. However, private employers are not required to offer paid holidays, unless state law or a union agreement says otherwise.

In most cases, employers decide which holidays to offer. Many follow the federal holiday calendar but may adjust based on business needs. Some also offer floating holidays that employees can use for religious or personal observances.

If your business stays open during the holidays, you have a few options:

• Offer the day off as paid leave; or
• Keep the business open and pay employees overtime or time-and-a-half for working.

Other PTO Types to Consider

Beyond vacation, sick time, and personal days, there are several other types of PTO that small businesses may want to include, or at least account for, in their policy. Some of these are required by law in certain states or under specific circumstances; others are optional, but appreciated by employees.

Here are some additional PTO types worth considering:

• Bereavement Leave: Time off for grieving the death of a close family member or loved one. Often one to five days, depending on the relationship and company policy.
• Jury Duty Leave: Required unpaid or paid leave (depending on the state) for employees called to serve on a jury. Employers may choose to pay employees during this time even if not legally required.
• Voting Leave: Time off to vote in local, state, or federal elections. Some states mandate a minimum number of paid hours.
• Military Leave: Protected time off for employees serving in the National Guard or military reserves. Federal law (USERRA) applies, and some states add further protections.
• Compensatory Time: PTO given instead of overtime pay, usually for exempt or salaried employees. Must comply with wage and hour laws.
• Sabbaticals: Extended paid or unpaid leave for personal or professional development, often offered after several years of service. More common in academia or tech, but increasingly used in other industries.

Unlimited PTO and When it Works

While not a separate type of PTO, unlimited PTO is a policy approach where employees are not given a fixed number of paid days off. Instead, they’re trusted to take time off as needed, typically with manager approval and within reason.

This model is designed to provide maximum flexibility, reduce burnout, and eliminate the need to track accrued hours or unused balances. But it only works well under certain conditions.

Unlimited PTO works best when:

• Your company has a high-trust, results-focused culture;
• Managers clearly communicate expectations and lead by example;
• The team is small, self-directed, and values flexibility; and
• You have strong systems for approving and documenting time off.

Potential downsides include:

• Employees may end up taking less time off due to unclear norms;
• It can create perceived unfairness if usage isn’t balanced; and
• It may not meet compliance requirements in states that mandate specific types of leave (like paid sick time).

If you're considering this model, be sure your policy still accounts for legal requirements, clear approval processes, and consistent documentation.

Legal Requirements for Offering PTO

PTO is also a legal responsibility. While there’s no federal law requiring private employers to offer PTO, some states and cities do have specific mandates around certain types of paid leave.

Understanding what’s required (and what’s optional) is key to keeping your policy compliant and your business protected.

What Federal Law Requires (and Doesn’t Require)

As mentioned earlier, private employers are not required by federal law to offer paid vacation, sick leave, general PTO, or paid holidays. These benefits are voluntary, unless required by a contract or collective bargaining agreement.

That said, federal law does require certain unpaid leave protections. Under the Family and Medical Leave Act (FMLA), businesses with 50 or more employees must provide up to 12 weeks of unpaid, job-protected leave for qualifying events, such as a serious health condition, childbirth, or caring for a family member.

During FMLA leave, employees can choose (or may be required) to substitute accrued PTO, like vacation or sick time, to receive pay. However, the leave itself is still unpaid by law.

In summary, federal law:

• Does not require paid leave, like vacation, sick time, or holidays;
• Does require unpaid, protected leave under FMLA for eligible employers; and
• Does require compliance with minimum wage, overtime, and recordkeeping regulations.

State Laws that Mandate PTO or Payouts

Unlike federal law, many states and cities have specific laws requiring employers to provide certain types of paid leave, especially paid sick time, or to pay out unused PTO when an employee leaves the company.

State laws vary, but most fall into three categories:

1. Mandatory Paid Sick Leave

Some states require employers to provide a minimum number of paid sick days, often with specific accrual rates and carryover rules.

For example:

• California;
• New York;
• Massachusetts; and
• Arizona.

Even cities like San Francisco, Seattle, and Chicago have local sick leave rules that apply to small businesses.

2. PTO Payout Laws

Some states require employers to pay out unused PTO (especially vacation time) when an employee quits, retires, or is terminated. Others leave it up to company policy, as long as it’s written and clearly communicated.

States that require PTO payouts include:

• California;
• Illinois;
• Montana;
• Nebraska; and
• Rhode Island.

States that allow employers not to pay out unused PTO, as long as it’s stated in your policy, include:

• Florida;
• Texas; and
• Georgia.

3. Paid Leave for Any Reason

Some states now require employers to provide general-purpose paid leave that employees can use for any reason, not just sickness. For example:

• Illinois (starting in 2024): Five days of paid leave for any reason; and
• Maine: 40 hours of earned paid leave, usable for any personal reason.

What This Means for You

If your business operates in multiple states or even just one with strong labor laws, you’ll need to customize your PTO policy to stay compliant. This includes how leave is:

• Earned or accrued;
• Tracked and reported;
• Rolled over (or not); and
• Paid out at termination.

PTO, Protected Leave, and FMLA

While PTO is typically optional, some types of leave are protected by law, even if they’re unpaid. The most common example is the FMLA, which applies to businesses with 50 or more employees.

FMLA requires eligible employers to provide up to 12 weeks of job-protected, unpaid leave for events like the birth of a child, a serious health condition, or caring for a sick family member. Employees can choose to use accrued PTO, like vacation or sick time, during this period. In fact, many businesses require it, so employees don’t go entirely unpaid.

Other types of protected leave include military leave (under USERRA), jury duty, or state-level family and medical leave programs. Many states go beyond the FMLA by requiring paid leave or expanding eligibility to smaller businesses. For example, California, New York, and Washington all offer paid family leave benefits, even for companies with fewer than 50 employees.

If you offer PTO, it’s essential to clarify in your policy how it interacts with these types of legally protected leave, whether employees are required to use their PTO, and how leave requests are tracked. 

How Much PTO Should You Offer?

Offering the right amount of paid time off (PTO) isn’t just about checking a box. It’s about protecting your team from burnout, staying competitive in the job market, and supporting long-term retention.

If you're hiring in the private sector, a strong PTO package typically includes at least seven days of sick leave and 10-13 vacation days. Most businesses also offer PTO for major holidays like New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. In fact, 94%-96% of private-sector companies cover those six holidays.

To go above and beyond, many small businesses also include all 11 federal holidays or offer one or two floating holidays that employees can use for religious or personal observances.

Public sector PTO is typically more generous. Federal employees start with 13 days of paid vacation and 13 days of sick leave per year. Vacation accrual increases with tenure, which gives long-term employees more flexibility. Some state and local governments offer even more.

For private businesses, PTO can vary by industry, role, and company size. According to the U.S. Bureau of Labor Statistics:

• Most new full-time employees get seven to 11 paid sick days and 10-13 vacation days after one year.
• PTO typically increases with tenure:
• 15-18 days after five years;
• 20-25 days after 10 years; and
• 27-34 combined days off after 20 years of service.

If you're looking to attract and retain top talent, matching or exceeding these averages can give you an edge. You don’t have to match the public sector, but falling too far behind puts your business at a disadvantage, especially when job seekers compare benefits.

Why PTO Is Good for Business

Offering PTO isn’t just the “nice” thing to do; it’s one of the smartest decisions you can make as a small business owner. When structured clearly, it saves you money, protects your team, and gives you more control over your schedule.

Here’s why a solid PTO policy actually makes your life easier:

Boosts Productivity Through Real Rest

When employees have time to unplug, they come back sharper. PTO gives your team a chance to reset, mentally and physically, which leads to better focus, fewer mistakes, and more consistent performance.

Makes You More Competitive in Hiring

In tight labor markets, benefits matter, especially for small businesses competing with larger employers. A transparent, flexible PTO policy helps you attract better candidates and stand out as an employer who respects work-life balance.
If you offer even one extra day off or a simple approval process, that could be the reason someone chooses your company over another.

Improves Employee Retention and Morale

When employees know they can take time off without guilt or financial worry, they’re less likely to burn out and more likely to stay. A solid PTO policy shows your team that you respect their time and well-being, which builds loyalty and trust.

Even just a few extra days a year can make the difference between a staff member sticking around or job hunting.

Common Problems that Make PTO a Headache

Even with the best intentions, many small businesses run into problems when managing PTO. From policy gaps to tracking issues, these mistakes don’t just frustrate employees; they create legal, financial, and operational risk. Here's where things often break down:

Inconsistent Policy Enforcement

When PTO policies aren’t enforced consistently, employees notice, and it erodes trust fast. If one team member gets last-minute time off approved while another is denied for the same request, it feels unfair. That perception can quickly turn into resentment or disengagement.

For example, let’s say your written policy requires two weeks’ notice for vacation. If one employee routinely gets time off with 24 hours’ notice, others may feel the rules don’t matter or, worse, that favoritism is at play.

Manual Tracking Errors

Using spreadsheets or paper forms to track PTO might work when you only have a few employees, but as your team grows, so do the chances for costly mistakes.

Common issues include:

• Accruals that don’t update correctly;
• Forgotten carryovers;
• Time off recorded in the wrong category (e.g., sick instead of vacation); and
• Lost records or conflicting entries.

These errors not only frustrate employees but can also lead to compliance risks and payroll disputes. For example, if your records show that an employee has eight hours of PTO left, but they’ve actually earned 16, they may accuse you of withholding benefits or mismanaging time off.

Automated time tracking tools like OnTheClock eliminate these issues by:

• Calculating accruals in real time;
• Flagging inconsistencies; and
• Keeping everything centralized and transparent.

Miscalculated PTO Accrual

PTO accrual mistakes are one of the most common and costly issues small businesses face. Whether you're using spreadsheets, outdated software, or manual math, even small errors can lead to big problems.

Here’s what can go wrong:

• Employees accrue PTO faster (or slower) than intended;
• Accruals aren’t paused during unpaid leave or suspensions;
• Rollover limits aren’t enforced, leading to unexpected liabilities; and
• Errors in anniversary-based accrual adjustments.

Let’s say your policy grants 1.25 days of PTO per month. If you round that incorrectly or forget to update the rate when an employee hits their two-year mark, he or she could receive either too much or too little PTO, resulting in confusion, frustration, and possible legal exposure.

Unclear Request and Approval Rules

If employees don’t know how to request time off or when it will be approved, you’re inviting miscommunication, last-minute absences, and team frustration.

Common problems include:

• No standardized process (some email, some text, some just tell their manager);
• Unclear lead time (how far in advance should they ask?);
• Managers applying rules inconsistently; and
• Lack of visibility into who’s already off.

For example, if two employees request the same day off but only one gets it, with no clear reason why, it can create resentment and a perception of favoritism.

How to Build a PTO Policy Step by Step

Step 1: Assess Your Business and Team Needs

Before you set any rules or accrual rates, start with a practical look at what your business and employees actually need.

• Review legal requirements: Check your state and local laws. Some states require paid sick leave, PTO payout at termination, or specific accrual methods.
• Evaluate your budget: How much PTO can you afford to offer without disrupting operations or cash flow? Be realistic about what works in your current stage of business.
• Understand your workforce: Are your employees mostly full- or part-time? Office-based or field workers? Younger teams may want more vacation time, while parents may need flexibility for family care.
• Look at industry benchmarks: What are your competitors offering? Matching the norm or slightly beating it can give you an edge in hiring and retention.

This step sets the foundation for everything else. A good PTO policy balances compliance, employee well-being, and your operational limits.

Step 2: Choose a PTO Model

Now that you understand your needs, it’s time to decide how you’ll structure time off.

There are three main models to choose from:

• Combined PTO: All paid time off (vacation, sick, personal) is grouped into a single bank. This gives employees flexibility and simplifies tracking.
• Separate PTO: Vacation, sick leave, and personal days are tracked individually. This provides clarity but adds administrative work.
• Unlimited PTO: Employees can take time off as needed, with manager approval. There’s no accrual or set limit, but it requires a high-trust culture and clear expectations.

When choosing a model, think about your team size, management style, and compliance requirements. For example, unlimited PTO might sound appealing, but it doesn’t fulfill paid sick leave laws in many states unless tracked separately.

Whichever model you choose, write it down clearly and apply it consistently.

Step 3: Set Eligibility and Accrual Rules

Once you’ve picked a model, define who gets PTO and how they earn it.

• Eligibility: Decide if PTO starts immediately or after a probationary period. Most businesses offer PTO to full-time employees, and some extend limited benefits to part-time staff.
• Accrual Method:
• Hourly: Employees earn PTO based on hours worked (e.g., one hour per 30 hours worked).
• Periodic: PTO is added monthly, quarterly, or annually.
• Lump Sum: Employees receive a fixed number of days at the start of the year.
• Accrual Rate: Base it on tenure, job level, or a flat rate for all. For example, newer employees might earn two weeks per year, while long-term staff get four.
• Maximum Accrual or Carryover Limits: Set a cap so PTO doesn’t grow indefinitely. For example, once an employee reaches 160 hours, he or she stop accruing until they use some time.

This step sets the foundation for your policy’s fairness and sustainability. Be clear, consistent, and compliant with any local laws about minimum sick time or required accrual rates.

Step 4: Create a Clear Request Process

Even the best PTO policy falls apart without a system for requesting and approving time off.

• How to Request: Decide how employees should submit PTO requests, through a form, email, or software like OnTheClock. Keep it simple and consistent across the team.
• How Far in Advance: Set expectations for how early employees should request time off. For example, vacation might require two weeks’ notice, while sick days can be same-day.
• Who Approves Requests: Make it clear who is responsible for approvals, typically a direct supervisor or HR manager. Outline what happens if there are scheduling conflicts.
• Written Confirmation: Once approved, document it, either in a system or email. This avoids misunderstandings and protects everyone.
• Handling Denials: Explain how and why a request might be denied (e.g., staffing shortages, blackout dates) and how employees can reschedule.

When the process is easy to follow and transparent, it reduces friction and builds trust. Everyone knows what to expect, which helps avoid last-minute surprises.

Step 5: Define Carryover and Maximums

Setting boundaries around PTO balances helps you manage staffing, budgeting, and compliance more effectively.

• Carryover Rules: Decide whether unused PTO can roll over into the next year. Some businesses allow a limited number of hours or days to carry over, while others implement a “use-it-or-lose-it” policy (where legal).
• Accrual Caps: Set a maximum balance employees can accrue. This prevents long-term liability buildup and encourages people to actually use their time off.
• Blackout Dates and Limits: If there are times of year when PTO is restricted (like the holiday rush or audit season), outline that in your policy.
• Payouts at Termination: Clarify if and when you’ll pay out unused PTO when someone leaves. Some states require this for vacation time, even if your policy says otherwise, so check local laws.

These rules should be clearly communicated to avoid confusion. And if you're using software like OnTheClock, you can automatically track accruals, enforce caps, and display balances to employees in real time.

Step 6: Communicate the Policy Clearly

Even the best PTO policy fails if no one understands it. Clear, consistent communication builds trust, prevents confusion, and ensures your team actually uses their time off appropriately.

• Add it to Your Employee Handbook: Make the PTO policy easy to find and reference. Keep it in plain language and avoid legal jargon where possible.
• Cover it in Onboarding: Walk new hires through how PTO works at your company, when they can start using it, how to request time, and where to track their balance.
• Use Your PTO Software: Tools like OnTheClock let you display balances, automate accruals, and manage requests, all in one place. That transparency helps everyone stay on the same page.
• Send Periodic Reminders: Remind employees of their remaining PTO balance, upcoming blackout dates, or policy changes. A quick email each quarter can reduce end-of-year scramble or burnout.
• Train Managers, Too: Make sure supervisors understand how to approve or deny time off, enforce the rules fairly, and encourage their teams to use PTO consistently.

When everyone knows how PTO works, it stops being a pain point and starts being a benefit people actually appreciate.

Step 7: Monitor, Track, and Improve

Once your PTO policy is in place, don’t assume it’s set in stone. Great policies evolve with your business, your team, and the law.

• Track Usage Trends: Use software like OnTheClock to see who’s taking time off, how often, and when. Are certain teams not using their PTO? Are there bottlenecks during busy seasons? The data tells a story.
• Audit for Compliance: Make sure your accrual rates, carryovers, and payouts follow state laws. This is especially important if you operate in multiple locations.
• Watch for Burnout or Abuse: If employees never take time off, they might be heading toward burnout. If someone is constantly absent before long weekends, you may need to tighten your policy language.
• Review Annually: Revisit your policy at least once a year to make sure it still fits your team size, budget, and compliance needs. Update your handbook and retrain managers if needed.
• Listen to Feedback: Encourage employees to share what’s working and what’s not. You’ll get insights into what they value, and where the policy might be unclear or unfair.

A good PTO policy isn’t static. It’s a living system that protects your business, respects your people, and gets better with time.

Sample PTO Policies

How to Handle Unusual PTO Scenarios

Even with a clear PTO policy, you’ll occasionally face tricky situations that don’t fit neatly into your rules. Here’s how to approach the most common ones:

Can PTO Be Used During Holidays or Blackout Dates?

Some businesses restrict time off during peak seasons or holidays.
If you have blackout dates, spell them out in advance and explain why. Make sure to:

• List them clearly in your handbook or schedule;
• Apply the rule consistently; and
• Offer alternatives (e.g., shift swaps or early requests).

If an employee tries to use PTO during a holiday or closure, clarify whether:

• The holiday is paid automatically (no PTO needed);
• The business is closed without pay (PTO must be used to get paid); or
• The employee can reschedule the request.

What If Employees Abuse Unlimited PTO?

Unlimited PTO works best with high trust and strong accountability. If someone is abusing the policy (e.g., frequent short-notice absences or falling behind on work):

• Document all time off and missed responsibilities;
• Address performance issues separately from PTO; and
• Consider adding guardrails (e.g., minimum coverage rules or planning expectations).

A good fix is to require advance notice for non-emergency leave and regular check-ins with managers to prevent burnout or imbalance.

How to Handle PTO During a Layoff or Closure

If you’re laying off employees or closing temporarily:

• Check your state laws, many require PTO payouts upon termination;
• Communicate clearly what will happen to unused PTO; and
• Document how final paychecks and leave balances are handled.

How to Track PTO the Right Way

Now that you have a better understanding of what PTO is, how to structure it, and why it matters, let’s talk about how to track it effectively. Without proper tracking, even the best PTO policies can lead to confusion, payroll mistakes, and employee frustration.

Whether you’re running a small team or managing multiple locations, here’s how to do it right:

Use a Centralized PTO Tracking System

Relying on spreadsheets or sticky notes might work for a while, but manual tracking almost always leads to mistakes, misunderstandings, and lost time.

A centralized PTO tracking system keeps everything in one place. It helps you:

• Organize time off by category: vacation, sick, personal, holidays, etc.;
• Set custom rules: such as accrual rates, waiting periods, and carryover limits;
• Automate approvals and balances: so managers don’t have to calculate manually; and
• Give employees visibility: so they can check how much time they’ve earned or used.

Tools like OnTheClock allow small businesses to automate PTO tracking with flexible setup and real-time balance summaries, so no one has to guess.

Automate Accruals

Manually calculating PTO accruals based on hours worked or employee tenure is time-consuming and prone to error. A small mistake in a spreadsheet can lead to payroll disputes, employee frustration, or even compliance issues.

Automating accruals ensures:

• Accuracy: Employees earn time off based on your defined rules, without guesswork.
• Fairness: Everyone accrues time at the correct rate, even if they work different shifts or schedules.
• Transparency: Balances are always up to date, so employees and managers stay informed.
• Compliance: You stay aligned with local laws that regulate accrual rates or carryover limits.

OnTheClock lets you customize accrual rules by hours worked, pay period, or annual schedule, and handles the calculations for you. That way, you can focus on running your business, not crunching numbers.

Keep Balances Transparent

Nothing frustrates employees more than not knowing how much time off they have. When balances are hidden or unclear, it leads to confusion, mistrust, and unnecessary back-and-forth with HR or managers.

Making PTO balances visible helps:

• Reduce misunderstandings: Employees know exactly how much time they’ve earned and used.
• Encourage responsible planning: When people can see their remaining days, they’re more likely to request time off in advance.
• Support fairness: Transparency helps ensure that everyone is held to the same standards.

With OnTheClock, employees can view their PTO balances and usage in real time. No need to ask or wait, everything is updated and accessible from their dashboard. That transparency builds trust and saves time.

Set Up Approval Workflows

Even the best PTO policy can fall apart without a clear, consistent approval process. When requests get lost in emails or are approved inconsistently, it leads to frustration, staffing gaps, and conflict.

A strong PTO workflow should:

• Define who approves requests: Is it a direct manager? HR? Both?
• Specify how requests should be made: Use a form, an app, or a centralized platform, not informal messages.
• Clarify response time expectations: Employees should know when to expect a decision, so they can plan accordingly.
• Document all decisions: Keeping a record helps resolve disputes and ensures policy consistency.

With OnTheClock, you can automate time-off requests and approvals. Managers get instant notifications, and all requests live in one place, with no lost emails or confusion. It keeps the process fast, fair, and visible for everyone involved.

How to Choose the Best PTO and Vacation Tracker

Picking the right PTO tracker isn’t just about logging days off; it’s about simplifying your entire workflow, keeping your team informed, and avoiding costly errors. Here’s what to look for:

Real-Time Balance Tracking and Accrual Accuracy

Your system should update balances automatically based on hours worked, tenure, and your PTO policy. That means no more manual math or spreadsheet errors. Real-time visibility also helps employees plan their time off without needing to ask HR.

All-in-One Approval and Request Management

The best trackers don’t just record time, they manage it. Look for tools that let employees submit requests, managers approve them, and everyone gets notified, all in one place. Bonus points for customizable workflows and calendar views to avoid overlap or understaffing.

Mobile Access for Remote Teams

Whether your team is remote, hybrid, or on job sites, mobile-friendly tools are a must. Employees should be able to request time off and check their balance from anywhere, and managers should be able to approve it just as easily.

Employee Self-Service and Reporting

Let your team members check their PTO balances, histories, and status without sending HR another email. You’ll also want admin dashboards with custom reports, so you can monitor trends, spot potential burnout, and audit usage by department or role.

Why We Recommend OnTheClock for PTO Tracking

If you’re running a small business, you don’t have time to babysit spreadsheets or chase down time-off requests. That’s why we recommend OnTheClock, because it makes tracking PTO manageable.

Here’s why it works:

• Customizable PTO Categories
  Whether you offer vacation and sick leave separately or use a single PTO bank, OnTheClock lets you create categories that match your exact policy with no awkward workarounds.
• Real-Time Balance Tracking
  Employees can see how much PTO they’ve earned, used, and have left without needing to email HR. Accruals update automatically, so there’s no guesswork or manual math.
• Simple, Flexible Requests and Approvals
  Team members request time off right in the app. Managers get alerts, review conflicts on the calendar, and approve or deny with one click. It keeps things smooth, documented, and transparent.
• Built-In Holiday Scheduling
  Add company holidays with just a few clicks. Decide who gets PTO, who works, and how it’s reflected in payroll. No duplicate entries needed.
• Mobile Access for On-the-Go Teams
  Your crew can check PTO balances, submit requests, and track approvals from their phones. It’s built for the real world, not just for office desktops.
• Better Compliance, Less Stress
  PTO laws are changing fast, and OnTheClock helps you stay compliant with automated accruals, audit trails, and detailed reports, all stored in one place.

In short, if you want fewer headaches and more control, OnTheClock gives you the tools to make your PTO policy actually work, for you and your team.

Explore OnTheClock’s PTO features

What You Need to Know About PTO and Taxes

PTO might feel like a benefit, but once it’s on the books, it becomes part of your payroll, and that means taxes. Whether your employee is using vacation, sick leave, or personal time, PTO is considered taxable income in most cases.

Here’s what small business owners need to understand:

PTO Is Taxed Like Regular Wages

When an employee takes PTO, he or she still receives his or her normal paycheck. That pay is subject to the same federal income tax, Social Security, and Medicare taxes as if the individual had worked those hours.

PTO Payouts Are Also Taxable

If you pay out unused PTO when an employee leaves your company, it’s still taxable. The IRS treats this as supplemental wages, which may be subject to a flat withholding rate (currently 22%) or taxed at your usual rates, depending on your payroll setup.

PTO Accrual Affects Your Books

PTO is a liability on your balance sheet until it's used or paid out. If you let employees accrue PTO over time, you’re essentially building up a future payroll obligation, something your accountant needs to track.

Take the Stress Out of PTO Management

Tracking PTO can get complicated, especially as your team grows. Between keeping up with accruals, balancing workloads, and staying compliant with state laws, it’s easy for things to slip through the cracks. But managing PTO doesn’t have to be stressful.

When you have a system that automates the hard parts, like calculating balances, tracking requests, and syncing with payroll, you get your time back. More importantly, your team gets clarity, trust, and the flexibility it deserves.

That’s why you need a system that helps you stay organized, stay compliant, and supports your team, without adding more to your plate. OnTheClock makes PTO tracking simple, accurate, and stress-free, no matter the size of your business.

Start for free and give your team the confidence to take time off, knowing everything’s covered.