Paying workers to not work would have sounded strange to most employers throughout history. But in our modern workplace, PTO — that's paid or personal time off — is extremely common. And it's not just because vacation time is important to individual health and happiness; there are organizational benefits to offering PTO, too.

The Big Picture

• While PTO is not federally mandated, offering it to full-time employees is best practice
• PTO may be regulated by state laws and collective bargaining agreements.
• Time away from work helps a business by increasing employee engagement and productivity.

What is PTO?

"PTO" stands for "paid time off" or, occasionally, "personal time off." A PTO day is time off that's compensated. In the United States, PTO is not required at the federal level (most of the time), but many states have stricter requirements.

In most cases, your business should offer at least some PTO to help attract good workers and keep them happy.

Unlimited paid time off is an emergent workplace phenomenon. We'll explain more about it later on in this article. But first, let's discuss how much PTO you should offer your employees.

Do I have to offer PTO?

You really should offer at least some kind of paid leave to your employees. You also may not have a choice — in many places, PTO is required to stay legally compliant. At a minimum, you should offer PTO to make your workplace more attractive to talented workers (and to help retain them).

PTO and State Law

Depending on where you live, you may be required to offer compensated time off to stay legally compliant. In the United States, PTO is not mandated by federal law — unless you're a government contractor for which the McNamara O'Hara Service Contract Act or Davis-Bacon Acts applies.

However, more than 20 states in the U.S. require some sort of paid leave, including:

• Arizona
• California
• Colorado
• Connecticut
• Maryland
• Massachusetts
• Michigan
• New Jersey
• New Mexico
• New York
• Oregon
• Rhode Island
• Vermont
• Washington
• Washington, D.C.

The United States has lenient PTO regulations compared to the rest of the world. So if you're running a business in another country, or an international business, there's a good chance you'll need to offer PTO to comply with labor laws.

Why is paid time off important?

For business owners, it's crucial to offer paid time off to attract and retain talented workers. But it's also the right thing to do. That's why so many workplaces offer PTO and holiday pay (in addition to overtime, which is mandated by law).

In fact, according to the United Nations (and a host of other international treaties), the right to rest and leisure is an internationally recognized human right. While the United States empowers business owners to create PTO policies that maximize profit and productivity, your employees need time to rest to stay healthy and happy.

At a minimum, consider offering holiday pay and sick leave. With holiday pay, workers will either receive a holiday off, or receive extra compensation for working on a holiday. With sick leave, workers are guaranteed time to recover from medical issues.

If you can offer competitive benefits, a good PTO policy should be your priority. Guaranteeing workers remunerated holidays and sick time, as well as personal time to use at their discretion, is a significant perk. This will help you attract talented employees and retain them for the years to come.

Average Days of PTO

It's commonly claimed that the average amount of PTO offered to new hires is somewhere between 10-13 days. But it depends. Some workplaces offer no PTO in the first year, while others offer 3 weeks or more.

Factors that influence the number of PTO days include length of tenure and industry. According to the United States Bureau of Labor Statistics, the average workplace offers 7-11 days of paid sick leave and 11-13 of paid vacation time after a minimum of 1 year of employment. The amount of PTO offered increases based on tenure, maxing out at 27-34 combined sick leave and personal time after 20 years of service.

According to the Center for Economic Policy and Research, 3 out of 4 workers in the United States receive paid vacations. However, the average amount of vacation time offered is much lower than other "rich" countries. For example, in Europe, workers are guaranteed at least 20 remunerated vacation days per year.

The Benefits of PTO

Here are some of the reasons why you should offer your employees paid time off:

1. Prevent burnout. Time to rest and relax is essential for this.
2. Promote work-life balance. Allow workers to prioritize family and personal needs.
3. Reduce stress. Disconnecting from the office can reduce work-related anxiety.
4. Increase productivity. For the reasons above, time off can improve work performance.
5. Increase employee engagement. PTO fosters loyalty and job satisfaction, improving retention.
6. Enhance creative thinking. Paid days off allow workers to recharge problem-solving skills.
7. Promote health. Rest is beneficial to both physical and mental well-being.
8. Reduce absences. Because of the health benefits, PTO reduces unscheduled absences.
9. Attract better talent. Competitive PTO policies attract competitive workers (and retain them).
10. Legal compliance. You may be legally required to offer PTO to comply with labor regulations.

Should I offer unlimited PTO?

Unlimited paid time off allows workers to take as much leave as they see fit. In a typical unlimited PTO policy, employees request time off on a discretionary basis. However, there is no cap on how much PTO can be taken.

Unlimited paid time off policies are a recent phenomenon. They have become more common during the Great Resignation as a way to attract more competitive talent, and to retain workers who may otherwise resign to focus on life outside of their career. But are they actually impactful?

In 2022, a compelling study of unlimited PTO policies was published in Frontiers in Psychology. Unlimited paid time off policies can increase worker autonomy, especially for working mothers, who may find they are more able to balance the demands of their career and family. However, based on this study, it may be better to offer a generous fixed amount of PTO than unlimited compensated leave.

That's because UPTO policies may have counterintuitive results. For example, social protocol around taking vacation time is not as clearly defined with a UPTO policy. That means that those prone to over-working are less likely to take deserved and needed vacations.

For those who truly love their job, work and leisure are intertwined. These lucky employees derive personal satisfaction from their work-related activities. However, it is still important for them to take time away from work to reap the benefits mentioned earlier in this article.

Surprisingly, there is limited evidence to suggest that workers will abuse UPTO policies. However, the researchers acknowledge that UPTO policies do enable workers who wish to retaliate against their employers. More research is needed to determine the potential benefits (and drawbacks) of unlimited paid time off.

Creating a PTO Policy

Ready to write your policy for paid time off? First thing's first: consult with your local labor regulations. You should also have your policy reviewed by an expert, like an attorney or human resources manager.

We'll provide some basic information to help you write your first draft. We've also provided a template PTO policy below tailored for small businesses.

PTO Carryover

No matter how you grant PTO to your employees, your policy needs to determine what happens to unused PTO days. Typically, leftover PTO is either paid out or rolled over at the end of the year, or at the end of a worker's employment.

PTO rollover is often subject to labor regulations. For example, in California, it's required that unused PTO is paid out at the end of a worker's employment. In other cases, there may be restrictions on how much PTO is allowed to be rolled over to the next year.

If there are no legal restrictions, employers may implement a "use it or lose it" policy. These policies prevent PTO from being carried over into the next year.

There are a few reasons to include a PTO rollover policy. First and foremost, it encourages workers to use (and benefit from) their PTO. Secondly, it may help set parameters for how much PTO can be used in a year. This prevents a scenario in which a worker takes so much time off all at once, it becomes a practical challenge for the organization.

Sample Paid Time Off Policy for Small Businesses

Below are 2 PTO policy templates. These templates are intended to guide crafting your business's policy. Your policy should adhere to the applicable labor regulations in your area.

We recommend consulting an attorney or human resources professional before enacting any company policy.

Sample Policy with PTO Accrual

All employees are eligible to accrue PTO based on their length of service. PTO will be accrued on a bi-weekly basis, in accordance with our pay period. The accrual rate for all employees is as follows:

• All part-time employees will receive PTO at a rate of 4 hours per every 40 hours worked.
• Full-time employees with less than 1 year of tenure will receive PTO at a rate of 4 hours per bi-weekly pay period.
• Full-time employees with 1-3 years of tenure will receive PTO at a rate of 8 hours per bi-weekly pay period.
• Full-time employees with 3 or more years of tenure will receive PTO at a rate of 10 hours per bi-weekly pay period.

New employees will become eligible to request PTO 30 days after their start date.

PTO Usage

Employees are encouraged to use their accrued PTO for vacation, personal appointments, or any other approved time off.

PTO requests should be submitted in advance to the employee's supervisor or the designated PTO administrator. PTO requests may be submitted via our electronic timesheet system.

PTO can be used in increments as small as 2 hours, subject to supervisor approval and business needs.

PTO Carryover

At the end of each calendar year, employees may carry over a maximum of 40 hours of unused PTO into the following year. Any excess PTO hours beyond the carryover limit will be forfeited unless otherwise approved by the company.

PTO is not eligible for cash-out or monetary compensation except upon termination of employment. In the event of termination, up to 7 days of unused PTO will be paid out in the employee's last paycheck.

PTO Tracking and Reporting

The company will maintain accurate records of each employee's PTO balance, accrual, usage, and carryover. Employees can access their PTO balance and submit requests through the company's electronic time-tracking system.

Note: This is a general example of a PTO policy for small businesses. It's essential to consider your specific jurisdiction, local labor laws, and consult with legal professionals or HR experts to ensure compliance and adapt the policy to meet your company's unique needs and circumstances.

Sample Policy with PTO Allotment

All employees are eligible to accrue PTO based on their length of service. PTO will be allotted to full-time employees on a yearly basis based on an employee's hire date. Part-time employees are not eligible for PTO.

The allotment for PTO is as follows:

• Full-time employees with less than 1 year of tenure will receive 12 PTO days per year.
• Full-time employees with 1-3 years of tenure will receive 15 PTO days per year.
• Full-time employees with 3-5 years of tenure will receive 20 PTO days per year.
• Full-time employees with more than 5 years of tenure will receive 30 PTO days per year.

New employees will become eligible to request PTO 30 days after their start date.

PTO Usage

Employees are encouraged to use their accrued PTO for vacation, personal appointments, or any other approved time off.

PTO requests should be submitted in advance to the employee's supervisor or the designated PTO administrator. PTO requests may be submitted via our electronic timesheet system.

PTO can be used in increments as small as 2 hours, subject to supervisor approval and business needs.

PTO Carryover

At the end of each calendar year, employees may carry over a maximum of 40 hours of unused PTO into the following year. Any excess PTO hours beyond the carryover limit will be forfeited unless otherwise approved by the company.

PTO is not eligible for cash-out or monetary compensation except upon termination of employment. In the event of termination, up to 7 days of unused PTO will be paid out in the employee's last paycheck.

PTO Tracking and Reporting

The company will maintain accurate records of each employee's PTO balance, accrual, usage, and carryover. Employees can access their PTO balance and submit requests through the company's electronic time-tracking system.

Note: This is a general example of a PTO policy for small businesses. It's essential to consider your specific jurisdiction, local labor laws, and consult with legal professionals or HR experts to ensure compliance and adapt the policy to meet your company's unique needs and circumstances.

Keeping Track of PTO

So, if you're granting paid time off, you must keep track of it. That includes maintaining up-to-date records of PTO balances, employee PTO requests, and upcoming schedule adjustments.

You can manually keep track of PTO with spreadsheets, or by keeping detailed notes. This may be fine if you have a very small staff. But if you employ more than a handful of people, it will quickly become complicated.

For most business owners, software solutions are the most convenient way to keep track of PTO. These digital systems will automatically track PTO balances and create relevant records. Good PTO software will also streamline the process for employees to request vacation time.