PTO Policy Template for Small Businesses
A PTO policy for a small business should answer seven questions: who is eligible, how much PTO they earn and how, how they request it, how much notice is needed, whether unused hours carry over or are capped, what happens when someone leaves, and how balances are recorded. Below is a worksheet of those decisions and an example policy you can adapt. It is a starting point, not legal advice: state and local rules can require more, so review your final policy with a qualified adviser.
Decision worksheet
| Decision | Common options | Questions to ask |
|---|---|---|
| Eligibility | All employees; full time only; after a waiting period | Do part-time employees earn PTO? From day one? |
| Amount | Yearly hours; tiers by years of service | 80, 120 or 160 hours? When does a tier change? |
| Accrual method | Per pay period; per hour worked; lump sum | Does it match your payroll schedule? |
| Cap and carryover | Cap on balance; carry over up to a limit; no carryover | What do your state's rules allow? |
| Requests | Email, form or system; one approver | Who approves? Who covers when the approver is away? |
| Notice and overlaps | Minimum notice; first come, first served; rotation for holidays | How many people can be out at once? |
| Negative balance | Not allowed; allowed up to a limit | Who can authorize it? |
| Leaving the company | Payout of unused balance; no payout | What does your state require? |
| Records | Spreadsheet; payroll system; PTO tool | Can employees see their own balance? |
Example PTO policy
Example only. Replace every bracketed value with your decision. Remove clauses that do not apply.
Paid Time Off Policy — [Company name]
1. Purpose. This policy explains how employees earn, request and use paid time off (PTO) for vacation and personal time.
2. Eligibility. [Full-time and part-time] employees are eligible from [their first day / the first day after a [90]-day introductory period].
3. How PTO is earned. Full-time employees earn [80] hours of PTO per year, accrued at [3.08] hours per [biweekly] pay period. Part-time employees earn [0.0385] hours of PTO for each hour worked. [After [3] years of service, the yearly amount increases to [120] hours.]
4. Balance cap. Accrual stops when the balance reaches [120] hours and resumes after PTO is used.
5. Carryover. Up to [40] unused hours carry over to the next [calendar] year. [Any hours above that amount are handled as follows: [describe].]
6. Requesting PTO. Employees request PTO [by email / using the company form] at least [two weeks] before the first day off, or as soon as possible for unplanned absences. [Manager name or role] approves or declines requests within [three] business days.
7. Overlapping requests. When more requests arrive than the team can cover, requests are approved [in the order received / by rotation for holiday periods].
8. Minimum use. PTO is taken in increments of at least [one hour].
9. Negative balance. PTO cannot be used before it is earned [unless approved in writing by [role], up to [16] hours].
10. Leaving the company. Unused accrued PTO [is / is not] paid out when employment ends, [subject to applicable state law].
11. Records. [Company name] records each employee's accruals, PTO used and balance, and employees can review their own balance [on their pay stub / in [tool]].
12. Other leave. This policy does not replace leave required by federal, state or local law, such as paid sick leave or family and medical leave, which is handled under separate policies.
Before you publish it
- Check state and local rules on carryover caps, payout at termination and paid sick leave. Federal law does not generally require paid vacation (U.S. Department of Labor), but states and cities can.
- Test the numbers with the PTO accrual calculator: enter your rate, cap and pay schedule and check a full year.
- Write down how you round accruals, and use the same rule in payroll.
Frequently asked questions
What should a PTO policy include?
Eligibility, how much PTO is earned and how, how to request it and with how much notice, caps and carryover, what happens at the end of employment, and how balances are recorded and shared.
What is a good PTO policy for a small business?
One that is simple to explain, matches your payroll schedule and that you can apply consistently. The right amount depends on your industry and budget; the worksheet above lists the choices to make.
Is this template legally compliant?
It is an example to adapt, not a compliant policy for any particular state. State and local rules can require specific terms, so have your final policy reviewed.
Should PTO accrue or be given up front?
Accrual spreads PTO across the year and matches what an employee has earned. A lump sum is simpler for employees but can leave the business exposed if someone uses all their time and leaves early.