Some small to medium sized businesses have undocumented paid time off (PTO) policies simply because they’re not sure where to start. Employers aren’t required by law to provide paid vacation leave; however, specific states, cities and federal contractors must, by law, provide paid sick leave. Also, under the Fair Labor Standards Act (FLSA), employers aren’t required to provide paid leave, but they can’t refuse to pay exempt employees for absence due to illness or disability unless they have a documented plan for paid time off specific to these absences, and those exempt employees are either not eligible yet or have used up their PTO benefits under the plan.
Establishing clear and compliant employee policies is essential to avoiding costly lawsuits. Businesses should consistently review their employee handbooks and individual policies to ensure that they are updated to reflect the latest government regulations.
If you’re starting from scratch, or if you need to update your existing policy, here are a few guidelines that can help. We’ve provided suggestions, but you can adjust hours and terminology to fit your situation.
Sample PTO Policy
Paid Time Off (PTO) starts accruing [upon hire, after 60 days, after six months]. Eligible employees must regularly work at least XX hours per week. Employees working less than XX hours per week are not eligible for PTO.
Use and Scheduling of PTO
You must use PTO when taking time off from work for any reason, and PTO can be taken in increments as low as one hour.
All PTO requests are subject to your supervisor’s approval as well as team or department staffing needs. We understand that unscheduled absences occasionally happen; however, when possible, PTO should be scheduled in advance. If the frequency of unscheduled absences becomes excessive, corrective actions will be taken, up to and including termination. You must use your PTO hours according to your normal workday. For example, if you work an eight-hour day and need to take off a full day, you must request eight hours of PTO. PTO is paid at your regular pay rate and is not subject to overtime.
You can use your PTO accruals in the pay period following completion of XX [days, weeks, months] of employment. All hours you accrue after that time can be used in the pay period following the period they are accrued in.
Accrual and Payment of PTO
Accruals are based upon paid hours of up to 2,080 hours (40 hours per week) per year, excluding overtime. If you work fewer than 40 hours per week, but at least XX hours per week, you will earn prorated PTO hours. Time in service with [the company] will determine the rate you accrue PTO. You will not accrue PTO on unpaid leaves of absence. You are eligible for the next level of accrual on the first day of the pay period of your employment anniversary according to the table below.
|Years of Service||Accrual Rate per
Bi-Weekly Pay Period
|Annual PTO Accural||Maximum Accrual|
|Less than one year||4 hours||13 days
|1-3 years||4.62 hours||15 days
|4-10 years||6.15 hours||20 days
|More than 10 years||7.69 hours||25 days
You cannot borrow against your PTO bank; therefore, advance leave is not allowed.
Payment upon Termination
In accordance with [state – Note that if you have locations in multiple states, this section must be carefully reviewed for accuracy] law, after [XX days, weeks, months] of employment, you will be paid for all PTO hours you accumulated but did not use if you resign, retire, or otherwise separate from the company.
Every December, you can elect to cash out up to a maximum of 80 hours of the unused PTO you earned over the past year, providing that at least 40 hours of leave remain to cover unplanned absences.
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