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Does a Paid Time Off Policy Make Sense for Your Business?

Human Resources

What type of paid time off (PTO) policy does your business offer to employees? If you're like other small business owners across the U.S., you may not have yet established a policy at all. But there are several reasons PTO may be worth implementing at your business. Here are a few points to consider.

Benefits and Challenges for Small Businesses

Companies are looking at ways to craft an official time off policy or PTO approach. Some offer a bank of PTO that employees can use for vacation or personal time, while others provide an unlimited PTO benefit to employees.

PTO—a set number of days which employees can use for vacation or personal days, etc.—has become a key differentiator in recruiting top talent for some companies. Other benefits of implementing such a policy may include:

  • A drop in administrative expenses
  • Enabling employees to make better choices about time spent away from the workplace

Considerations when Implementing a PTO Policy

If you determine that a PTO policy makes sense for your business, one of the most important elements will be to ensure there is consistent implementation of the policy to help reduce the risk of discrimination claims. Also consider the following when developing your PTO policy:

  • Review your staffing needs and compare your proposed program with other businesses in your industry and region.
  • Consider a rollover plan, whereby employees can choose to carry over PTO into a new anniversary or calendar year. This may be required under state law.
  • Figure out the most effective PTO distribution plan: (1) Awarding time off at the start of the year, available to use until year's end; or (2) allowing employees to accrue PTO on a weekly /bi-weekly or pay period basis, with the ability to use only the amount they have accrued up to the present date.
  • Make sure your proposed policy fully complies with relevant federal, state, and local employment laws. This is critically important, as other leave laws (as well as wage and hour laws) can impact your policy. (Also, you may need to have variations of your PTO policy if your company has employees in more than one jurisdiction.)
  • Request that employees give a set amount of advance notice before using PTO time, except where advance notice isn’t practical, as it may be necessary to make accommodations under federal, state, or local law.
  • Clarify whether PTO time may be used for other types of absences, for example, bereavement time, or if you plan to retain different policies.

Finally—and perhaps equally importantly—take the opportunity to communicate to employees just how your PTO policy works. From newsletters to staff meetings, rewards statements, and your employee handbook, make sure employees understand how PTO fits in with their overall benefits package and why they should adhere to specific guidelines in order to make PTO work for everyone. With everyone's buy-in, PTO may contribute to a better workplace environment, helping your business attract and retain quality talent in the future.


This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.