How to create a PTO policy: Complete guide with template and examples

Employees need time off, and businesses need a plan for handling it. Without a clear paid time off (PTO) policy, things can get messy fast. People won’t know how much PTO they get, how to request it, or what happens if they don’t use it. This can lead to confusion, last-minute call-outs, and scheduling issues.

A solid PTO policy lays everything out in black and white. It's helpful in ensuring that employees take the time they need without leaving the business short-staffed. It can also help with hiring and retention, as people want to work where time off is fair and predictable.

In this guide, we go through the different types of PTO policies, what to include in yours, and how to keep it simple. We also share templates and examples to help you with the process of writing one.

What is paid time off (PTO)?

Paid time off (PTO) is a workplace benefit that enables employees to take time away from their job while still receiving their regular pay. It covers things like vacation time, sick leave, and personal days. Some companies also offer PTO for mental health, bereavement, jury duty, or volunteering.

PTO gives employees a paid break when they need it, whether they’re going on holiday, recovering from an illness, or handling personal matters. It helps prevent burnout and keeps the workplace running smoothly by making time off predictable.

PTO is different from other types of leave:

• Unpaid leave: Some companies allow employees to take extra time off without pay, but that’s not PTO. PTO means employees get paid while they’re away.
• FMLA or parental leave: The Family and Medical Leave Act (FMLA) requires certain employers to provide unpaid, job-protected leave for medical and family reasons. Some companies offer separate paid parental leave, but this isn't the same as PTO.
• State-mandated sick leave: Some states require businesses to offer paid sick leave, which may or may not be part of a company’s broader PTO policy.

The way PTO works depends on the company. Some businesses provide a set number of PTO days per year, while others use an accrual system where employees earn PTO over time. Some allow unused PTO to roll over into the next year, while others have a "use it or lose it" policy.

Regardless of the structure of PTO, it's an important part of workplace benefits. It gives employees flexibility while helping businesses plan for absences without disruption.

What is a PTO policy?

A PTO policy is a set of rules that explains how employees can take paid time off. It lays out who qualifies for PTO, how much time employees get, how they earn it, and the process for requesting time off. The policy also covers what happens if someone doesn’t use their PTO. For instance, whether it rolls over to the next year, gets paid out, or expires.

A PTO policy helps businesses stay organized. Without one, employees mightn’t know how much time off they have a right to or how to request it. This can result in misunderstandings and last-minute scheduling problems. A clear policy sets expectations for both employees and managers, making time-off requests fair and consistent across the company.PTO policies vary from company to company. Some businesses offer a set number of paid vacation time and sick days, while others combine them into a single PTO bank. Some companies offer unlimited PTO, which allows employees to take time off without a fixed limit, while others have strict accrual systems that require employees to earn PTO over time. The best PTO policy is one that fits the company’s needs while keeping employees happy and the business running smoothly.

Types of PTO policies

Companies set up PTO policies in different ways depending on their size, industry, and how they manage employee time off. Some businesses offer a fixed number of days, while others give employees more flexibility. Here are three common PTO policies, how they work, and a practical example of each:

Traditional PTO accrual policy

With a traditional paid time off accrual system, employees earn PTO gradually over time rather than receiving it all at once. Some companies base accrual on the hours employees work, while others allocate an amount of PTO per pay period. This approach ensures employees build up PTO as they work, rather than taking a large amount of time off too soon.

How it works: A company decides to offer 15 days of PTO per year. Instead of giving employees the full amount upfront, they accrue PTO throughout the year at a rate of 1.25 days per month.

Example: Sarah works full time at a marketing agency. Her PTO balance starts at zero, and she earns 10 hours of PTO each month. By the end of the year, she has earned 15 days of PTO. If she leaves the company after six months, she has accrued 7.5 days.

Unlimited PTO policy

An unlimited paid time off policy allows employees to take as much time off as they need, as long as their work gets done. Time off is still subject to approval, but there's no set number of days an employee can take. Companies that focus on performance rather than tracking hours often implement this type of PTO policy.

How it works: The company doesn't set a fixed PTO limit. Instead, employees request time off when needed, and managers approve requests based on workload. 

Example: James works at a software startup with unlimited PTO. He takes two weeks off for vacation and a few long weekends throughout the year. His manager approves each request because his work is on track. Another employee who frequently misses deadlines may have requests denied.

Banked PTO policy

A banked PTO system combines vacation time, sick days, and personal time into one pool. Employees get to choose how to use their PTO without following strict categories. This policy gives them flexibility but also requires them to manage their time off wisely because once they use all their PTO, they may not have any days left if they get sick or need unexpected time off.

How it works: A company offers 20 total PTO days per year, allowing employees to use them for any reason. Some states require separate sick leave, so businesses in those areas add banked PTO alongside legally required sick days.

Example: Emily works at a retail company that offers 20 days of banked PTO per year. She uses most of her PTO for a summer vacation. Later in the year, she gets the flu but has no PTO left, so she takes unpaid sick leave. 

4 benefits of offering a paid time off (PTO) policy

PTO policies aren't a legal requirement in the US, but many companies offer them as a key part of their benefits package. A well-structured PTO policy can help businesses stay competitive and support employee well-being. Here are some of the biggest benefits of offering a PTO policy:

Promotes work-life balance

Employees need time to rest, recharge, and handle personal responsibilities. Without PTO, many employees may feel pressure to work through illness, exhaustion, or personal challenges. This can lead to burnout, stress, and lower engagement. A well-structured PTO policy clarifies that employees can take time off and also encourages them to do so. When employees take breaks without guilt, they typically return to work with more focus and motivation.

Boosts productivity

People often do their best work when they have time to recover. Overworked employees may make more mistakes, struggle to concentrate, and even see drops in creativity. PTO ensures they step away when needed, reducing stress and improving overall performance. Companies that provide clear PTO guidelines generally see fewer sick days, stronger morale, and higher-quality work.

Attracts and retains top talent

A competitive PTO policy makes a company more attractive to job seekers. Candidates often compare paid time off offerings when deciding where to work. And businesses that provide more paid time off can have an edge in recruiting. Employees are also more likely to stay with a company that values their well-being. Without a strong PTO policy, businesses risk higher turnover and lower morale.

Increases organizational efficiency

A good PTO policy can prevent last-minute scheduling problems. When employees know exactly how and when to request time off, managers can plan ahead to keep things running smoothly. Workloads stay balanced, and teams avoid the chaos of unexpected absences. Businesses that manage PTO effectively can maintain steady operations without sacrificing employee satisfaction.

7 key elements to include in your PTO policy template

A paid time off policy needs to be clear, detailed, and practical. Employees should understand exactly how time off works, and managers should have clear guidelines for approving and tracking PTO. Below are seven essential elements to include:

1. Eligibility criteria

Not every employee may qualify for PTO. Some companies offer it only to full-time employees, while others include part-time workers, but at a reduced rate. Temporary and contract workers typically don’t receive PTO, but some companies provide pro-rated time off based on the hours they work. The policy should also state if new hires must complete a probationary period before using their paid time off.

Example: A company provides PTO to full-time employees after 90 days of employment. Part-time employees who work at least 20 hours per week earn PTO at half the rate of full-time staff. Temporary workers don't receive PTO.

2. Accrual rates and carryover rules

A company can provide PTO in two ways: upfront or through accrual. As mentioned, some companies give employees all their PTO at the start of the year, while others require employees to earn PTO gradually based on the number of hours they work or months of service. The policy should also state whether unused PTO rolls over to the next year or expires.

Example: An employee earns one day of PTO per month, totaling 12 days per year. If they don’t use all their PTO, they can roll over up to five days into the next year. Any additional unused days expire on December 31.

3. PTO request and approval process

A PTO policy must explain how employees should request time off, how much notice they must give, and how managers approve or deny requests. This ensures fairness and prevents scheduling conflicts. Many businesses require employees to submit PTO requests in advance, but some allow emergency PTO for unexpected situations.

Example: Employees must submit PTO requests at least two weeks in advance. If multiple employees request the same dates, managers approve requests on a first-come, first-served basis. In cases of sudden illness, employees can use emergency PTO but must notify their manager as soon as possible.

4. Maximum allowable days off

A good PTO policy should mention how many PTO days an employee can use in one go. Some businesses limit how many PTO days employees can take at once. This prevents long absences that may disrupt operations. Other companies allow extended time off but require additional approval beyond a certain number of days.

Example: Employees can take a maximum of 10 consecutive paid time off days. Any requests for more than 10 days require senior management approval.

5. PTO payout policies

A PTO policy should explain what happens to unused PTO when an employee leaves the company. Some businesses pay out accrued but unused PTO upon termination, while others follow a “use it or lose it” policy. Certain states, like California, Montana, and Nebraska, require employers to pay out unused PTO, while others, like Florida and Texas, allow companies to set their own rules.

Example: Employees who leave the company with unused PTO receive a payout for accrued days if they resign with proper notice. If they quit without notice, they forfeit any remaining PTO.

6. Paid holidays

The policy should clarify if employees receive paid holidays separately from PTO or if they must use their PTO for holiday time off. It should also list the specific holidays the company observes.

Example: The company provides 10 paid holidays per year, including New Year’s Day, Independence Day, and Christmas. Employees who want additional time off around holidays must use PTO.

7. Compliance with federal and state laws

Certain states, like California, New York, and Washington, require employers to provide paid sick leave separately from general PTO. Some states also mandate that employees have a right to carry over unused sick leave into the following year. Companies operating in multiple locations must ensure their policies comply with state and local laws. The policy should also clarify if employees must use PTO before applying for unpaid leave under laws like the Family and Medical Leave Act (FMLA).

Example: The company provides separate paid sick leave in addition to PTO. Employees receive five paid sick days per year and can carry over up to 40 hours of unused sick leave into the next year.

PTO policy templates and samples

Below are three PTO policy templates, one for a standard PTO system, one for unlimited PTO, and one for small businesses. A completed example follows each template to show how it works in practice:

Standard PTO policy template

[Company Name] PTO Policy

Eligibility:

• [Specify which employees qualify for PTO: full-time, part-time, tenure requirements, etc.]
• [State whether new employees have a waiting period before PTO starts accruing.]

Accrual and carryover:

• [Explain how employees earn PTO—monthly, annually, or per hours worked.]
• [State if unused PTO rolls over to the next year or expires.]

Request process:

• [Detail how employees should request time off (e.g., written request, online portal).]
• [Set deadlines for PTO requests (e.g., at least two weeks in advance).]
• [Describe how managers approve requests (e.g., based on team coverage and seniority).]

PTO payout upon termination:

• [Explain whether the company pays out unused PTO when an employee leaves.]

Standard PTO policy example

Unlimited PTO policy template

[Company Name] Unlimited PTO Policy

Eligibility:

• [Specify which employees qualify for unlimited PTO (e.g., full-time employees only).]
• [Clarify if new employees must complete a probationary period before using unlimited PTO.]

Time-off request process:

• [Explain how employees should request time off and any approval requirements.]
• [State any expectations regarding notice periods for extended absences.]

Performance expectations:

• [Detail how PTO requests are managed to prevent disruption.]
• [Clarify that employees must meet performance goals and deadlines before taking PTO.]

Guidelines for extended absences:

• [Set limits on consecutive PTO days (if applicable).]

Unlimited PTO policy example

PTO policy template for small businesses

[Company Name] PTO Policy for Small Business Employees

Eligibility:

• [State who qualifies for PTO—full-time, part-time, or all employees.]
• [Clarify if PTO is available immediately or after a waiting period.]

PTO allowance:

• [Specify the total number of PTO days per year.]
• [State whether employees must use PTO for sick leave, or if sick days are separate.]

Request process:

• [Describe how employees should request PTO and required notice periods.]
• [List any blackout periods when employees can't take PTO (e.g., busy seasons).]

Sample PTO policy for small businesses

What employers should know about PTO laws

​Understanding the legal landscape surrounding PTO is essential for employers to maintain compliance and to protect both the organization and its employees. This section outlines key considerations regarding federal and state PTO laws, payout requirements upon termination, and compliance with the FMLA.

Federal and state PTO laws

There's no federal mandate requiring employers to provide PTO. However, many states have enacted their own PTO and paid sick leave laws, each with unique requirements. The District of Columbia and 19 other states have active paid sick leave laws, including California, New York, and Washington. Notably, Missouri's law becomes effective on May 1, 2025, Alaska's on July 1, 2025, and Nebraska's on October 1, 2025.​

PTO payout requirements upon termination

PTO payout policies upon an employee's termination vary by state. Some states require employers to compensate departing employees for accrued but unused PTO, while others allow companies to establish their own policies. For instance, California mandates that employers pay out unused PTO upon termination, considering it earned wages. Conversely, states like Florida and Texas don't have such requirements, permitting employers to define their own payout policies. It's important that employers familiarize themselves with the specific laws in each state where they operate to ensure compliance.

Compliance with FMLA and other leave policies

The FMLA provides eligible employees with up to 12 weeks of unpaid leave for certain family and medical reasons, ensuring job protection during this period. Employers may allow or require employees to use accrued paid leave, such as PTO, concurrently with FMLA leave. However, recent guidance from the US Department of Labor (DOL) clarifies that employers can't mandate the use of accrued PTO to supplement state or local paid family and medical leave benefits during FMLA leave. Instead, the employer and employee must mutually agree to any use of accrued paid leave in conjunction with such benefits.

Employers should also be aware of state-specific family and medical leave laws, which may offer benefits exceeding those provided by the FMLA. For example, several states have implemented Paid Family and Medical Leave (PFML) programs that provide partial wage replacement during leave periods. It's important to understand how these state programs interact with federal requirements and to adjust company policies accordingly.

5 PTO policy best practices for effective management

A well-managed PTO policy helps ensure that employees get the time off they need while keeping business operations on track. Without clear policies and systems in place, teams can struggle with last-minute absences, inconsistent approvals, and burnout. The following best practices help companies create a PTO system that is fair, transparent, and compliant with labor laws:

1. Establish clear communication and approval processes

Employees should never need to guess their PTO request procedure or approval status. When policies are unclear, requests can pile up, managers may approve time off inconsistently, and employees might feel frustrated. A clear approval process can prevent these issues and ensure fair scheduling.

A strong PTO policy should include:

• A defined request process: Employees should know exactly how to submit a PTO request, whether through an online system, an email to HR, or a direct conversation with their manager.
• Notice period requirements: Some companies require two weeks’ notice for planned vacation time, while others allow shorter notice for sick leave. Make expectations clear.
• Approval criteria: If multiple employees request the same days off, define how managers should decide who gets priority (e.g., first-come, first-served, seniority, or business needs).

Actionable tip: Use an HR software system where employees can submit PTO requests, track their balances, and receive automated approvals based on pre-set company rules. Require managers to approve or deny requests within a set timeframe (e.g., 72 hours) to prevent delays.

2. Regularly review and update policies

Employee expectations and legal requirements around PTO change over time. If a PTO policy is out of date, employees mightn't feel supported, and the company could risk noncompliance with new laws.

Key reasons to review your PTO policy include:

• Legal updates: New state laws may affect paid sick leave requirements, PTO payout rules, or accrual regulations. Employers must stay compliant.
• Shifts in company culture: If employee burnout is rising, consider updating the PTO policy to encourage better work-life balance.
• Competitive hiring landscape: If competitors offer more flexible PTO, updating your policy can help attract and retain top talent.

Actionable tip: Conduct a review of your PTO policy at least once a year. Have HR teams check for legal updates, survey employees for feedback, and compare your policy with industry standards. Make changes as needed and communicate updates to all employees.

3. Track PTO usage with software solutions

Manually tracking PTO with spreadsheets or paper requests can lead to errors, lost requests, and payroll discrepancies. Employees may take more PTO than they’ve accrued, or HR may struggle to enforce PTO limits consistently.

A good PTO tracking system should:

• Automate accrual calculations: Employees should see real-time PTO balances based on accrual rules.
• Prevent scheduling conflicts: Software can show overlapping time-off requests to help managers avoid understaffing.
• Generate reports on PTO trends: Tracking usage helps identify if employees are overusing or underusing their PTO.

Actionable tip: Set up an automated PTO tracking system that updates balances in real time, flags overlapping time-off requests, and provides reports on usage trends. Ensure managers receive alerts for low PTO balances or excessive last-minute absences to prevent scheduling issues and payroll errors.

4. Promote a healthy work-life balance

A strong PTO policy is useless if employees feel discouraged from using it. Some employees avoid taking PTO because they fear falling behind, while others feel guilty for taking time off when their team is busy. When employees don’t use PTO, they're more likely to burn out. This can lead to higher turnover and lower productivity.

To encourage a healthy work-life balance:

• Set expectations for PTO use: If employees rarely take PTO, managers should check in and encourage them to take time off.
• Lead by example: Leadership should take their own PTO to set the standard. 
• Address workload concerns: If employees feel they can’t take PTO without returning to a mountain of work, managers should help redistribute tasks before an absence.

Actionable tip: Implement a minimum PTO policy, requiring employees to take at least five days off per year to prevent burnout. If employees hesitate to use PTO, have managers encourage planned time off, especially before busy seasons.

5. Ensure compliance with PTO laws

PTO laws vary by state, and failing to follow them can lead to legal disputes and penalties. Some states require employers to offer paid sick leave, while others mandate PTO payouts upon termination.

Key compliance factors include:

• State-mandated paid sick leave: States like California, New York, and Washington require a minimum amount of paid sick leave, separate from PTO. Employers operating in multiple states must adjust their policies accordingly.
• PTO payout laws: Some states, like California and Montana, classify unused PTO as earned wages, requiring payout when an employee leaves. Others, like Texas and Florida, allow employers to decide.
• FMLA and state-specific family leave laws: If an employee takes protected leave under the Family and Medical Leave Act (FMLA) or state laws, employers can't require them to use PTO unless state law allows it.

Actionable tip: Assign an HR or legal expert to review state and federal PTO regulations regularly. If your company operates in multiple states, consider state-specific PTO policies or HR software that applies the correct rules based on an employee’s location.

Streamline PTO policy management with Rippling

Managing PTO policies across different locations can be complex, especially with varying state regulations. Rippling's all-in-one workforce management platform, built on a single source of truth, streamlines benefits administration and PTO tracking, makes it easier to maintain compliance, and syncs directly with payroll. IT enables you to track accruals, manage time-off requests, and enforce policies without relying on manual processes.

Rippling Time & Attendance, part of Rippling HCM, tracks PTO automatically and calculates accruals with precision. When managers approve PTO requests, the system updates payroll instantly, removing the need for manual data entry and preventing errors. Compliance tools apply the latest PTO laws, including state-mandated sick leave and accrual rules, so your business can stay up to date without extra effort.

Rippling’s scheduling tools can help you adjust schedules to cover absences. You can also customize PTO policies to fit internal guidelines and local labor laws, set up accrual structures, define pay types, and configure overtime and break policies to help you meet compliance requirements.

Rippling does more than just track PTO. It centralizes workforce management, helping you stay compliant, streamline HR operations, and support employees in one unified system.

Paid time off (PTO) policy FAQs

How do you structure a PTO policy?

A PTO policy should be clear, easy to follow, and in alignment with company needs and legal requirements. Most policies include:

• Eligibility: Who qualifies for PTO (full-time, part-time, tenure requirements).
• Accrual and usage: Whether employees earn PTO over time or receive it upfront.
• Carryover rules: Whether unused PTO rolls over or expires at year-end.
• Request and approval process: How employees request time off and how managers approve or deny requests.
• PTO payout policy: What happens to unused PTO if an employee leaves the company.

For compliance, businesses should check state-specific laws, as some states require separate sick leave or PTO payouts upon termination. For reference, companies can review PTO policy examples to see how different organizations structure their time-off policies while maintaining compliance and fairness.

What is a typical PTO policy for a small business?

Small businesses often keep PTO policies simple because of limited resources. A common approach is offering a fixed number of PTO days per year that cover vacation time, personal time, and sick leave. For example:

• Full-time employees: 10–15 PTO days per year, available after 90 days of employment.
• Part-time employees: PTO based on hours worked, if offered.
• Carryover: Some businesses allow a small rollover (e.g., up to 5 unused days), while others have a “use it or lose it” policy.
• Sick leave: Depending on state laws, small businesses may need to provide separate paid sick leave.

Since small teams rely on each employee’s availability, clear request and approval processes help avoid scheduling conflicts.

Should employers offer PTO to contractors or part-time employees?

Legally, businesses don't have to provide PTO to independent contractors. Since contractors are self-employed, they set their own schedules and don’t receive company benefits. However, some businesses offer additional incentives, such as paid project breaks, to attract and retain top freelancers.For part-time employees, PTO eligibility depends on company policy. Some businesses prorate PTO based on hours worked, while others reserve PTO for full-time staff. State laws may also influence whether part-time employees qualify for paid sick leave. Employers should review local labor laws to ensure compliance.

This blog is based on information available to Rippling as of February 28, 2025.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.