What is a Reasonable PTO Policy?

What is a PTO policy?

A PTO policy is a formal workplace document that defines how employees can use their paid time away from work. It establishes the rules, procedures and limitations governing vacation days, sick leave and personal time off.

Key components of a PTO policy include:

• Eligibility requirements and waiting periods
• Accrual rates or annual allotments
• Request and approval procedures
• Usage restrictions and advance notice requirements
• Treatment of unused time (rollover, payout or forfeiture)

PTO policies typically cover three main categories:

• Vacation time: Planned recreational leave or personal activities
• Sick leave: Medical appointments, illness recovery or caring for sick family members
• Personal days: Flexibility for personal matters like family events, religious observances or emergencies

How much PTO is normal?

Understanding typical PTO allocations helps employers create competitive policies and employees set appropriate expectations. According to U.S. Bureau of Labor Statistics data from 2024, the average paid vacation days in the private sector are :

• Entry-level (1 year of service): 11 days
• Mid-career (5 years of service): 15 days
• Experienced (10 years of service): 18 days
• Senior level (20+ years of service): 20 days

These figures reflect vacation leave only and don’t include paid holidays (typically 7 to 11 days) or sick time. When combined, many full-time workers receive 15 to 30 total paid days off annually.

International PTO comparison

The United States stands out among developed nations for lacking federally mandated paid vacation. While other countries guarantee substantial time off, U.S. policies vary dramatically by employer :

• Australia: 20 days minimum plus 10 to 13 public holidays (30 to 33 total days)
• France: 31 days minimum plus 11 public holidays (42 total days)
• Germany: 20 days minimum plus 10 public holidays (30 total days)
• United Kingdom: 20 days minimum plus 9 public holidays (29 total days)
• Japan: 10 to 20 days minimum plus 16 optional public holidays (10 to 36 total days)
• United States: No federal requirement (employer discretion)

This absence of national standards means approximately 28 million Americans receive no paid vacation or holidays.

PTO accrual methods explained

There are three basic types of PTO policies to consider for your small business: fixed allotment, accrued PTO and unlimited PTO.

Fixed allotment

A fixed allotment pools all an employee’s PTO into a single source they can draw from as they see fit, whether it’s sick time, vacation time or personal time off. This policy generally does not require the employee to provide a reason to their employer unless they’re taking several days off in a row.

• Fixed allotment example: On January 1, each employee is awarded 15 PTO days to use at their discretion during the calendar year.
• Fixed allotment benefits: Each employee gets the same amount of PTO they can use however they like, creating a sense of trust and responsibility. Employees can also make PTO requests on their first day of work.
• Fixed allotment drawbacks: This type of policy may encourage sick employees to come into work to try to save their banked PTO for vacations or personal days.

Accrued PTO

An accrued PTO policy allows employees to earn time off according to how much they work or their years of service. They may earn separate sick days and vacation days or all-encompassing PTO days. Unless capped, PTO days continue to accrue until the employee uses them.

• Accrued PTO example: Each employee accrues one day of PTO for every four weeks of service.
• Accrued PTO benefits: This type of policy can motivate employees to work to earn their PTO and give them a sense of accomplishment when they do.
• Accrued PTO drawbacks: This policy can encourage workers to come in when they’re ill, as they may not want to “waste” their hard-earned PTO days. It can also be demotivating for new employees to start with zero days.

Unlimited PTO

Unlimited PTO, also known as an open policy, operates on a trust basis between the employer and employee. An unlimited PTO policy means there’s no cap on how many PTO days an employee can take, provided their work gets done and the unlimited vacation policy is not abused.

• Unlimited PTO example: Each employee is allowed to take PTO whenever needed, as much as needed, with approval from their supervisor.
• Unlimited PTO benefits: Employees feel trusted and understand that a positive work-life balance is a priority for the company. If an employee quits or is laid off, their employer isn’t required to pay out unused vacation days.
• Unlimited PTO drawbacks: In some company structures, this policy could backfire and be taken advantage of. Carefully consider your workplace culture and whether your employees will treat the policy responsibly.

Flexible time off vs. traditional PTO

Flexible time off (FTO), also called discretionary time off, represents an evolution beyond traditional PTO structures. Unlike conventional policies with predetermined vacation and sick day allocations, FTO provides employees greater autonomy over when and how they use their time off.

Benefits of flexible time off:

• Increased employee satisfaction and trust
• Reduced administrative burden for HR departments
• Appeals to diverse workforce needs and personal circumstances
• Can improve recruitment and retention

Drawbacks of flexible time off:

• May result in employees taking less time off than under traditional systems
• Requires strong management oversight to prevent abuse
• Can create uncertainty about “appropriate” usage levels
• Potential for inequality if some employees feel pressure not to use time

Traditional PTO provides clearer expectations and guarantees specific minimums, while FTO offers flexibility but may inadvertently discourage usage without proper encouragement from leadership.

Legal considerations for PTO policies

Crafting a PTO policy isn’t just about setting accrual rates and approval rules; it also requires navigating complex legal considerations. From coordinating with federal laws like the Family and Medical Leave Act (FMLA) to complying with state-specific paid leave mandates, employers must ensure their policies align with all applicable regulations.

FMLA coordination

The FMLA, short for the Family and Medical Leave Act, is a law that requires certain employers to provide eligible employees with unpaid, job-protected leave for qualifying reasons, such as to care for a spouse, child or parent who has a serious health condition. It does not grant team members paid time off. However, employees may be required to use some or all of their employer-provided PTO before being awarded FMLA coverage. 

It’s best to consult with a labor law attorney when developing your PTO policy to determine how it should work in conjunction with unpaid FMLA leave — ensuring you don’t run afoul of Department of Labor regulations.

State-specific requirements

Although no federal law mandates PTO, some states do have regulations regarding time off, such as paid sick leave. Their requirements can vary significantly:

• Accrual rates (typically one hour per 30 to 40 hours worked)
• Maximum annual caps (often 40 to 56 hours)
• Carryover provisions for unused time
• Documentation requirements for usage

Be sure to check with your state guidelines to ensure your PTO policy is compliant with your legal obligations.

“If you are in a state that requires sick time and [you] combine it with PTO, [then] make sure you state that the amount of time given includes the state-mandated hours for sick time off with pay,” Jim Chichanski, founder and chief human resources officer at Flex HR, told us.

Best practices for designing a PTO policy

A good PTO policy benefits the employer, employees and the company as a whole. When a PTO policy is comprehensive, generous and flexible, employees feel valued and cared for, increasing their loyalty to your company and potentially boosting productivity.

“The best PTO policy offers flexible, diverse and portable benefits to mirror today’s workforce,” said Rob Whalen, CEO and co-founder of PTO Exchange. “It’s a win-win if both the employee and the employer are happy and benefiting from the policy.”

Here are some best practices for creating and maintaining a good PTO policy.

1. Create a flexible PTO policy.

Job flexibility has become more crucial than ever, especially for millennials and Gen Zers, who are quickly becoming the largest generations in today’s workforce. Millennials tend to stay longer at jobs that offer more flexible benefits, so ensure your PTO policy meets those expectations. 

Business.com spoke with Whalen and other HR experts who shared the following tips for creating a flexible and open PTO policy.

• Bundle all PTO types. Flexible and open PTO policies bundle all PTO types, allowing employees to choose the type of leave policies they need.
• Accommodate diverse workforces. Flexible and open PTO policies can help you prioritize diversity and inclusion by allowing employees to take off for meaningful religious and national holidays. They also account for alternative days off, such as a mental health day, doctor’s appointment or medical leave.
• Convey trust. Flexible and open PTO policies convey that you trust your employees and don’t run a controlling work environment.

2. Make your PTO policy clear and understandable.

Your PTO program must be clearly defined, with no question as to what is and is not permitted. This clarity protects business owners and helps employees feel supported and informed. 

Your PTO policy should be clearly written, detailed and accessible to everyone employed at your organization. Ensure that it covers all employees and that they know how to request or inform management about PTO days they plan to take.

“Clearly outlining PTO policies and encouraging its use promotes healthy work-life balance, allowing employees to return to work rejuvenated and even more engaged,” said Amy Marcum, manager of client implementation at Insperity.

3. Create a PTO policy based on your company culture.

An unlimited PTO policy may look great on paper, but it won’t work out so well in practice if your business doesn’t encourage time off. You must have a good understanding of your business, employees, and company or industry culture to know what policy style will work best.

If you’re unsure what type of policy would work best for your staff, send an anonymous survey to employees to uncover how they view your organization’s time-off culture and what they’d like to see in a PTO policy. Adjust your program based on the responses.

4. Encourage employees to use their PTO.

A PTO plan is only good if your employees actually use it. Even if they have available PTO days, many employees feel unable to take time off. In fact, a recent study by Pew Research Center found more than half of employees don’t use all of their PTO days. 

When asked why they don’t take time off, employees reported they are: 

• Worried about falling behind at work (49 percent).
• Feel bad about co-workers taking on additional work (43 percent).
• Think it will hurt their chances for career advancement (19 percent). 
• Think it might cost them their job (16 percent).
• Discouraged from doing so by their manager or supervisor (12 percent).

Taking time away from work is necessary for avoiding burnout, so it’s important that supervisors encourage their staff to take time off. They should also lead by example.

“Regularly encouraging employees to use their PTO through open dialogue, setting clear expectations on policies and leadership leading by example by taking their own PTO, shows team members it is OK to unplug,” said Marcum. “If the current policy does not encourage PTO, it may be beneficial to add in clauses regarding year-end limitations or recommending at least one consecutive week of PTO.”

5. Offer incentives or benefits with your PTO policy.

An oft-criticized PTO policy is “use it or lose it,” where any accrued vacation time is lost if an employee doesn’t use it by the end of the calendar year. While accrual arrangements encourage employees to use their time off, they can be demoralizing when workers feel they can’t or shouldn’t take advantage of their PTO hours — and then lose their unused time when the year ends.

Instead of a “use it or lose it” policy, consider allowing unused PTO to roll over to the next year. However, it’s important to understand how this will impact your company’s finance and accounting team. 

“The amount rolled over must be calculated and entered into the liability of the company’s balance sheet,” said Chichanski. “Note that if [you are] looking to sell the company, new owners do not like to see liabilities on the balance sheet.”

As another option, Whalen suggested building benefits into your PTO policy. “With flexible PTO benefits, employees have the ability to transfer the value of any unused PTO to other priorities and needs, such as funding a 401(k), [paying] emergency expenses, paying down student loan debt or funding a real vacation,” he said.

6. Consider offering opportunities for personal time off.

Many companies provide opportunities for using PTO, such as supporting a charity, doing volunteer work, exploring professional development or taking a sabbatical. For example, McDonald’s corporate employees can take up to eight weeks of paid sabbatical leave every 10 years, while Adobe offers a paid sabbatical to its employees once every five years. 

If you’re not a huge company or your employees don’t need sabbaticals, consider offering PTO for volunteer time. This has the dual benefit of increasing your company’s philanthropic efforts while fulfilling and valuing your employees’ time. Company volunteer days have also proven to be effective at improving teamwork among employees.

7. Regularly evaluate your PTO policies.

Just like with any HR policy, it’s important to regularly review and evaluate your PTO policy and adjust it as needed. Consider what you’re offering against current market trends and changing employee needs. You can survey employees to check the pulse on whether they’re still satisfied with what you are offering.

“With the increasing amount of paid sick and paid time off mandates, confirming the policy is compliant regularly is important as well,” said Marcum. 

When evaluating your PTO policy, Marcum suggests taking the following steps: 

1. Review business cycles to identify times when PTO is more manageable for the company and teams.
2. Establish an efficient backup system for employees.
3. Create or update a PTO policy that encourages time off.

Regularly reviewing your PTO policy will help ensure it is the best offering for your company and workforce.

Quick comparison table: PTO, FTO, unlimited PTO

Skye Schooley and Jennifer Dublino contributed to this article. Some source interviews were conducted for a previous version of this article.