How to Create a PTO Program

By: Insperity Staff
September 12th, 2011

As business owners, we tend to get lost in the hustle and bustle of business and often forget that our employees are toiling away just as furiously as we are.

A paid-time-off (PTO) policy lumps vacation time, sick time and personal time into a set number of days that are available for each employee to use each year. PTO is an appealing model for both perspective and current employees because it takes the guilt away from asking for a vacation day. Offering it as a benefit can lower turnover and attract top-notch talent.

Step 1: Pick a number.

If your business depends heavily on each employees’ attendance, then you will want to be a little less generous with the PTO. On average, most U.S. employers offer 10 days of PTO to start. The longer an employee stays with the company, the more PTO they’re awarded each year. For example, an employee that has been working with your company for one year may get 10 days of PTO, whereas someone who has worked for your company for five years would get 15 days. Think about your company and the type of staffing demands you have. Research other businesses in your industry to see what their PTO programs offer.

Step 2: Decide on dispersal.

There are two common ways of dispensing the time. The first way is to award an employee his or her PTO at the beginning of each year. This allows them to use as much of it as they want at any point during the year. Critics of this method say that this can lead to employees taking off larger chunks of time, which may hinder operations within the company. The other option is to have employees accrue PTO. Employees earn PTO at the end of each month based on the number of days or weeks they worked in that month. For example, if your company offers 80 hours of PTO per year, then that means your employee will earn approximately 1.5 hours of PTO for every week he or she works throughout the year. When employees want to use their PTO, they’re only allowed to use the amount that they’ve saved up to that date. Many companies like this method because it makes it difficult for employees to take large periods of paid absences throughout the year. On the other hand, some businesses complain that this method causes employees to save up their PTO and use it all at once at the end of the year, leaving you short staffed. To decide which is best for your company, look closely at your operations and evaluate which method would be least detrimental to your business.

Step 3: Roll-over vs. use-it or lose-it.

Companies have counteracted the year-end absenteeism associated with the accrual of PTO by allowing employees to carry over their PTO into the next year and add it to the new year’s PTO. In order to prevent employees from accruing massive amounts of PTO over the years, most companies that have a roll-over program also have a cap or max number of PTO hours allowed per employee. Once employees reach this amount, they’re no longer allowed to accrue more PTO until they’ve used some of what they already have.  Some companies have found that keeping track of rollover PTO can be too much of a hassle, so they stick to the use-it or lose-it system. Whatever the employee doesn’t use at the end of the year is lost and they start back at zero at the beginning of the year. The problem with this process is that it can promote large gaps of absenteeism at the end of the year because employees take the last of their PTO so they won’t lose it. Think about your company and decide which system would be the least harmful to business.

Step 4: Make the rules.

In order to avoid abuse of PTO you’ll need to set some ground rules. Most companies require that employees give their supervisor or HR department at least two days notice prior to taking a PTO day, unless of course it’s used for an unplanned sick day. You’ll need to decide how you’re going to keep track of your PTO. Sometimes employees might want to use only a few hours of PTO in a day. If you’re willing to allow this, it’s a good idea to record PTO on an hourly basis in order to simplify record keeping. If you plan on putting stipulations on what an employee uses PTO for, then you’ll need to clearly explain what qualifies as a PTO day. Nowadays, companies allow PTO days to be used for pretty much whatever the employee needs, whether it’s caring for a sick child or just taking a day off for their own mental health. Most companies aren’t concerned with why an employee takes a paid day off as long as the employee understands that once their PTO is gone, it’s gone, no exceptions.

Step 5: Create a request form.

In order to avoid mass confusion, you’ll need to set up a well-organized PTO tracking system. One major component is the PTO request form. Each employee should be required to submit a form every time they request PTO. This ensures that there is written record of PTO use. A paper trail will help your HR department stay on top of each employee’s PTO use and it will be used to verify each employee’s current record of available PTO. Create a form that lists the employee’s personal information and a section where the employee record the days or hours that they will be taking as PTO. If needed, you can also include a section where employees write an explanation for their absence.

Step 6: Write it in your employee handbook.

Now that you’ve solidified your PTO plan, you need to make it an official part of your company’s policies by including it in your employee handbook. Write out everything including the amount of PTO employees will receive each year, how it will be dispersed, what happens if it’s not used, as well as the rules and procedures to requesting PTO. If you make the rules and regulations very straightforward and easy to understand, employees won’t be constantly bombarding your HR department with questions.

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