Setting up a Paid Time Off Policy for Your Business
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Setting up a Paid Time Off Policy for Your Small Business

As a small business owner, it’s hard to compete with the benefits large companies offer employees. One thing you can give employees is paid time off, which lets employees take days off work without losing income. Consider creating a paid time off policy for your business.

What is PTO?

Paid time off (PTO) is part of a common employee benefits package. PTO includes paid time for hours that an employee does not work. Employees can use a certain number of paid days off as they please.

You might offer paid time off for holidays. Major paid holidays for employees usually include New Year’s Day, Memorial Day, the Fourth of July, Labor Day, Thanksgiving (and the Friday after), and Christmas. You can also give paid time off for sick days, vacation, personal days, bereavement leave for a death in the family, jury duty, and military training.

The time allows employees to rest and spend time with loved ones without losing money. When employees return from PTO, they come back rejuvenated and ready to work.

paid time off

Time off policy for small business

If you decide to offer PTO at your business, you need a time off policy. The policy explains the rules employees should follow to use their PTO. These questions should be addressed in your personal time off policy.

How many days can an employee use for PTO?

Often, a PTO policy for small business will vary by the employee’s years of service, increasing with the number of years worked. Choose how many days an employee can use and when they can use the time off. For example, employees might be allowed to use several weeks in a row or a few days per month. It’s rare, but some businesses offer unlimited paid time off.

Who is eligible for PTO?

Decide which employees can receive paid time off. You might not let new employees use PTO right away. Instead, they might need to work a certain amount of time (e.g., six months) before taking paid time off. And, you could only offer PTO to full-time employees.

How do employees request time off?

Employees can let you know in advance that they want to use PTO. You could have employees tell you in person or provide a written request. If you use payroll software, employees can request PTO through an integrated time and attendance software add-on. Employees enter the request, and you approve it online.

What happens to leftover PTO?

PTO accrual should go by an annual schedule, like the calendar year or the employee’s work anniversary. When the year ends, something needs to happen to the PTO hours. Employees could carry over vacation days into the next year. You can limit the number of hours carried over. Or, you can pay out the PTO hours.

Once you decide the details of your paid time off policy, write it down in a document. Share the PTO policy with your employees and job candidates.

PTO and state laws

There are no federal laws that say you must offer employees paid time off. But, some states require you to give paid sick leave. The following list includes states with mandatory paid sick leave:

  • Arizona (effective July 1, 2017)
  • California
  • Connecticut (if you have over 50 employees, you must give paid time off to service employees)
  • Massachusetts
  • Oregon
  • Vermont
  • Washington (effective January 1, 2018)

Check with your state for specific paid sick leave requirements. Some localities also have paid sick leave rules, so check your local laws.

PTO benefits

Offering paid time off to employees can be a huge advantage for small businesses. While PTO can get expensive for employers, the return might be worth the cost. Here are some PTO benefits for your small business.

PTO increases employee engagement and retention

Acknowledging that employees have lives outside the workplace is a big morale-booster. Employees appreciate the time off to take care of a sick child, go on vacation, or simply have a personal day. Workers who enjoy their benefits usually stay at a job longer, which increases your employee retention.

Employees might be more productive

Paid time off gives workers time to rest and not worry about missing work. The time can make an employee feel valued, which often turns into a more productive worker.

There are more consistent work schedules

When employees receive PTO, they are less likely to call off unexpectedly. PTO allows them to schedule the time in advance and give you notice. This allows for a more predictable work environment, less absenteeism in the workplace, and an equal distribution of responsibilities.

PTO helps you recruit quality candidates

Today’s candidate market is competitive for small employers, and closing a candidate can be incredibly difficult. To hire skilled workers, you need to offer an enticing benefits package. Offering PTO helps you secure top talent.

While offering paid time off can be beneficial, it will also cost money. PTO expenses include the employee’s compensation plus the fewer days worked. Keep these figures in mind when deciding to offer PTO.

Need a simple way to keep track of your employees’ PTO and hours worked? Patriot’s online payroll software lets you complete payroll in three simple steps. We offer free setup and support. Try it for free today.

This article has been updated from its original publication date (4/20/2012).

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