How to Create a PTO Policy: Small Business Guide [+ Template]

Legally speaking, employers do not need to offer vacation time to their employees. However, having a strong paid time off (PTO) policy is one of the first steps to attracting and retaining quality talent. Your policy should include various time off categories, including sick leave, vacation, and bereavement leave. While some PTO policies combine vacation and sick time into a single bank of paid days off, keep in mind that many states require a specific amount of time to be allocated directly to sick leave.

Here are some steps on how to create a PTO policy. We also created a free PTO policy template you can download and customize based on your business’s needs.

Step 1: Determine the PTO Types to Include in Your Policy

A robust PTO policy can help you attract and retain top talent. Also, sick time, which falls under the umbrella of PTO offerings, may be a requirement in your city or state. Below is a list of PTO types that you may want to consider offering.

Step 2: Define Your PTO Eligibility Criteria

Before implementing a PTO policy, define the people who qualify for these benefits. Not all employees you hire will be eligible for PTO; however, that is at your discretion. For example, you could decide whether only full-time employees are entitled to this or part-time employees and 1099 contractors are included.

• Full-time employees: Full-time employees, whether paid by salary or an hourly wage, are typically part of the worker class automatically eligible for PTO.
• Part-time employees: Part-time employees (those paid hourly and working fewer than 35 hours per week) are not generally eligible for PTO. However, if you decide to include this working group in your PTO policy, make sure you clearly spell out how much time they have available per year.
• 1099 contractors: 1099 contractors (those not on your payroll for tax purposes and typically paid by the hour or piece) are not generally eligible for PTO.

By establishing this step, you build the foundation for fairness and consistency in administering PTOs in your company. We recommend that you check with your state and local laws, as some require sick time to be available to different classes of employees.

Read the full step-by-step process here!