How to Write a PTO Policy (Step-by-Step + Sample)

A PTO policy is the written rulebook that says who gets paid time off, how much they earn, and how they request it. Write it once, in plain language, and you prevent the two most common headaches small teams hit: arguments about how much time someone "has left," and surprise payouts when an employee quits. This guide walks through the seven sections every policy needs, with real numbers and a short sample you can adapt today.

Before you write a word: gather four numbers

Drafting goes faster when you decide the math first. Pin down these four things before you open a document.

1. Total days per employee, per year. Pick a starting figure. Among US small businesses, 10 to 15 days of combined PTO in the first year is typical, often increasing with tenure.
2. Earning method. Either employees accrue time gradually each pay period, or they get a lump sum on a set date (hire anniversary or January 1).
3. Your state's rules. A handful of states treat accrued PTO as earned wages, require payout at termination, or ban use-it-or-lose-it forfeiture outright. This single fact shapes your carryover and payout sections.
4. Whether sick time is separate. If your state mandates paid sick leave, you cannot write that protection away by lumping everything into one bank.

If you want to sanity-check the cost of the number you picked, run it through the PTO cost calculator before you commit. A policy that looks generous on paper can be expensive once you multiply it across the whole team.

The seven sections every PTO policy needs

A complete policy answers seven questions in order. Skip one and you will get asked about it within a month.

1. Eligibility and waiting period

State exactly who the policy covers and when their clock starts. Be explicit about employee classes, because mixing rules causes disputes.

• Who is covered: full-time, part-time, or both. If part-timers earn a prorated amount, say so here.
• Waiting period: the gap between the start date and the day time becomes available. A 90-day waiting period is common, but note the difference between earning time during that window and being allowed to use it.
• Contractors are excluded. Spell it out so there is no ambiguity.

A clean version reads: "All full-time employees scheduled for 30 or more hours per week are eligible. Employees begin accruing PTO on their first day and may begin using accrued PTO after 90 days of continuous employment."

2. How time is earned: accrual vs. lump sum

This is the engine of the whole policy. Pick one model and define it precisely.

For accrual, state the rate in the same units your payroll runs on. If you grant 15 days (120 hours) per year and pay twice a month over 24 periods, the rate is 5 hours per period. Show the number so nobody has to reverse-engineer it.

Not sure what your per-period rate should be? The PTO accrual calculator converts an annual day total into per-paycheck and per-hour figures so the language in your policy matches what your system actually posts.

3. How much, and how it grows with tenure

Decide whether everyone gets the same amount or whether longevity is rewarded. A tenure ladder is the most common way to retain people without an across-the-board cost increase.

A typical small-business ladder looks like this:

Two rules keep a ladder from causing confusion. First, define exactly when the bump takes effect: on the anniversary date, or at the start of the next calendar year. Second, state whether the higher rate is retroactive (it almost never should be). Pick a date and stick to it.

4. Requesting and approving time off

Process problems cause more friction than the day count ever will. Cover four points.

• Notice required. For example, two weeks' notice for any request of three or more consecutive days; 24 hours for a single day where practical.
• How to request. Name the actual method, whether that is a form, a shared calendar, or a tool.
• Who approves. Usually the direct manager, with a backup approver named for when they are out.
• Blackout periods. If your busy season makes time off hard to cover, list those dates instead of denying requests case by case.

To set fair notice windows and staffing expectations, it helps to know how many actual working days a request spans. The working days calculator strips out weekends and holidays so a "one week off" request is counted as five days, not seven.

5. Carryover, caps, and expiration

This section is where state law bites hardest, so write it carefully.

• Carryover: Can unused time roll into the next year? If yes, set a cap (for example, "carry up to 40 hours").
• Accrual cap: A maximum balance that pauses further accrual until the employee uses time down. This is the legal alternative to forfeiture in states that ban use-it-or-lose-it.
• Expiration: If you want unused time to lapse, confirm your state allows it. Several do not.

The difference between a cap and a forfeiture matters. A forfeiture zeroes out earned time, which some states prohibit. A cap simply stops new accrual once a ceiling is hit, which is broadly permitted because nothing already earned is taken away. When in doubt, use a cap.

6. Payout at termination

State plainly what happens to an unused balance when employment ends. Your answer is constrained by where the employee works.

• In states that treat accrued PTO as earned wages, you must pay out the unused balance in the final paycheck, and no policy clause can override that.
• In states without that rule, you may choose to pay it out, pay a portion, or pay nothing, as long as your written policy says so clearly and consistently.

Write the rule you can actually defend in every state where you have staff. If even one location requires payout, the cleanest approach is often to pay out everywhere and avoid running two different rules.

7. Interaction with sick leave, holidays, and other laws

Close the policy by connecting it to the rest of your time-off picture.

• Sick leave: If your state mandates paid sick time, state how it works, whether it is separate from PTO or built in, and confirm your bank satisfies every required protection.
• Holidays: List your paid holidays so people know PTO is for everything beyond those days.
• Protected leave: Note that PTO runs alongside, not instead of, legally protected leaves such as family and medical leave. Keep the details in a separate leave policy and cross-reference it.

A short sample PTO policy

Adapt the bracketed parts to your business. This is a starting template, not legal advice; have counsel review the final version against your state's rules.

Eligibility. All full-time employees scheduled for 30 or more hours per week are eligible for paid time off (PTO). PTO begins accruing on the first day of employment and may be used after 90 days of continuous service.

Accrual. Employees accrue PTO each pay period based on years of service: 5.0 hours per semi-monthly paycheck (80 hours per year) in years one and two, 6.67 hours per paycheck (120 hours) in years three through five, and 8.89 hours per paycheck (160 hours) at six years and beyond. The increased rate takes effect on the first pay period after the service anniversary.

Requests. Submit PTO requests through [the company's scheduling tool]. Requests of three or more consecutive days require two weeks' notice. Approval rests with the employee's direct manager and is granted based on business coverage.

Carryover and cap. Employees may carry up to 40 unused hours into the next calendar year. Total accrued balance is capped at 200 hours; accrual pauses when the cap is reached and resumes once the balance drops below it. No earned PTO is forfeited.

Termination. Upon separation, employees are paid out their unused accrued PTO balance in the final paycheck.

Sick leave and holidays. PTO is separate from any paid sick leave required by [state] law and from the company's [number] paid holidays, listed in the employee handbook.

If you would rather not draft from scratch, the PTO policy generator builds a complete, formatted policy from your answers to these same seven questions.

Common mistakes to avoid

A few patterns turn a good policy into a liability:

• Silence on payout. If you never say what happens to unused time at termination, the default in many states is "pay it out," and you will pay it whether you planned to or not.
• Writing forfeiture in a state that bans it. An unenforceable clause gives employees a false expectation and gives you a wage claim.
• Vague accrual language. "You get vacation" invites every employee to assume the most generous reading. Use numbers.
• No backup approver. When the only person who can approve time off is on vacation, requests stall and resentment builds.
• Forgetting part-timers. If you hire part-time staff later, an all-or-nothing policy forces a rewrite. Address proration up front even if it is zero today.

Put the policy to work

A PTO policy is only as good as the system that tracks it. Once your seven sections are written, you need accurate balances, requests, and approvals that match the rules on paper, otherwise you are back to spreadsheets and disputes. SimplyPTO does that part for you: it applies your accrual rate every pay period, enforces your caps, and shows every employee their real balance. Start a free account at /signup and turn your new policy into something your team can actually use.