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Should your businesses have a paid time off policy?

Employers aren’t legally required to pay their employees for vacation or sick days. But that doesn’t mean you shouldn’t. In fact, a good Paid Time Off (PTO) policy is an essential part of recruitment and retention.

PTO vs. Vacation/Sick Leave

Traditionally, employees got a certain amount of vacation leave, a separate amount of sick leave, and maybe a separate amount of personal days. With PTO, in general, the employee gets a certain amount of hours that they can use for whatever reason. So vacation, sick and personal days all come out of one bucket of PTO hours.

PTO gives the employees more flexibility, which can make them feel more trusted and valued. Employees who feel valued tend to work harder and have more loyalty to their employer.

Generally, PTO doesn’t include jury duty, time off to vote, military leave, FMLA, etc.

Things to consider:

  1. Which employees will be eligible for PTO? Will new hires need to pass an introductory period to become eligible for PTO?

  2. How much PTO will your employees be awarded? Will the amount increase based on years with the company?

  3. Are there holidays you want to observe company-wide, which wouldn’t come out of the individual employee’s PTO? Those holidays should be listed in the employee handbook.

  4. Can unused PTO to rollover into the following year? Will you put a limit on how many hours can be carried-over? Do you want to limit the number of consecutive days off an employee can take? (i.e. two weeks at a time)


  1. Set up the policy so PTO will accrue over time. If the policy awards the entire amount of PTO upfront instead of accruing, an employee might use up all 10 days in their first month on the job, then quit.

  2. Make sure the terms of the policy are clearly laid out in your employee handbook.

  3. Once the policy is set up, have your existing employees sign the policy so it’s part of their employment contract.

Legally, it’s up to you if you want to offer paid time off to your employees. However, once you decide to give paid vacation/sick time, some states have laws that regulate how those policies are structured. For example, many states require employers to pay out accrued vacation time when an employee quits or is terminated. That’s why we recommend consulting with an HR professional when setting up your policy. If you’d like our help, give us a call at (808) 354-0498.

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