Why should your small business provide PTO?

It is essential that small businesses offer PTO to the employees, mainly due to the competition for talent. In the journey towards growth, small businesses are competing with larger businesses, not just for a position in the marketplace, but also for quality talent. In such cases, even if it is not mandatory to provide PTO, it is important to provide it, since it will attract qualified candidates to your business. 

That’s not all. While companies might think of providing PTO as an expense initially, in the long run, it can help them with employee retention. 

Furthermore, by providing PTO to employees, you are fostering a trusting workplace where employees can be honest about their needs and take time off when they need it, instead of lying their way to it. It gives them time to rest and recuperate, which improves their physical and mental well-being, and eventually increases their productivity. They no longer have to call in sick when they need to take a vacation or attend a PTA meeting. Also, having a systematic PTO management will help you keep track of your employees availability and ensure that you have planned your tasks accordingly. 

That raises an important question, which PTO policy would be good for your small business?

Determining the PTO policy for your small business

Having a formal PTO policy in place is a great way to ensure clarity since your employees would know how to use it effectively, what is expected of them, and what happens in case of violations. Most companies start with a traditional PTO policy where the PTO is segregated into different types, each having a limit of its own. These can be provided in bulk, usually done in PTO banks, or can be accrued over a period of time. However, in this case, companies need to devise a method to keep track of the PTOs utilized by their employees. While a time off management software will take care of PTO requests and tracking, it might still seem a little time-consuming. 

Most small business owners have their hands full with multiple responsibilities. Even if they had a dedicated HR person taking care of it, they would be juggling multiple tasks such as taking care of payroll, new employee onboarding, recruitment, and so on. 

Given that small business owners are looking for talent, and competing with larger businesses for the same, it makes sense to offer them benefits such as flexible time off or unlimited PTO. It reduces the workload of the HR personnel a great deal, at the same time, offers new hires the perks they seek. However, you need to ensure that there are proper tools to ensure that your employees are not misusing the benefits. 

10 Things to keep in mind before implementing PTO policy for your small business

The purpose of implementing a PTO policy is to ensure that your employees know why PTO is provided to them, how it is to be used, and what is expected of them. As a result, ensure that you cover all these essentials in your PTO policy: 


1. Set a limit on the number of PTOs your employees can avail at a time

Let your employees know how many days of PTO are allowed at a time. This will ensure that the teams’ goals are not affected by unexpected absences and that the available team members do not have to take the brunt of the extra tasks. 

2. Define the notice period for leave requests

Setting up a notice period for PTO requests has two benefits. It helps managers prepare for the employees' absence beforehand. At the same time, in case the PTO request is rejected due to a policy violation, it gives employees plenty of time to fix the issue and resubmit it. 

3. Set a deadline for PTO approval/rejection

Setting a deadline for PTO approval/rejection will help employees plan their trips better. Last-minute approvals lead to panic among employees and in case of rejection, this gives them little time to make alternate arrangements. 

4. Elucidate when a PTO request should be rejected

Ensure that managers process the PTO requests in a timely, unbiased manner. Explain the reasons when a PTO request should be rejected by the manager and teach them how to handle these requests. 

5. Explain how the accrual policy would work for new and tenured employees

The accrual limit and the accrual rate would vary for the new and tenured employees. Ensure that your policy covers the same extensively. This can encourage employees to stay in the organization for longer years as it would seem like something to look forward to. 

6. Can employees carry over PTO? If so, how does PTO carryover work?

Some organizations allow PTO carry over since it is too much pressure on the employee in the use-it-or-lose-it PTO policy to utilize their PTO at the end of the year. Moreover, in such cases, companies would see a large number of employees taking a time off, leading to workforce unavailability during these months. 

As a result, they allow employees to carry over their PTO to the next year. Companies also set a limit on the number of PTO that can be carried over to the next year so that employees also use sufficient time off and take rest. 

7. Decide if vacation time will be made mandatory

To encourage employees to refresh themselves and come back rejuvenated, some companies make it mandatory for employees to use their vacation time. Is that something your company can offer at this time? Think it through.

8. Determine how many employees can use PTO in a given time

This is one of the important criteria that managers should consider when approving/rejecting PTO requests. This will ensure that there are enough employees to manage the workload at any given time and nobody is burdened with extra work. 

9. Decide how PTO would work for employees working in different locations/time zones

Would you be providing holidays according to their regional time zone? Or, would it be based on their office location? If the region they work for/from offers hourly time off, would they be provided the same? If so, how would you manage multiple policies?

10. Decide if PTO would be offered as a reward to employees

Companies offer traditional PTO policy mainly because it provides a choice to offer PTO as rewards that employees can use or encash at a later date.


Sample PTO policy template for small businesses

To get you started, here is a sample PTO policy that you can introduce in your company to streamline the process while the HR and Payroll teams benefit from organized data as inputs. All the text in <XYZ> can be customized to fit your business requirements.



This policy applies to all full-time employees (FTEs) of the company <Company Name>



Paid Time Off, hereafter referred to as PTO, refers to the time off work granted to employees with total wages. It is in addition to sick leave and other special leaves such as jury duty, parental leave, or bereavement / compassionate leave.



All confirmed FTEs with a minimum clocking of <40 hours> of work per week.


Terms and Provisions of the PTO Policy

  • Paid Time Off (PTO) kicks off for eligible employees <upon hire / after completion of probation period / days / months>. 

  • All eligible employees are mandated to use PTO while taking a leave of absence for any reason. 

  • The PTO request needs to be raised to your supervisor / line manager and is subject to their approval. 

  • Employees are encouraged to raise a PTO request at least <1 week> in advance to allow proper backup placement and business continuity.

  • If frequent non-adherence to the procedure is noticed, the employee may be subject to a show-cause notice and other corrective actions, as deemed appropriate.


Excluded Days

US Federal holidays are not included in PTO, and the PTO bank of accrued leaves is over and above the following holidays:

  • New Year’s Day

  • Martin Luther King Jr. Day

  • Memorial Day

  • Juneteenth

  • Independence Day

  • Labor Day

  • Thanksgiving

  • Christmas Eve

  • Christmas

  • New Year’s Eve



Employees that are required to work on US federal holidays shall receive overtime wages for the duration worked. This payment will be <X> times the regular hourly rate.


PTO Carried Forward

Our company allows <X% or Y days> of PTO to be carried forward to the next fiscal year. Any accumulated unused days for the current year, over and above the carry forward limit, will be deemed lapsed and unusable. Therefore, employees are encouraged to utilize their PTO in accordance with the policy and the procedures mentioned herein.

Why Choose Freshteam?

Freshteam is trusted by 8K+ businesses across domains and sizes to transform their HR processes. Our Time Off Management Software has received numerous accolades for bringing convenience and raising productivity at affordable costs. 


By centralizing your PTO process, creating personalized holiday calendars, enabling different leave types, introducing an automatic approval mechanism, and setting up time off notifications, you will be able to enjoy an entirely seamless experience, Furthermore, with on-the-go availability (web and mobile app) and automated workflows, your employees and managers will both be able to adhere to the process easily.