The Perfect PTO Policy: 4 Proven Steps to Navigate Vacation Requests

By Kellie Rondon on Sep 20, 2023
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The PTO policy, short for paid time off, is a staple for most businesses’ employee benefits packages. And in today's fast-paced work environment, the quest for work-life balance has never been more vital. 

Whether your workforce is comprised of Baby Boomers or Gen Z, the allure of quality time away from work is undeniable. In fact, recent statistics reveal that PTO is not just a luxury—it's one of the most sought-after benefits among all generations in the workforce.

Crafting the perfect PTO policy, then, becomes essential for businesses aiming to attract and retain top talent. Dive into our comprehensive guide to understand how to design one of the best PTO policies to keep your team motivated, refreshed and loyal.

RELATED: How to Deny PTO Requests >>

How Your PTO Policy Impacts Employee Retention

When it comes to recruiting and retaining top talent, it’s important to know how your employee benefits can help or hurt your efforts. According to Forbes Advisor's 2023 Workplace Benefits Trends by Generation survey, 65-70% of people in every age category indicated that your business' PTO policy is the most important workplace benefit to them to ensure job satisfaction in 2023.

Enter the unlimited PTO policy. If work-life balance and paid time off is so important to workers, why not offer unlimited PTO? Well, that's just what more and more businesses are doing. In fact, job posting website Indeed says between 2019 and 2023, the portion of job listings advertising an unlimited PTO policy rose by 40%!

Yet even as workers seek out companies with the best PTO policies, American workers aren’t taking all of their vacation time. According to a 2023 PEW Research study, nearly half of workers indicated they did not take all of their paid vacation days. Reasons stated for not taking advantage of the PTO policy include:

  • Feeling they don't need to take more time off
  • Worrying about falling behind
  • Feeling badly about the possibility their co-workers would be taking on additional work
  • Thinking it may hurt their chances for a promotion
  • Believing it would put them at risk of losing their job
  • Saying their manager discourages time off

As a business owner, you can’t simply offer an attractive PTO policy. To be among the best PTO policies, the following factors must be taken into consideration:

  • Your company culture must support employee vacation
  • The policy must be easy to use
  • Strike the right balance between being too lenient or overly restrictive. Being overly lenient, or not having a PTO policy at all, will make it difficult to operate your business during peak vacation season. Even with an unlimited PTO policy, there must be guidelines in place.

    But, implementing overly restrictive, unfair policies and a workaholic culture will negatively impact your ability to recruit or retain workers.

    So, what is the right balance? How do you create one of the best PTO policies? Here are four proven steps.

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4 Steps to Implementing One of the Best PTO Policies

Vacation time is critical for a positive work-life balance. Not only does it give employees the chance to relax and rejuvenate, but it increases productivity at work and prevents burnout.

For a small business, the key to a winning paid time off policy is one that values work-life balance and grants vacation time but still prioritizes workplace productivity. Here's how to do it:

1. Have a written PTO policy

Every business should have an employee handbook, which is where your policy should be clearly explained. Include the following:

    • Who gets it

      Most businesses provide PTO benefits to full-time staff. These are employees who work a set number of hours per week, often 35-40 hours or more.

      In some cases, it is also offered to part-time workers, though often at a prorated amount based on the number of hours they work.

      In both cases, PTO might be a benefit that kicks in after an employee has been with the company for a specific period, such as three or six months or even a year.
    • How it is accrued

      Calculations for your PTO accrual policy can be made in a few different ways: Fixed, hours worked, tenured and unlimited PTO.

      In the fixed method, companies offer a "fixed" amount of PTO days annually. For instance, an employee might get 15 days of PTO each year.

      Another method for calculating paid days off is by hours worked. In this case, employees earn a specific number of PTO hours for every hour, day or week they work. For example, an employee might earn 0.05 PTO hours for every hour worked.

      In accrual by tenure, as an employee spends more time with the company, they might accrue more PTO. An employee might start with 10 days of PTO for the first year, 15 days after three years and 20 days after five years, and so on.

      More and more companies are offering unlimited PTO, where employees can take time off as needed without a strict accrual system. This method relies heavily on trust and is designed to prioritize results and responsibility over hours worked.

      It's essential to note that the exact methods for PTO accrual and eligibility can vary widely among businesses. Companies often outline their PTO policies in employee handbooks or contracts. In some countries or regions, specific labor laws dictate minimum PTO allowances or accrual methods.

    • The notification deadline

      Whether it is one month or six, a deadline for notifying HR of a planned vacation is a must and should be spelled out in your vacation policy. This will help you to get a handle on multiple requests during the same time period and plan workflow.

      Further, if other employees will be picking up the vacationing team member’s duties, this will give them time to get a list of duties, access to appropriate files, and status updates for ongoing projects that will be handed off to them.

    • Multiple requests

      If you run too tight of a workforce to have more than one person out at the same time, how will you choose? Is it the first request received? Is it the team member with the most seniority? Will your company have a rotation system? 

      This will need to be clearly detailed in your policy and verbally reiterated as soon as multiple requests come in for the same time period.
    • Blackout days

      These are peak times in your industry when vacations may not be possible. For example, Black Friday at a retail store, end of quarter, times of historic high workload volume, etc.
    • No excessive restrictions

      Double-check to ensure excessive restrictions are not in place (such as not allowing employees to take PTO during prime vacation periods, such as spring break or the summer months)

      But you should never just hand your new hire the handbook and expect that to suffice. You should also verbally explain your vacation policy to be sure you’re on the same page at the time of hire.

how to create fair weekend and holiday schedules

2. Cross-train team members

One of the best ways to be prepared for vacation season is to always have team members trained for other jobs at your business. Further, if employees will be picking up extra work, offering premium pay, bonuses and other incentives will help keep morale up.

RELATED: How to Cross-Train Employees When Your Workforce is Remote >>

3. Consider a shutdown

For some businesses, a one-week shutdown, such as those implemented by manufacturing facilities, might be your best bet. If everyone wants to take a vacation in June, for example, shutting down operations for one week would allow your whole team the opportunity to take a summer vacation.

This eliminates accused “favoritism” and prevents picking one employee’s vacation request over another.

4. Be a role model

Lead by example and take time off when you feel you need a break or want to spend quality time with your family. If you say you support taking time off, but are an obvious workaholic, your team may feel guilty about using the company PTO policy, even though they’ve earned it.

RELATED: Successful Entrepreneurs Aren't All Business - Here's How They Enjoy Freetime >>


As with most things in life, there is no “one-size-fits-all” standard PTO policy. Your policy must align with what is financially possible for your business, available staffing, ability to meet deadlines, and compliance with any local laws.

If you need help developing, implementing and managing a PTO policy for your small- to medium-sized business, contact us today. We’ve been providing a full suite of PEO services, including HR solutions, to local Kansas City business owners since 1988.

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Written by Kellie Rondon

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