PTO policy template for small businesses

Updated October 2026 · About 8 minutes to read

A written PTO policy answers the questions your team will ask anyway: how much time off they get, how to ask, and what happens to unused days. Without one, two managers can give two different answers. Below are the decisions to make first, then a sample policy to copy and fill in.

Not legal advice. Sick leave, carryover and payout rules vary by state, and some cities and counties add their own rules. Depending on where your employees work, you may be required to offer paid sick leave, you may not be allowed to forfeit unused vacation ("use it or lose it"), or you may have to pay out unused vacation when someone leaves. Before you adopt this policy, check your state labor department's website for every state where you have employees, and have an employment attorney or HR professional review it if you can.

Decisions to make first

1. One PTO bank or separate vacation and sick time

One bank is simpler to track. Separate balances keep sick time from being spent on vacations. If your state or city requires paid sick leave, check whether a combined bank satisfies it and which rules then apply to the whole bank. To track separate sick balances, see How to track employee sick days in a spreadsheet.

2. How much time, and whether it grows with tenure

Pick an amount you can cover when people are out. A tenure table (more days after a set number of years) rewards people who stay.

3. Front-loaded or accrued

Front-loading grants the whole year on day one: simplest to track, but someone can use it all in January and leave. Accrual earns time as people work. To turn an annual amount into an accrual rate, put the annual days in A2 and the hours in a workday in B2:

Rate	Formula	15 days a year, 8-hour days
Per month (days)	`=ROUND(A2/12,2)`	1.25 days
Per biweekly paycheck (days)	`=ROUND(A2/26,2)`	0.58 days
Per biweekly paycheck (hours)	`=ROUND(A2*B2/26,2)`	4.62 hours
Per twice-monthly paycheck (days)	`=ROUND(A2/24,2)`	0.63 days
Per weekly paycheck (days)	`=ROUND(A2/52,2)`	0.29 days
Per hour worked (hours)	`=ROUND(A2*B2/2080,4)`	0.0577 hours
Hours per year	`=A2*B2`	120 hours

The per-hour rate assumes 2,080 hours a year (40 × 52). For balance and carryover math, see How to calculate PTO accrual.

4. Carryover and caps

Decide how much unused time rolls over and whether balances have a ceiling. A balance cap (accrual pauses at the cap) limits liability without forfeiting earned time. Whether forfeiture is allowed at all depends on your state.

5. Payout when someone leaves

Some states treat earned vacation as wages that must be paid at separation; others let the written policy decide. Find out which applies before you write this section, and write it clearly either way.

6. Eligibility, notice and approval

Decide who qualifies, any waiting period, how far ahead people must ask, who approves, how overlapping requests are settled, blackout periods, and the smallest increment. For a request form and approval log, see the PTO request form template.

The sample PTO policy

Copy the text below into your handbook or a document. Replace each [____] with your own value, and where you see choices in brackets, such as [is / is not], keep the one that applies and delete the rest. You can also download it as a plain text file.

[Company name] Paid Time Off (PTO) Policy

Purpose

[Company name] ("the Company") provides paid time off (PTO) so employees can rest, handle personal matters and recover from illness while still being paid. This policy explains who is eligible, how PTO is earned and how to request it. Effective date: [____].

1. Eligibility

Full-time employees (regularly scheduled [____] or more hours per week) earn PTO starting [on their first day / after [____] days of employment].
Part-time employees [earn PTO in proportion to the hours they work / are not eligible for PTO under this policy].
Temporary and seasonal employees [are / are not] eligible.
Employees may use PTO [as soon as it is earned / after [____] days of employment].

2. What PTO covers

Choose one option and delete the other:

Option A, one PTO bank: PTO may be used for vacation, personal days, the employee's own illness or medical care, or caring for a family member. There are no separate vacation and sick balances.
Option B, separate balances: PTO is for vacation and personal time. Sick time is covered in section 7 and tracked separately.

Company holidays are listed in [____] and are not deducted from PTO, including when a holiday falls during scheduled PTO.

3. How PTO is earned

Choose one method and delete the others:

Front-loaded: on [January 1 / the first day of the plan year] each eligible employee receives [____] days ([____] hours) of PTO for the year. Employees hired during the year receive a prorated amount for the part of the year remaining.
Monthly: employees earn [____] days of PTO for each full month worked.
Per pay period: employees earn [____] hours of PTO each pay period.
Per hour worked: employees earn [____] hours of PTO for every [____] hours worked. Overtime hours [do / do not] count.
Daily: the annual amount of [____] days is earned evenly across each calendar day of employment.

PTO increases with length of service:

Length of service	PTO per year
Less than [____] years	[____] days
[____] to [____] years	[____] days
[____] years or more	[____] days

The higher amount starts on [the employee's work anniversary / January 1 after the anniversary].

4. Maximum balance

[There is no maximum balance. / Employees may hold up to [____] days ([____] hours) of PTO. Once a balance reaches this amount, no more PTO is earned until some is used.]

5. Requesting PTO

Send requests to [your manager / name or role] by [email / the request form / other method] at least [____] days in advance for absences of [____] days or more, and at least [____] days in advance for shorter absences.
Requests are answered within [____] business days. When requests overlap, they are handled [in the order received / by seniority], taking staffing needs into account.
PTO may be taken in increments of [one hour / half a day / one full day].
PTO [is not / is only with manager approval] available during [____] (for example, peak season or inventory weeks).
If plans change, tell your manager as soon as possible so the request can be cancelled or moved.
Employees [may not use PTO before it is earned / may borrow up to [____] days of PTO against future accrual with manager approval].

6. Unplanned absences

If you need time off you couldn't plan for, notify [your manager / name or role] by [phone / text / email] [before your shift starts / as soon as you reasonably can]. The time is deducted from your [PTO / sick time] balance.

7. Sick time (Option B only)

Employees [earn [____] hours of paid sick time for every [____] hours worked / receive [____] days of paid sick time at the start of each year], up to [____] hours per year. Sick time may be used for the employee's own illness, injury or medical care, or to care for [____]. [The Company may ask for documentation after [____] consecutive days of absence.] Unused sick time [carries over, up to [____] hours / does not carry over] and [is / is not] paid out when employment ends.

8. Carryover

Employees may carry up to [____] days ([____] hours) of unused PTO into the next year. [PTO above this amount is forfeited on [____]. / There is no limit on carryover.] Carried-over PTO [must be used by [____] / does not expire].

9. Leaving the Company

Employees are asked to give [____] weeks' notice.
Earned, unused PTO [is paid at the employee's regular rate on the final paycheck / is not paid out, except where the law requires it].
PTO [may / may not] be used during the notice period.

10. Records and changes

[Name or role] keeps PTO records. Employees can ask for their current balance at any time.

The Company may change this policy with [____] days' written notice. Changes will not take away PTO an employee has already earned. This policy is not a contract of employment.

Acknowledgment

I have read and understand the PTO policy.

Employee name: ________________ Signature: ________________ Date: __________

Before you roll it out

Check it against your state's rules, starting with sick time, carryover, payout and waiting periods.
Apply it consistently. One-off exceptions tend to become the expected policy.
Get a signed acknowledgment from each employee and keep it on file.
Give notice before changing it.

Track the policy you just wrote

Simple PTO Tracker is a Google Sheets / Excel spreadsheet for exactly this. On its Settings tab you set up to 5 policies (annual days and a carryover cap), choose which leave types come out of PTO (for example, set Sick to not deduct if you chose separate balances), and list your holidays. It accrues PTO evenly by day; if your policy accrues per paycheck or per hour, use the formulas in the accrual guide or build your own tracker in Excel. The free Lite version handles up to 5 employees; the full version ($14) handles up to 100.

Reminder: this template is a starting point, not legal advice. Sick leave, carryover and payout rules vary by state, so check your state labor department before you adopt it.