Your Small Business PTO Policy: How to Build Time Off Rules That Actually Work

Your team needs time off. It could be because of a sick kid, a dental appointment, or just a day to recharge. Without a clear small business PTO policy, you're stuck fielding last-minute texts, scrambling for coverage, and playing the bad guy when someone needs a long weekend. A solid time off policy can make your life easier: no more sticky notes, no more confusion about who gets what, just clear rules everyone understands.

The right PTO policy keeps your best people from burning out while protecting your business during busy seasons. It shows you value your team as humans, not just hourly workers punching a clock. More importantly, it helps you attract and keep the kind of employees who make your business thrive. 

This guide will break down exactly how to build a time off policy that actually works.

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What is a PTO policy?

A PTO policy spells out how your team earns time off, when they can take it, and what happens to unused days. Think of it as your insurance against those 6 AM "I'm not coming in" texts. Most small business PTO policies either lump everything together (15 days use-as-you-want) or split it up (10 vacation, 5 sick).

Without a written policy, you're making it up as you go. That's how one person thinks she has unlimited sick days while another hoards his time like gold. Clear rules prevent the "but you let Sarah do it" conversations that make you want to hide in the walk-in freezer.

Types of time off to include in your small business vacation policy

Creating a solid time off policy means figuring out which types of leave make sense for your team. You don't need to offer everything under the sun, but covering the basics keeps your people happy and your business protected. 

Here's what most small businesses include and why each one matters.

Vacation days

The planned stuff like family reunions, actual vacations, or just burning a day to binge Netflix. Set clear rules: how much notice you need (two weeks is standard) and any blackout dates. Your Fourth of July fireworks stand probably can't spare anyone that week.

Sick leave

For when the stomach bug makes its rounds or someone's kid gets sent home from school again. California requires 5 paid sick days minimum. Even if your state doesn't mandate it, offering sick leave means your team won't drag themselves in and infect everyone else.

Personal days

The miscellaneous bucket for moving apartments, divorce lawyer appointments, or mental health days when someone's hanging by a thread. Usually 2-3 days per year. It's the "please don't ask questions" time off that keeps good employees from having breakdowns in your bathroom.

Holidays

Pick which ones you're actually closed for. Most small businesses do 6-7 major holidays, but if you're open on Christmas Day, you better pay extra or watch your best people quit.

How to structure your small business PTO policy

Building a PTO policy isn't rocket science, but getting the details wrong can turn your life into a scheduling nightmare. Here's what you need to nail down before someone asks for three weeks off during your busiest season.

Accrual vs lump sum

You've got two main options for doling out PTO, and each comes with its own brand of headache. The choice depends on whether you prefer math problems or trust issues.

• Accrual: Employees earn PTO gradually, like 1.25 days per month worked. Perfect if you're worried about new hires taking two weeks off then ghosting you. The downside? You're tracking fractions of days and fielding questions about whether someone has 4.75 or 5 days saved up.
• Lump sum: Everyone gets their full PTO on January 1st (or their hire date). Simple to track, feels generous, and nobody's doing decimal math. The risk? Someone uses all 10 days by February then quits in March. Pick what matches your trust level and tolerance for spreadsheet headaches.

Eligibility and waiting periods

Making new hires wait 30-90 days before they can take PTO is standard. It protects you from the hire who books Coachella before learning where the bathroom is. Just spell out the waiting period clearly so nobody's surprised when their day-one vacation request gets denied.

Request and approval process

Create one system for requests and stick to it. Whether it's Homebase, a shared calendar, or carrier pigeon, pick one method. Require two weeks' notice for planned time off (doctor appointments get more flexibility). And put it in writing, because "I told you at the bar last week" isn't a time-off request.

State-by-state PTO requirements for small businesses

Before you finalize any time off policy, check what your state actually requires. Some states treat PTO like earned wages (meaning you'll pay out unused days when someone quits), while others let you set your own rules. Getting this wrong is an expensive mistake.

California PTO laws

California treats accrued PTO as earned wages, so you must pay out unused vacation days when employees leave. The state requires 5 paid sick days minimum, and you can't have a "use it or lose it" policy for vacation time. Sick leave can cap at 80 hours total accrual, but vacation keeps building forever unless you cap the total accumulation.

Texas PTO requirements

Texas keeps it simple: no state requirements for PTO, sick leave, or vacation time. Whatever policy you create becomes the law of your workplace, as long as you follow it consistently. Just remember that being legally allowed to offer zero PTO doesn't mean you'll keep any decent employees.

Quick reference: Common state requirements

Always verify current requirements, especially if you have remote employees in other states. Their location's laws apply, not yours.

• Must pay out unused PTO: California, Colorado, Illinois, Montana, Nebraska 
• No PTO requirements: Texas, Florida, Georgia, South Carolina, Alabama 
• Paid sick leave required: Arizona (1 hour per 30 worked), Oregon (1 hour per 30 worked), Washington (1 hour per 40 worked)

PTO policy examples for small businesses

Seeing real policies in action beats theory every time. Here are templates you can steal and adapt for your business, because nobody has time to write this stuff from scratch.

Basic small business PTO policy template

All full-time employees earn 15 days of PTO annually, available after 90 days of employment. PTO covers any absence: vacation, sick time, personal days, or that random Tuesday when you just can't deal. Employees must request planned time off at least 14 days in advance through [your system]. Emergency sick time requires notification before the start of your shift. Unused PTO carries over up to 40 hours annually. We pay out unused PTO upon separation because [your state] requires it.

Restaurant PTO policy example

Full-time employees earn 1 hour of PTO for every 30 hours worked, up to 80 hours annually. PTO is available after 60 days of employment. Blackout dates: December 15-31, Valentine's weekend, Mother's Day weekend. No exceptions unless you're literally hospitalized. Shift trades allowed with manager approval 48 hours in advance. Unused PTO does not carry over due to our seasonal structure. Sick leave requires 2+ hours notice before shift start.

Retail PTO policy example

Employees earn PTO based on average weekly hours: 20-29 hours/week = 40 hours PTO annually, 30+ hours/week = 80 hours PTO annually. No time off requests accepted for November 20-January 2. One employee maximum off per department per day. Requests submitted less than 21 days in advance may be denied based on coverage. Sick time requires finding your own coverage or calling manager 3+ hours before shift.

Common PTO policy mistakes that'll bite you later

Even well-meaning policies can blow up in your face. Here are the landmines to avoid before they cost you your best employees or a lawsuit.

The "unlimited PTO" trap

Unlimited PTO sounds progressive until you realize nobody knows how much time is actually okay to take. Your anxious overachievers take less time off than before, while others treat it like an extended European gap year. Plus, when someone quits, there's nothing to pay out. This sounds great until they claim you discouraged them from using their "unlimited" time. For small teams, set clear expectations instead of vague promises.

Playing favorites with approvals

Approving Jessica's last-minute request because she's your best server while denying Mike's planned vacation is how you end up in discrimination territory. Document your approval criteria: first-come-first-served, seniority, or whatever. Just apply it consistently. "Because I said so" isn't a defensible policy when someone files a complaint.

Forgetting to track anything

Relying on memory or sticky notes for PTO tracking is like using a sundial to run payroll. When disputes arise (and they will), you need documentation showing who requested what and when. One disgruntled ex-employee claiming unpaid PTO can cost thousands in legal fees, even if you're right.

Making policies too restrictive

Requiring doctor's notes for one sick day, denying all December time off, or making people find their own coverage before calling in sick—these policies scream "we don't trust you" and drive good employees away. Be reasonable, or watch your team find employers who are.

Legal considerations for small business time off policies

Nobody dreams of chatting with labor lawyers, but ignoring the legal stuff is how you end up writing massive checks to former employees. Here's what you actually need to know without the law school lecture.

FLSA and federal requirements

The Fair Labor Standards Act doesn't require you to offer any PTO. That's the good news. The annoying news? If you do offer it, you need to track it like it's money—because in some states, it literally is. Keep records for at least three years, just like timesheets.

State-specific PTO payout laws

Some states treat unused PTO like unpaid wages. If you fire someone in California with 80 hours of accrued vacation, you're cutting them a check for two weeks' pay along with their final paycheck. States requiring PTO payout include California, Colorado, Illinois, and Montana. States where you can "use it or lose it": Florida, Texas, Georgia, and most of the South. Know your state's rules or pay the price.

Changing your policy mid-stream

You can't just wake up and decide to slash everyone's PTO or switch from rollover to "use it or lose it." Most states require written notice before changing policies, and some won't let you take away already-earned time. California, for example, considers accrued PTO a form of wages (you can't retroactively steal wages). Give 30+ days written notice for any policy changes and never make them retroactive.

Documentation that'll save your ass

Write down every policy, every request, every approval. When someone claims they had vacation approved verbally six months ago, you'll need proof. Keep records of PTO balances, requests, approvals, and policy acknowledgments. Store them with your payroll records because that's what auditors will want to see.

Making PTO management actually manageable

Writing a PTO policy is the easy part. Actually managing time off requests without losing your mind requires systems that work without you. Whether you use Homebase's automated tracking or another tool, pick something that shows PTO balances, handles requests, and flags scheduling conflicts automatically. Train every manager on the policy, post it where everyone can see it, and handle the predictable problems (holiday requests, summer vacation pile-ups) before they happen.

Ready to make PTO management simple? Homebase can take the headache out of tracking time off for your small business. Set up your PTO policy once, and let employees request time off right from their phones. You'll see who's out at a glance, avoid scheduling conflicts automatically, and never lose another sticky note request. No math, no spreadsheets, no stress. Start your free trial of Homebase today and see why 100,000+ small businesses trust us to manage their teams.

Small business PTO policy FAQ

What's the difference between PTO and vacation time?

PTO (paid time off) is the catch-all bucket—vacation, sick days, personal time, everything. Vacation time is specifically for planned time away. Some businesses keep them separate so people don't come to work sick to save their vacation days. Others combine everything because tracking one number is easier than three.

How much PTO should a small business offer?

Most small businesses start with 10 days PTO plus 6-7 holidays for full-time employees. That's roughly what employees expect as baseline. Add more for senior employees or hard-to-fill positions. Offer less and watch your indeed reviews tank.

Can I require employees to use PTO for sick days?

Yes, unless you're in a state or city requiring separate sick leave. If you lump everything together as PTO, employees can use it however they want. Just remember: forcing sick employees to use vacation days means they'll either come to work contagious or resent you forever.

Do I have to pay out unused PTO when someone quits?

Depends on your state. California, Colorado, Montana and a few others require payout of unused vacation time (but not sick leave). In states without requirements, your written policy rules. Whatever you choose, apply it consistently or prepare for discrimination claims.

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