At Bindle we’ve set up PTO tracking for hundreds of companies. We’ve learned a whole lot doing this, and put everything we’ve learned into this free guide to creating a Paid Time Off policy.
Our guide covers everything you need to know to set up a fair, clear PTO policy – what Paid Time Off actually means, how many days to give, different approaches to earning PTO, “use it or lose it” clauses, the best ways to manage Paid Time Off, and more.
The guide is completely free and available to read in full below.
This free guide was made by Bindle, Vacation & PTO Tracking Software for growing teams.
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PTO is paid time off. US companies also call it vacation time, vacation days, paid vacation or paid leave, and it includes sick time, personal days and paid holidays. A PTO policy sets the rules for how staff earn it and use it.
A few facts have shaped PTO in the US:
No federal law requires most private employers to give it. The Fair Labor Standards Act does not require employers to pay for time not worked, such as vacations, sick leave or holidays, though some federal contractors must provide paid leave (US Department of Labor).
Paid sick leave laws started locally. San Francisco voters passed the first US paid sick leave law in 2006 (City of San Francisco), and Connecticut enacted a statewide law in 2011 (Connecticut General Assembly).
The holiday calendar still changes. Juneteenth became the 11th federal holiday in June 2021 (5 U.S.C. 6103).
A PTO bank puts all of an employee’s paid time off into one balance. Vacation, sick days and personal days all come out of the same allowance, so staff don’t have to sort their time off into categories. The balance can be granted up front or earned through the year, and paid holidays such as Thanksgiving usually sit outside it. You may also see it called a PTO pool, combined PTO or a PTO plan.
A PTO bank is only one way to structure paid time off. Many companies keep separate allowances for vacation, sick days and personal days, and some offer unlimited PTO. The next section compares all three, including the pros and cons of a PTO bank.
Before you write your policy, decide how your paid time off will be organized.
This is the traditional approach. Staff get separate allowances of vacation days, sick days and personal days, each with its own balance.
Many companies, particularly larger ones, still work this way. It is less flexible for staff, but it keeps sick time set aside, so nobody has to choose between a vacation and staying home when they are ill.
One balance covers every reason for time off. For the company, administration is simpler. For employees, there is more flexibility.
The downside for staff is that a single balance can make it harder to keep time in reserve for illness. That can leave people feeling they have to work while sick, or take unpaid time off. The same problem applies to things that happen with little notice, like bereavement and jury duty, so if you choose a PTO bank it is worth adding a separate category of time off for unforeseen events. Some states and cities also have paid sick leave laws, so check that a PTO bank meets the rules where your staff work.
Unlimited PTO policies are a relatively new idea. If staff are responsible for delivering their work on time, why not also make them responsible for managing their own time off?
Contrary to what you might expect, some research suggests that staff with unlimited time off take less time off. This is often put down to company cultures with a strong focus on work.
Unlimited PTO is popular with technology companies.
Whichever way you structure PTO, there are six main things to consider as you create your policy.
The following sections cover each of these elements in turn, outlining the choices available to you and the factors that should influence your decision.
Many states, and some cities and counties, require employers to give paid sick leave. If you use a PTO bank to meet one of these laws, the bank must follow that law’s rules on how staff earn, carry over and use their time. California, for example, says any PTO plan used this way must meet the accrual, carryover and use requirements of its paid sick leave law.
These rules can affect most of the elements below, so check the laws in every place your staff work. A Better Balance, a nonprofit legal advocacy group, keeps a list of state and local paid sick leave laws.
If you’re unsure of how much PTO to offer your staff, you might start by looking at some nation-wide averages.
The US Bureau of Labor Statistics publishes these each year from its National Compensation Survey. In March 2026, 80 percent of private industry workers had paid vacation. Those who did received the following average number of paid vacation days, based on their length of service.
| Length of service | Paid vacation (days) |
|---|---|
| 1 year | 11 |
| 5 years | 16 |
| 10 years | 18 |
| 20 years | 20 |
The 81 percent of private industry workers with paid sick leave received an average of 7 days. A PTO bank usually covers both vacation and sick leave, so keep both figures in mind.
Paid holidays come on top of this. Federal law doesn’t require private employers to give paid holidays, including the 11 federal holidays, but in 2025, 81 percent of private industry workers got paid holidays, and those who did received an average of 8.
As the table shows, allowances tend to grow with years of service. Giving more PTO to longer serving staff is a great way to encourage employee retention.
In arriving at your final decision, you should also consider factors like how competitive your industry and local region are for finding and retaining talent.
Figures from the US Bureau of Labor Statistics: paid vacation and sick leave, March 2026, access to paid leave, March 2026 and paid holidays, 2025.
The two main approaches to earning PTO are to either grant your staff a lump sum once per year, or for staff to gradually accrue smaller amounts throughout the year.
Using this approach, once each year everyone in the company is granted their full allocation of PTO for the upcoming year.
Annual grants are generally considered the easiest way for managers and employees to think about time off balances: each person gets a number of days and over the course of the year they use them up.
A disadvantage of this method is that some states, like California and Massachusetts, consider PTO time that has been awarded to be have been earned. Therefore in the event of termination of employment, remaining PTO balances must be paid out. It’s worth reviewing the rules that are applicable in your state.
The second approach is for staff to accrue PTO gradually over the course of the year. Typically time off is accrued on either a daily or monthly basis.
With this approach, new staff need to work for a period of time to accrue sufficient PTO to to take time off. Some companies will allow staff to take time off in advance and for their PTO balance to go ‘into the red’.
Your PTO policy should be clear about what you do and do not allow. Note that some states do not allow you to include a deduction for outstanding negative PTO balances from a staff member’s final pay check.
From an accounting perspective, a positive benefit of the accrual approach is that your business will gradually acquire the PTO liability throughout the year.
While balance calculations using the gradual accrual approach are more complicated, most tracking applications - including Bindle - make this straightforward.
We’ve helped hundreds of companies get their PTO systems up and running on Bindle.
We’d love to put our experience to work for you.
Interested? Send us a mail.
The next thing to consider when creating your PTO policy is when to start your PTO year.
The two main options are to either start the PTO year at the beginning of the calendar year for everyone in the company, or for each employee’s PTO year to start on the anniversary of their employment start date.
If you use the start of the calendar year, everyone’s balance is calculated on the same basis. It’s easy to see at a glance if anyone is building up a lot of unused PTO.
However, if you have a “use it or lose it” policy you may potentially end up with many people scrambling to use their PTO in December, which is a busy time for a lot of businesses.
Keep in mind that with this approach you’ll need to calculate pro-rata opening balances for new employees who start part way though the year.
For example if employees get 18 days PTO per year and a new employee starts on October 1, their pro-rata opening balance would be 3 / 12 x 18 = 4.5 days.
If you use anniversary of employees’ start dates as the start of the PTO year, everyone is on a different schedule and it’s harder to interpret people’s balances at a glance.
You don’t however have to worry about pro-rata balances for new employees in their first year.
Another advantage of this approach is that if you have a policy which gives progressively more time off to longer serving staff, the years of service tier employees fall into will correlate exactly with the accrual period, making it easier to calculate their PTO allowance.
Companies that take the traditional approach to staff time off commonly impose “qualification periods” on new employees. For example, employees may be required to work for 3 months before they begin to earn vacation.
State and local paid sick leave laws, however, generally let new employees start earning sick leave from day one. Some let you make new staff wait before they use it. California, for example, allows a wait of up to 90 days.
If a PTO bank stands in for sick leave, its qualification period can’t be longer than the law allows. In many places that means staff earn PTO from their first day.
If you want to prevent people from building up large balances of unused PTO, three main options are available to you.
Pick a date (often December 31) on which any unused PTO is forfeited.
Pick a date (like above) but allow a limited number of days to be carried forward into the next year.
Decide on a maximum number of days that employees can accrue. Once staff reach this maximum, they stop accruing PTO.
Although at first glance these policies don’t appear very favorable to staff, they can have the positive effect of encouraging people to actually use their allocated time off.
Be aware that some states treat earned vacation as wages the employee is owed, and limit or ban “use it or lose it” clauses. California and Colorado ban them, and apply the same rule to PTO that staff can use as vacation. Montana bans them for vacation. Massachusetts allows them only if you give staff adequate notice of the policy and a reasonable chance to use their time. Nebraska requires earned vacation to be paid out when an employee leaves.
A cap on the total balance is the safer choice. California, Colorado and Montana all allow caps, because a cap stops staff earning more time rather than taking away time they have already earned. A carry over limit that wipes out earned time can count as an illegal forfeiture in these states. If your staff work in more than one state, we recommend a maximum balance cap rather than a carry over limit.
If staff earn PTO daily, a cap on the total balance can be easier to understand than a carry over limit.
In some states, paying out PTO balances upon termination of employment may be left to your discretion.
Other states like California require you to pay out PTO balances when an employee leaves.
We recommend that you check the relevant state governments’ websites and find out the rules that apply to you and your staff.
Note that for remote staff, the relevant state is the state in which the staff member is located.
Ideally, you should aim for a single policy for payout upon termination that is compliant in all states in which your employees are located.
A clear written PTO policy helps protect both your company and staff.
Many companies manage PTO by creating their own custom solution based on email and spreadsheets.
While this approach might seem like a way to save money, the true cost is hidden in the time it eats up, first to set things up and then to keep everything running smoothly.
Before you reach for Excel, we recommend you investigate dedicated tools for managing PTO, including Bindle.
This free guide is brought to you by Bindle – the way smart companies track PTO.
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