How to Create a PTO Policy for Small Teams (Template Included)

Managing paid time off doesn't have to be complicated. For small teams, a clear PTO policy can prevent conflicts, boost morale, and help you avoid the chaos of last-minute scheduling surprises.

In this guide, we'll walk you through creating a PTO policy that works for teams under 50 people, covering everything from how much time to offer to how to handle requests fairly.

Why Your Small Team Needs a Written PTO Policy

Even if you only have 5 employees, a documented PTO policy matters. Here's why:

Prevents Misunderstandings

Without clear guidelines, employees make assumptions. One person thinks "unlimited PTO" means taking every Friday off. Another assumes they need to work through illness. A written policy eliminates guesswork.

Ensures Fairness

When policies live only in your head, they get applied inconsistently. Written rules ensure everyone gets treated the same way, regardless of when they joined or who their manager is.

Protects Your Business

In some states and countries, unused PTO must be paid out when employees leave. Clear accrual and carryover policies help you track liabilities and stay compliant.

The 5 Key Elements of a Small Team PTO Policy

1. Time Off Categories

Most small teams benefit from keeping things simple. Consider these categories:

Essential categories:

• Vacation/PTO: General time off for any reason
• Sick leave: Time off for illness or medical appointments
• Public holidays: Your company's observed holidays

Optional categories:

• Bereavement leave
• Parental leave
• Jury duty
• Personal days
• Mental health days

Tip: Start with fewer categories. You can always add more later, but removing them is harder.

2. Time Off Amounts

How much PTO should you offer? Here's what's typical for small US businesses:

For startups competing for talent, consider:

• Matching or exceeding industry standards
• Offering more PTO instead of higher salaries (often more cost-effective)
• Starting new hires with the same amount as existing employees

3. Accrual vs. Lump Sum

Lump sum gives employees their full PTO balance on January 1st (or their hire date anniversary).

• Pros: Simpler to manage, employees like having time available immediately
• Cons: New hires get full balance right away, potential liability if they leave early

Accrual grants PTO gradually (e.g., 1.25 days per month for 15 days/year).

• Pros: Lower liability, rewards tenure
• Cons: More complex to track, employees may have to wait to take time off

For most small teams, we recommend lump sum with a 90-day waiting period for new hires. It's simpler and employees appreciate the clarity.

4. Carryover Rules

What happens to unused PTO at year end? Your options:

Use it or lose it: Unused PTO expires on December 31st

• Pros: Encourages employees to actually take time off
• Cons: Can cause year-end scheduling chaos, illegal in some states (CA, CO, MT)

Unlimited carryover: All unused PTO rolls over

• Pros: Maximum flexibility for employees
• Cons: Can create large liabilities, some employees hoard time

Capped carryover: Roll over up to X days (common: 5-10 days)

• Pros: Balances flexibility with liability management
• Cons: Requires tracking

Our recommendation: Allow 5-day carryover with a use-by date (March 31st). This gives flexibility while preventing excessive accumulation.

5. Request and Approval Process

Define how time off requests work:

Advance notice requirements:

• Same-day: Sick leave only
• 1-2 weeks: Short trips (1-3 days)
• 3-4 weeks: Longer vacations (4+ days)
• Special periods: Busy seasons may require more notice

Approval criteria:

• First-come, first-served for conflicting requests
• Minimum coverage requirements (never less than X people)
• Manager discretion for special circumstances

Communication:

• Where to submit requests (email, Slack, PTO software)
• Who approves (direct manager, HR, owner)
• Timeline for responses (within 48 hours)

PTO Policy Template for Small Teams

Here's a template you can customize:

[Company Name] Paid Time Off Policy

Effective Date: [Date]

1. Vacation/PTO All full-time employees receive [X] days of paid vacation per year, available on January 1st. New employees hired after January 1st receive a prorated amount based on their start date.

2. Sick Leave All employees receive [X] days of paid sick leave per year. Sick leave may be used for personal illness, medical appointments, or caring for an immediate family member.

3. Public Holidays [Company Name] observes the following holidays: [List holidays]

4. Carryover Up to [X] unused vacation days may be carried over to the following year. Carryover days must be used by March 31st or they will be forfeited. Sick leave does not carry over.

5. Request Process

• Submit requests through [system/email/manager]
• Provide at least [X] days notice for planned time off
• Sick leave may be taken same-day with notification by [time]
• Managers will respond to requests within [X] business days

6. Blackout Periods [List any periods where PTO cannot be taken, or remove this section]

7. Payout Unused vacation will be paid out upon termination at your current rate. Unused sick leave is not paid out.

Common PTO Policy Mistakes to Avoid

Being Too Vague

"Employees get reasonable time off" isn't a policy. Specify exact numbers and processes.

Forgetting About Part-Time Employees

Decide upfront if part-timers get prorated PTO, a different policy, or no PTO.

Ignoring Local Laws

PTO laws vary significantly by location:

• California: No "use it or lose it" policies
• New York City: Paid sick leave required
• EU countries: Minimum 4 weeks vacation

If you have remote employees in different locations, you may need location-specific policies.

Making Requests Too Hard

If requesting PTO requires a formal letter to HR, employees won't take time off. Make the process simple, the benefits less burdensome.

Implementing Your PTO Policy

Step 1: Draft and Review

Write your policy, then have someone else review it. Look for:

• Ambiguous language
• Missing scenarios
• Legal compliance issues

Step 2: Communicate Clearly

Don't just email a PDF. Hold a team meeting to:

• Explain the policy
• Answer questions
• Demonstrate how to request time off

Step 3: Track Everything

Spreadsheets work for very small teams, but they break down quickly. Consider dedicated PTO tracking software when you hit 5+ employees.

Good tracking prevents:

• Double-booking
• Employees going negative on balances
• Carryover calculation errors
• Year-end scrambles

Step 4: Review Annually

Your first policy won't be perfect. Plan to review and adjust based on:

• Employee feedback
• Operational issues
• Industry benchmarks
• Legal changes

Key Takeaways

• Keep it simple: 2-3 time off categories are enough for most small teams
• Put it in writing: Even a one-page policy is better than verbal agreements
• Be consistent: Apply the same rules to everyone
• Make requesting easy: The harder it is to request PTO, the less people will take
• Track balances: Manual tracking creates errors; use software early
• Review annually: Adjust based on what's working and what isn't

Ready to Simplify PTO Management?

Creating a policy is step one. Actually managing time off, tracking balances, and approving requests is where most small teams get stuck.

Symple Team was built specifically for teams under 50 people who want simple PTO tracking without complex HR software. Set up in minutes, not days.

Try Symple Team free - no credit card required.