PTO Policy: How to Create One for Hourly Workers

A paid time off or PTO policy is essential to running your business. In this economic landscape, paid time off is a central part of any healthy, happy workplace and is something employees look for before signing on the dotted line.

PTO doesn’t only serve your employees, it also benefits you. A study by the American Psychological Association found that employees who took paid time off from work were more productive and produced higher-quality work.

But PTO and PTO policies can be confusing for small business owners. There are many moving parts, not to mention laws and regulations you need to follow. Throw in that you’re creating a policy for hourly shift workers, and it can all be a bit overwhelming.

We’re breaking down everything you need to know if you’re building a PTO policy for hourly workers. We’ll cover the following:

• The definition of a PTO policy
• The benefits a PTO policy offers your business and your employees
• The best way to calculate PTO for hourly workers
• What you need to include in your PTO policy

What is Paid Time Off (PTO)?

Some employers offer PTO, or paid time off, a benefit that allows team members to take time off work while still getting paid. PTO can be given to salaried or hourly employees and can cover a range of reasons. Vacation, personal time, and sick days are all considered PTO.

With PTO, employers offer a total amount of time off from work that employees can use for any of the above reasons, no questions asked. PTO is different in every business, so creating a PTO policy for your small business is essential.

What is a PTO Policy?

A PTO policy is exactly what it sounds like—a written guideline on your rules and regulations surrounding paid time off.

Your policy should outline how much time employees have for a given period, how to request time off, the details of the policy, and any other information your employees may need to know about paid time off in your workplace. It’s important to have a PTO policy in place so that you and your employees are on the same page when taking time off work.

PTO policies for hourly workers will look different than those for salaried workers. It’s unlikely that hourly workers will have unlimited PTO. However, it’s becoming more and more common for salaried employees to have unlimited PTO policies.

Did you know? No laws require US companies to offer PTO to their employees. Even though most companies have PTO policies, 31% of US workers don’t have any paid time off.

While no federal or state law says you must offer your hourly employees PTO, it benefits your business and employees and is a great way to show you appreciate your employees. If you choose to provide PTO, having a written policy will make sure that everyone understands how PTO works and can help ensure your employees are taking their time off.

The Benefits of Having a PTO Policy for Your Hourly Workers

Is the thought of spending an extended amount of time without your best employees sending you into a tailspin? Though it might seem like creating a PTO policy is setting you up to “lose” your employees, there are a lot of benefits to your business and your hourly employees.

1. A PTO Policy will Help Reduce Unscheduled absences

Lots of different reasons can keep employees from making it to work on a particular day—some can be scheduled in advance, while others, like sickness, can’t be planned. And while there isn’t much that can be done about illnesses that pop up unexpectedly, a PTO policy can help you avoid unscheduled absences for other reasons.

Giving your hourly employees a clear PTO policy will give them the freedom and flexibility to schedule their days off. Dealing with a scheduled absence is much easier from an owner’s perspective. You can find the staff and resources needed to cover the absence in advance, meaning no late-night calls to try and cover or swap a shift.

2. Offering Hourly Workers PTO Gives You a Competitive Advantage

Because the FLSA doesn’t require you to offer hourly employees PTO, having any PTO policy in place is a great way to give your business a competitive advantage when hiring and retaining the best employees.

And when the average turnover rate in the US is at 45.1%, it’s always worthwhile to find ways to bring in high-quality employees and give them a good reason to stick around! This can greatly reduce turnover on your team, as well as boosting employee happiness and morale.

3. PTO Can Lower Your Administrative Workload

When your employees are entitled to a certain number of sick, personal, and vacation days, it’s up to you to monitor how many days from each category are used by each employee. That can create a real headache for you when it comes to managing your administrative work.

With a PTO policy, your employees won’t have to categorize their requests, and you’ll no longer have to worry about making sure they’ve filled in their requests correctly—all time off requests are treated the same.

4. PTO Can Help to Improve Employee Work-Life Balance

Did you know that 68% of employees say they’re happier at work because their employers encourage taking PTO? Having a PTO policy in place encourages employees to take their PTO, which can help them maintain their work-life balance. And when your employees have a good work-life balance, they’re more likely to be successful in the workplace.

Think of your PTO policy as a way to allow your employees to accomplish everything they need inside and outside the workplace.

5. PTO Policies Offer Greater Flexibility to Your Employees

With a PTO policy, your employees can take time off when they need it without having to provide a reason for why they need the time. Creating a PTO policy for your staff is you saying to your employees, “I trust you to take time off as you need it”. This also helps to build mutual trust between you and your employees. Make sure you effectively communicate your PTO policy to all your team members, ideally in a digital onboarding package.

Did you know? 96% of engaged employees trust their management. Giving your employees the power to use their time off when and how they’d like builds mutual trust between you and your employees. And when trust exists, employees flourish.

3 Kinds of Paid Time Off Policies

There are different kinds of PTO policies. Each has its benefits and comes with a different level of trust between you and your employees. Only you’ll know which is best for your small business. Your company culture will help you determine which is best for you.

Within the three main categories of PTO policies, some are better for hourly employees than salaried ones.

1. Banked PTO Policies

A banked PTO policy means an employee’s paid time off is taken from a single “bank” covering sick leave, personal days, and vacation. Employees aren’t required to give a reason for why they’re taking time off. They put in a request to withdraw time from the “bank”, and their time off is approved or declined (with reason).

2. Open/Unlimited PTO Policies

Rarely associated with hourly shift workers, open or unlimited PTO policies mean that employees have no limit on how many days off they take as long as their work gets done. This isn’t often seen as an effective policy for hourly employees because of the nature of hourly work vs. salaried work.

A retail employee, for example, may help customers close their cash and restock the shelves during their shift. But when they clock in for their next shift, those same tasks must be completed again.

3. Accrued PTO Policies

An accrued PTO policy is when PTO is determined by how long an employee has worked for you. This can be calculated based on years of service or how many hours they’ve worked.

The accrued type can define the accrual period (when PTO is accrued) and the accrual rate (how much PTO is accrued). An accrued PTO policy is the most common policy type for hourly workers. They can build PTO based on how many hours they work during a defined period.

An Accrued PTO Policy in Action

Let’s use a 40 hour work week to figure out how much PTO your employee would earn for every hour they work:

• 40 hours (hours in 1 work week) x 52 weeks = 2,080 hours
• 2080 hours – 40 hours (allocated PTO) = 2,040 hours
• 2,040 hours – 40 hours (5 paid vacation days off = 40 hours) = 2,000 hours per year

To find your accrual multiplier, divide the number of allocated vacation hours by the total hours per year.

• 40 hours (hours in 1 work week) ÷ 2,000 yearly hours worked = 0.02 hours

So for every hour an hourly shift employee works, they accrue 0.02 hours of PTO.

What to Consider When Creating a PTO Policy for Hourly and Shift Workers

Creating a PTO policy for hourly workers is very different from creating one for salaried workers. This is mainly because salaried workers have a set number of hours, whereas hourly workers often fluctuate on the hours they work each month.

When you set out to create a PTO policy for your hourly workers, it’s important to keep that in mind. That’s why you’ll most likely want to use an accrued PTO policy to calculate paid time off for your employees. You’ll also want to include an unpaid time off policy and understand the implication of labor laws regarding time off.

How do Labor Laws Affect Your PTO Policy?

As with everything in your business, your PTO policy should comply with state and federal laws and regulations. Here’s a breakdown of how to make your PTO policy compliant with laws such as the Family and Medical Leave Act (FMLA):

• Offer a minimum amount of PTO: In some states and municipalities, some laws require you to offer a minimum amount of PTO to your employees. For example, California requires you to provide at least 24 hours of paid sick leave annually. Look up your state’s requirements and create a policy that reflects those minimums.
• Protect their position: Both the FMLA and the Americans with Disabilities Act (ADA) require you to protect the job of workers who take leave. This means employees can feel secure in their employment when they take leave. When an employee returns to work, they’ll be reinstated to their previous or equivalent position.
• Provide notice: You must inform employees about their rights under state and federal laws and the company’s PTO policies—including the process for requesting leave.
• Include unpaid time off (UTO) in your policy: Under the FMLA, you must provide up to 12 weeks of unpaid time off for certain family and medical reasons.

What’s Unpaid Time Off All About?

Unpaid time off (UTO) is time away from work that an employee can take without receiving pay. Employees can use UTO much like they do PTO—when they’re sick, want to take a vacation, or have other personal obligations.

Some medical and family reasons require you to offer up to 12 weeks of unpaid time off—be sure to include these in your PTO/UTO policy. But, you can also offer additional UTO so if employees haven’t accrued enough paid time off, they can still take the necessary time.

When you’re deciding how you will include UTO in your PTO policy, ask yourself the following questions:

• Which employees will have access to unpaid time off, and for what reasons?
• How many days of unpaid time off can employees take in any given period?
• How will employees request UTO versus PTO?

Once you’ve answered these questions, include all this information in your PTO policy.

What to Include in Your PTO Policy for Hourly Workers

Now you’re ready to sit down and write your PTO policy. Include the below key things in your policy to keep you compliant and your employees informed. Let’s look at the five must-haves for your PTO policy for hourly workers.

• A deadline for requesting PTO: This can be defined however you’d like—7 days before, a month in advance, etc. Clearly define your deadline in your PTO policy and confirm workers know the deadline.
• How PTO is accrued or designated: Whether you’re using the accrual method or another method to calculate PTO, this should be clearly outlined in your policy.
• What PTO can (and can’t) be used for: Again, this is up to your discretion. But it’s important to outline how employees are expected to use their PTO—think sick days, vacation time, personal days, etc.
• How will you handle unused PTO: Will PTO rollover? Will you pay it out? Decide what will happen to unused PTO and clearly define it in your policy.
• Your UTO policy: Include your UTO policy (which should include all of the above!) in your PTO policy.

To make sure that all of your staff are aware of your PTO policy, it’s best practice to include it in your employee handbook—that way, you can feel confident knowing that every employee has a copy.

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PTO Policy FAQS

What is a PTO Policy?

A paid time off of PTO policy is a written guideline that outlines the rules and regulations surrounding paid time off at your business. Your policy should include how employees accrue PTO, how much time employees have for a given period, how to request time off, the details of the policy, and any other information your employees may need to know about paid time off in your workplace.

How Does Paid Time Off Work for Hourly Employees?

Paid time off for hourly employees is most often calculated by the accrual method. For every hour they work, they accrue a certain amount of PTO. For example, if they work a 40 hour week and are entitled to 1 week of PTO, they can expect to receive approximately 0.02 hours of PTO for every hour they work.

How Can You Track and Calculate PTO for Hourly Employees?

Using Homebase, you can easily track and calculate PTO for your hourly workers. When your team clocks in and out in Homebase, we instantly calculate hours, breaks, overtime, and PTO—and sync it all to payroll to help you avoid mistakes. This makes it simple to track and calculate PTO in one centralized location.