
Your people aren’t machines. They’ve got dentist appointments, daycare closures, family emergencies, and days when they just need to unplug and regroup. If you want your team to stick around, stay healthy, and not fantasize about quitting every time they catch a cold, offering some form of PTO is a smart move. Giving them the space to handle life without guilt or guesswork? That’s what keeps a workplace human.
That’s why you’re going to need a time off policy for your small business.
And while we’re at it, a solid time off policy isn’t just about being generous—it’s about making your life easier, too. No more juggling last-minute requests or running around trying to find coverage. With a well-structured paid time off policy your small business can rely on, everyone knows the rules, and you’re not stuck being the bad guy every time someone wants a long weekend.
This guide breaks down everything you need to build a time off policy for small business that actually works—for your team and your sanity. Let’s get into it.
TL;DR: Making a time off policy for your small business
Need a quick breakdown before diving in? Here’s what to include when creating a time off policy that keeps your team covered and your business on track:
Types of time off to include:
- Vacation: Planned time off for rest or travel, usually requested in advance.
- Sick leave: Unplanned days off for illness or injury.
- Holidays: Statutory holidays, plus any company-specific observances.
- Personal days: One-off days for mental health, appointments, or life admin.
- Bereavement & jury duty: Paid or unpaid, but should be clearly outlined.
How to structure your policy:
- Choose between accrual (earning PTO over time) or lump sum (giving a set amount upfront).
- Set eligibility rules, including any waiting periods for new hires.
- Include blackout dates during peak seasons.
- Decide how employees should submit requests, and how much notice is needed.
Legal must-knows & common pitfalls:
Read on for legal considerations and mistakes to avoid—like inconsistent approvals or policies that are too vague to enforce.
Make PTO simple with Homebase
Homebase makes it easy to track time off, avoid scheduling conflicts, and keep everything in one place.no spreadsheets, no sticky notes, no stress.
Set it, track it, and never lose sleep over scheduling conflicts again. Make PTO math easy with Homebase and make time off one less thing to stress about.
What is a PTO policy?
Paid Time Off (PTO) policy is a set of guidelines that lays out how employees can take paid days off. It usually covers how time off is earned, how it can be used, and any limitations or fine print.
For example, your PTO policy might say employees earn a day off for every month worked, or that unused days roll over (or don’t). Some businesses also include details like whether PTO can be cashed out or if there are blackout dates during busy seasons.
It’s all about setting clear expectations so everyone knows how and when to take a break.
“As a small business I want to leverage tools that will help me with systems AND make things easier for my team. Our Fuzzy Goat team is the most important part of our success; using Homebase even allowed me to be able to add Paid Time Off to their benefits - this is a huge win for our small shop.”
- Candace Kidwell - Owner of Fuzzy Goat
Cadence Kidwell - Owner of Fuzzy Goat
Types of time off to include in your policy
Creating a solid time off policy doesn’t just keep your team happy, it keeps your business running smoothly. When everyone knows what they’re entitled to and how to request it, there’s less confusion, fewer last-minute scrambles, and a lot more trust on both sides.

Here’s what you may want to include when building your policy:
Vacation days
Vacation days help your team recharge and avoid burnout, but only if your policy makes them easy to plan and take. Set clear expectations for how much notice is required (two weeks is common) and whether there are blackout dates during busy seasons. You’ll avoid last-minute scrambles, and your team can truly unplug knowing things are covered. You get time to plan coverage, they get time to reset. Win-win.
"Finding a platform to manage employees schedules, time clock, vacation time, and reports was challenging as a small business. Homebase takes a lot of the work out of managing these tasks at a great value. Bottom line is that Homebase has changed how we as a small business keep organized." - Daniel Gravely - Owner of Eurotech
Sick leave
You can’t plan for the flu, but your policy can help your team feel supported when the unexpected happens. Sick leave covers absences due to illness or caring for a sick family member, and depending on your state or province, you may be legally required to offer it.
For small businesses, a common benchmark is 3 to 5 paid sick days per year, though some employers offer more based on tenure or job type. In places like California, for example, the law requires at least 5 days of paid sick leave. Not required to offer it? It’s still smart business. Clear policies reduce last-minute scheduling stress and show your team you’ve got their back.
Make it easy to use: Set expectations around how to notify managers, whether a doctor’s note is needed, and if unused days roll over.
Personal days
Life happens. Sometimes your team needs a day to handle personal stuff that doesn’t fall neatly into “sick” or “vacation” categories. Adding personal days gives you flexibility in your policy and makes you look like the kind of boss people want to work for.
Holidays
Most small businesses offer paid time off for major U.S. holidays (like Labor Day, Independence Day, and Thanksgiving). You can keep it simple or get creative. Some teams add floating holidays or company-specific days off to reflect their culture and values.
Bereavement
When someone experiences a loss, the last thing they should be worried about is work. A clear bereavement policy shows compassion and support, and helps your team feel cared for during tough times. Many businesses offer additional days for immediate family losses.
Jury duty
You never know when someone will get called in for jury duty. Setting expectations in advance—like how many days you’ll pay for or what documentation is needed—helps avoid confusion. (And yes, this still counts as civic responsibility, even if it messes with the schedule.)
Optional: unpaid leave or floating holidays
If you want to go above and beyond, consider offering unpaid leave or floating holidays. Unpaid leave gives people time for extended travel, personal goals, or emergencies without putting pressure on your payroll. Floating holidays let employees celebrate what matters to them, without needing your calendar to match theirs.
How to structure your time off policy for your small business
Your PTO policy for small business operations should be as clear and easy to manage as the rest of your scheduling system—no guesswork, no gray areas. A well-structured policy helps your team understand how things work and saves you from chasing down last-minute requests or navigating awkward “Can I take next week off?” texts.
Here’s what to figure out ahead of time:
Accrual vs lump sum
Decide whether employees will earn their time off gradually (accrual) or get it all at once (lump sum).
- Accrual works well if you want to reward longevity or prevent folks from taking all their time in their first month.
- Lump sum is simpler and feels more generous, but can be trickier if someone leaves mid-year.
Choose what fits your business model (and your bookkeeping brain).
Eligibility and waiting periods
It’s common to make new hires wait a set amount of time before using their paid time off—usually 30, 60, or 90 days. This helps protect your schedule and makes sure folks are committed before they book that trip to Cabo. Just make sure the timeline is clearly spelled out in your handbook (and legally compliant with your state).
Blackout dates and advance notice requirements
Busy season? Holiday rush? It’s totally okay to set blackout dates when time off requests won’t be approved. You can also require employees to give a certain amount of advance notice (say, two weeks for vacation days). These rules help avoid last-minute scrambles and keep everyone on the same page, without you being the bad guy.
How time off requests should be submitted and tracked
No more sticky notes. No more “I told you last week.” Pick a system and stick to it. Whether it’s a shared calendar, a digital form, or a tool like Homebase (hint hint), create one place where requests are submitted, tracked, and approved. That way, nothing slips through the cracks and you don’t accidentally schedule four people off on the same day.
“Homebase has helped us streamline our team schedule. As a wedding venue, there are a lot of roles to coordinate in order to execute a seamless event and Homebase helps us verify that the right staff is showing up at the right time each and every day. The reminders and ability to transfer shifts has been a game changer for our team.” - Abbey Brown - Managing Director of The Brownstone Wedding & Event Venue
Legal considerations for small business PTO policies
Creating a time off policy isn’t just about being a “cool boss” (though that’s a perk). There are real rules you’ll need to follow, especially if you want to avoid surprise fines or awkward calls with your state labor board. Here's what to keep in mind:
FLSA basics
The Fair Labor Standards Act (FLSA) doesn’t actually require you to offer paid time off but it does lay out how you need to handle things like time tracking and final paychecks. If you offer PTO, treat it like earned wages in your books.
And remember: exempt vs. non-exempt status matters when it comes to how and when people are paid, especially if time off impacts overtime calculations.
Paid sick leave laws by state
Some states (and even cities) require you to offer paid sick leave, complete with rules about accrual rates, usage caps, and employee eligibility. PTO policies for small companies must align with local laws if they operate in states that require paid sick leave.
And if you’ve got remote employees? You’ll need to consider their state laws, not just yours. A little legal research goes a long way here.

PTO payout rules (final paychecks, rollover, etc.)
Do you have to pay out unused PTO when someone quits or gets terminated? It depends on your state. Some require it. Others leave it up to your written policy (so, yes, write one).
While you’re at it, be clear about rollover rules too, whether employees can carry unused days into the next year or if it’s “use it or lose it.” Just make sure your policy is clear, fair, and consistent.
Common policy pitfalls to avoid
A solid time off policy can save you from a lot of headaches. but only if it’s clear, fair, and followed consistently. Here are a few common mistakes small business owners make (so you don’t have to):
“Unlimited PTO” risks for small businesses
We get it, “unlimited PTO” sounds like a modern, flexible dream. But for many small teams, it creates more confusion than freedom. Without clear guidelines, employees may hesitate to take time off—or worse, assume it’s a free-for-all.
It can also create issues when someone leaves and expects a payout. If you’re not tracking accruals, there’s nothing to pay out, but that might not sit well with your team. Unless you’ve got the structure to back it up, stick with a small business PTO policy that’s more defined.
Inconsistency in approvals
If one employee’s last-minute vacation request gets approved, but another’s doesn’t, you’ve got the perfect recipe for resentment. Set standards around how far in advance requests must be made, what qualifies as a conflict, and how you’ll prioritize overlapping requests. Then actually stick to them—yes, even when it’s inconvenient.
Not documenting requests
Verbal approvals, texts, and sticky notes don’t cut it. If you’re not documenting who requested what and when, you’re leaving yourself wide open to miscommunication and scheduling chaos. Use a system, preferably one that keeps everything in one place, tracks history, and syncs with your schedule (like Homebase does).
Take the guesswork out of managing PTO
Writing your time off policy is the easy part. Managing it? That’s where things can get messy—unless you’ve got a system that actually works. The good news? You don’t have to reinvent the wheel (or keep tracking PTO on a napkin). Let’s make time off one less thing you have to think about.
Create a time off policy in no time with Homebase
Writing your PTO policy is just step one. Actually managing it without spreadsheets, mix-ups, or awkward “Sorry, we’re short-staffed again” moments? That’s where Homebase comes in.
Homebase gives small business owners big-business tools without the big-business price tag or admin headaches.
With our all-in-one time off management system, you can:
- Ditch the sticky notes. Employees can request time off right in the app, and you’ll see it all in one clean, centralized place—no more lost texts or surprise vacations.
- Avoid scheduling conflicts. Track employee availability and approved time off automatically so you’re not building shifts around who might be out.
- Set blackout dates, request limits, and rules. Want two weeks’ notice before someone takes a long weekend? Need full coverage during the holidays? You can build those rules in, so everyone knows what’s fair and what’s not happening.
- Empower your team to swap shifts without you in the middle. Let employees trade or cover each other’s shifts with your approval, while keeping your calendar updated and your sanity intact.
- Track accruals and balances without touching a spreadsheet. Whether you offer lump sum or earned PTO, Homebase automatically calculates what’s earned, used, and remaining, so nobody’s left guessing.
- Sync everything to your schedule and payroll. Once a time-off request is approved, it flows into your timesheets and team schedule—no double entry, no mismatches, no “Oops, we paid them twice.”
- Keep everyone in the loop. Our built-in team messaging means no more juggling group chats or forwarding email chains.
Bottom line? You can offer competitive time off benefits, manage them easily, and actually get time back for yourself.
Start managing time off the smart way—try Homebase for free.
“The National Museum of Racing and Hall of Fame uses Homebase to keep track of employees hours, paid sick time, and vacation hours. During the pandemic, it was so helpful to keep track of employees working from home and to make sure the Museum remained compliant with new and changing federal and state policies thanks to the Homebase newsletters. The Museum reopened in 2020 after a large renovation to our Hall of Fame Gallery. We are expecting our busiest summer yet and with our Museum staff growing, Homebase has made tracking hours and benefits so much easier.” - Jennifer Rickman - Operations Manager of The National Museum of Racing and Hall of Fame
Time off policy for small business FAQs
What’s the difference between vacation, sick time, and PTO?
Vacation and sick time are typically separate banks of time—vacation is planned, and sick time is for illness or emergencies. PTO (paid time off) combines them into one bucket employees can use however they choose.
Are small businesses legally required to offer PTO?
Small businesses are not legally required to offer PTO. At least not federally. But some states and cities require paid sick leave, so it depends on where your business is located. Even when not required, offering time off can help you attract and retain great people.
What’s a typical amount of PTO for small business employees?
The typical amount of PTO for a small business employee varies, but a common starting point is 10 days per year, plus holidays. Many businesses increase this over time based on tenure.
Should I offer unlimited PTO?
Although offering unlimited PTO sounds generous, it can lead to confusion and uneven usage. A clear, accrual-based policy is usually easier to manage and more fair for everyone.
Can I set blackout dates or limit how far in advance people can request time off?
You can absolutely set blackout dates for time off—and you should. It helps make sure you have adequate staffing during peak times and gives your team clear expectations.
Do I have to pay out unused PTO when someone quits?
Whether you have to pay out unused PTO when someone quits depends on your state’s laws and your own policy. Some states require payout of unused PTO; others don’t. It’s smart to put this in writing either way.
How should I keep track of PTO balances?
Homebase tracks your PTO balance for you automatically—no spreadsheet required. You’ll always know how much time each team member has earned and used.
Share post on

Leila Malekottodjary
Leila is a PHR certified Human Resources and Recruiting Leader with over 15 years of experience. She currently leads the People Operations function for Homebase with offices in both San Francisco, CA and Houston TX.
Remember: This is not legal advice. If you have questions about your particular situation, please consult a lawyer, CPA, or other appropriate professional advisor or agency.
Popular Topics
Conquer Your Workday.
Join the 100K+ small businesses using Homebase for time clocks, schedules, payroll, and HR.
Get started for free
Homebase is the everything app for hourly teams, with employee scheduling, time clocks, payroll, team communication, and HR. 100,000+ small (but mighty) businesses rely on Homebase to make work radically easy and superpower their teams.