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Updated Dec 20, 2023

How To Create A Paid Time-Off Policy That Reduces Employee Absences

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Jennifer Post, Business Operations Insider and Senior Writer

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Do you have an employee who is constantly calling out “sick” or taking excessive amounts of time off? While many employee absences are legitimate, recurring unscheduled absenteeism can disrupt a business – especially if the employee is taking paid time off.

Your first instinct might be to discipline the employee. But if their reason for missing work qualifies as a legally protected absence, you could land yourself in hot water. Learn the ins and outs of creating a smart time-off policy and handling employee absences.

Editor’s note: Looking for information on time and attendance systems? Use the questionnaire below, and our vendor partners will contact you to provide you with the information you need:

What is PTO and a time-off policy?

Paid time off, otherwise referred to as PTO, is exactly what it sounds like: It is an employee benefit in which the employer pays the employee for an allotted number of days off of work each year. Employers can choose from a variety of different PTO options like federal holidays, floating holidays, vacation days, sick leave, parental leave, bereavement leave, jury duty and military leave. 

A time-off policy is a set of guidelines that outlines rules and standards surrounding how and when employees can use paid time off. Employers determine time-off policy guidelines, such as who is eligible, how many days are available each year (set or unlimited) and how PTO accrues. How you choose to create a PTO policy will depend on your organizational and team needs.

What is the difference between sick leave and PTO?

It is worth noting that sick leave and PTO policies can slightly differ. Paid sick leave is a specific amount of time off that can be used for injury, illness or related reasons while a paid time-off policy is an all-encompassing time-off bundle that can include paid sick leave.

Key TakeawayKey takeaway
PTO is an employee benefit in which the employee is paid for days they are not at work.

What to include in a time-off policy

Whether you’re writing your first time-off policy or updating your existing one, our sources recommended including a few key things:

1. Employee work hours

Define the expected business hours and number of hours worked per week, as well as a clock-in/out procedure to make sure employees are meeting those requirements.

2. Paid and unpaid leave options

Aside from regular PTO, including sick days, personal days and vacation days, list out paid (or unpaid) holidays, leave periods, such as bereavement or jury duty, and federally protected absences like the Family and Medical Leave Act (FMLA) and disability leave. If your company has an unlimited PTO policy, explain what that means and how it should be used.

“Write a clear description of what paid and unpaid leave is available for employees, including when and how they qualify for leave and how much leave they accrue each week, pay period, month or year,” Jaime Lizotte, director of human resources (HR) and tax products at ComplyRight, said.

3. PTO accrual and rollover policies

You need to determine employee eligibility for your PTO plan. Do all employees start each calendar year with a lump sum of paid days off or does PTO accrual occur throughout the year? Additionally, do any of their unused paid days off roll over into the new year or do you have a use-it-or-lose-it policy? Some states, such as California, Montana and Nebraska, prohibit use-it-or-lose-it policies, so it is important to check your applicable state laws to see what policy options are available to you.

4. Payment upon termination

There is no federal law that requires employers to pay an employee their accrued and unused vacation time if they are terminated. However, you may be subject to state PTO payout laws, depending on where your company is located.

5. PTO request procedure

What is the procedure for calling in sick or notifying the company when an employee won’t be in? Should someone be notified if an employee will be late? Are employees responsible for finding a replacement for unscheduled time off? 

“Be sure to explain the policy for requesting leave, including any deadlines for vacation requests and blackout periods,” said Lizotte. Your policy should be shared among all employees, supervisors and managers. Additionally, executives should be trained on how to apply it fairly.

6. Consequences for violations

The last part of your policy should spell out the repercussions if an employee does not follow the policy. Include the details of your PTO policy and guidelines in your employee handbook

“Write down the steps that will be taken for various infractions, to protect your business from charges of favoritism or discrimination down the line,” said Lizotte.

Create a comprehensive PTO policy that includes employee expectations, paid and unpaid leave options, accrual and rollover details, payment upon termination policies, scheduling procedures and violation consequences.

Do employers have to offer paid time off?

There are currently no federal laws that require employers to offer paid time off, but that doesn’t necessarily mean you’re off the hook. Each state has its own PTO requirements that determine whether employers are obligated to have paid time off policies or not. This is why it is important to check with your state’s specific guidelines before drafting your time off policy.

Keep in mind that, even if it isn’t legally required, it is usually a good idea to offer some type of PTO and paid leave policy. Offering your employees the flexibility to take much-needed days away from work can improve your overall workforce. For example, offering vacation pay can help you attract and retain top talent and offering sick leave can help you keep a healthy workplace.

Did You Know?Did you know
Although the federal government doesn’t require employees to offer PTO, some states have their own requirements.

How to ensure your time-off policy is compliant legally

As an employer, you have a legal obligation to treat employees fairly when it comes to your leave policies. Tricia Meyer, founder and managing attorney at Meyer Law, said it’s important for employers to understand federal or state laws regarding employee leave so that they aren’t creating illegal policies or making unfair demands of their workers. 

To stay up to date with current requirements, we recommend you keep tabs on federal laws and associated regulations, including:

Additionally, familiarize yourself with your state’s workers’ compensation laws.

“You must make sure that you are not reprimanding or even denying the absence of an employee for any protected reason,” said Lizotte. “Also, make sure that you are treating each employee the same so that you do not end up with a discrimination or wrongful termination claim.”

It is always best to have an experienced attorney review your policies to make sure there are no problematic language or rules.

“Employers should consult with professionals to ensure that they are complying with various federal and state laws with respect to their policy and implementing best practices,” said Meyer. “An employer’s policy should be written and sent to all employees for their review/acknowledgment.”

Key TakeawayKey takeaway
Check federal and state laws and consult with a legal professional to create a compliant PTO policy.

Tracking and handling employee absences

Employee absences are more than just an HR compliance issue and how you handle them affects company costs, profitability, company culture, employee morale and more, said Raj Narayanaswamy, co-founder and co-CEO of Replicon.

“The way you choose to comply with these absence requirements can have a far-reaching impact on more than just your legal department, so take the time to fully understand how time is being deployed in your company,” he said.

Lizotte noted that employers can track employees’ absences easily by either creating a process in their company in which they document absences regularly, such as with paper or finding an electronic solution that allows them to easily enter employee absences as they occur.

“If the employer intends on scaling the company, I’d recommend using a third-party software product to track as it is typically less administratively burdensome compared to tracking in a spreadsheet, is less likely to contain errors and allows the employer to ensure compliance with state and federal laws more easily,” Meyer said.

Before you approach an employee about chronic absenteeism, it’s wise to conduct an internal audit to uncover the root of the issue, said Lizotte. Is your employee choosing to call out of work because they’re feeling stressed and pressured and need some time to decompress? Are they calling out because of a family situation, such as caring for children or aging parents? Is it occurring because of health-related issues of their own?

Next, Lizotte said to look at your company’s attitude toward unscheduled absenteeism. Do you tolerate it because everyone needs time off now and then? Do you feel it’s abused because you don’t know how to manage it differently? Is it frowned upon and the employees know it but it still happens?

“By conducting this audit and answering these questions, you will be able to identify … [and] understand any absentee issues your company may have and [then] implement a plan,” said Lizotte.

Before taking any disciplinary action against an employee, we advise consulting an HR professional and/or an attorney to make sure you’re staying compliant legally.

Use time and attendance software to track employee time off. If an employee is taking excessive time off, conduct an audit before approaching the employee.

The best software for tracking PTO and time off

Time and attendance tracking software is an effective way to both track absenteeism and manage your employees’ time off. These tools allow employers to keep track of when their employees are working and when they’re using PTO. If an employee is using more PTO than employer guidelines allow, time and attendance tracking software will flag it. Many services offer reporting and analytics for a big-picture employee attendance snapshot. 

The software can also ask employees to specify what kind of PTO they’re using, such as sick leave or bereavement, so employers can be aware of any patterns that could indicate the employee needs extra support. Many of these tools also allow employees to specify which projects they’re focused on during their work hours, which can help employers manage their resources effectively. 

We’ve outlined some of our top picks for these tools below to help you in your search. You can also check out all of our picks of the best time and attendance software.

TimeClock Plus

If you’re looking for a time and attendance software solution you can customize to meet your business’s specific needs, TCP by TimeClock Plus is a great option. With three plans ranging from basic time and attendance tracking to a full-scale time reporting and scheduling system, TCP can meet the needs of companies of all sizes with its scalable offerings. 

TCP is a cloud-based solution that has time-tracking capabilities for employees who work in the field, at home or in the office. Its geofencing capabilities allow employers to track where employees clock in and clock out and features a variety of hardware options for timekeeping such as PIN entry, touchless badge readers and facial or fingerprint scanners. 

When it comes to PTO, TCP is capable of tracking short-term requests like vacation and sick leave as well as long-term requests such as those related to the Family Medical Leave Act. Analytics and reporting features make it easy for employers to get a big-picture view of how much time employees are spending at work and on PTO. Plus, TCP integrates with hundreds of third-party enterprise, payroll and workforce management tools.

To learn more, read our detailed TimeClock Plus review.

Did You Know?Did you know
Geofencing is a great way to ramp up employee accountability but it can also be an effective strategy for keeping employees safe. Using geofencing, employers can ensure workers have arrived safely at a job site.

When I Work

When I Work is an effective tool not only for tracking employee work hours and PTO but for shift planning as well. The software features a customizable dashboard that presents data about filled and unfilled shifts visually and allows employers to assign workers to specific time slots with a drag-and-drop functionality. 

The platform is accessible via mobile app, where employees can clock in and out, request time off, view their schedule and find someone to cover their shift in the event of last-minute changes. We liked When I Work’s photo clock-in option, which helps reduce “buddy punching,” a time-theft tactic in which one employee clocks in for another employee who isn’t present. 

When I Work’s leave management tools allow employers to make simple time-off policies and for employees to specify which kind of leave they’re requesting. The service also features intuitive in-app communication capabilities. While it allows for fewer third-party platform integrations than some other services we reviewed, you can still sync When I Work to top payroll and project management tools. 

Read more about the service’s features, perks and drawbacks in our detailed When I Work review.

If you run into difficulty finding workers to cover all the shifts you need, consider using time and attendance tracking software with shift planning and scheduling tools.

Rippling Time and Attendance

Rippling Time and Attendance software allows employers to automate workflows and time off approval processes, simplifying the time tracking process. We liked that employers can also automate the software to keep track of overtime and meal breaks, making it easy to stay in compliance with federal overtime rules and any applicable state meal and rest break laws. 

Employees have access to an intuitive self-service platform via the web or a mobile app that allows them to clock in and out, request PTO, view their schedules, track their timesheets and view pay periods. Managers can also access the dashboard to approve time off requests and manage shifts. 

Like most other services we reviewed, Rippling Time and Attendance Software can integrate with third-party platforms like payroll systems. Prospective customers should be aware that to use the software, they must also subscribe to Rippling’s employee management platform, a broader service that also features tools for employee onboarding, electronic document management, task management and more. 

Learn more about the service’s perks, features and drawbacks at our detailed Rippling time and attendance software review.


Clockify offers a free version and four paid plans with unlimited time tracking. The flexible, cloud-based platform can be used by remote, hybrid or on-site employees, wherever they are. Workers can use a shared kiosk to clock in and out if they’re working on-site or use their mobile phones, tablets or desktop computers if they’re off-site. 

Not only does Clockify allow managers to approve time-off requests easily, but they also have the option to use the GPS tracking feature to monitor employees’ physical location, depending on which plan they choose. Managers can also assign project tasks to specific employees, monitor their progress and keep track of costs. We also liked Clockify’s team chat and messaging features.

Clockify features robust reporting and analytics, along with more than 80 integrations with other tools, including project management and customer relationship management software. However, prospective customers should be aware that Clockify lacks integrations with third-party payroll providers and doesn’t offer shift scheduling tools.

Learn more about the service’s features, perks and drawbacks in our detailed Clockify review.

QuickBooks Time

Like other time and attendance tracking software we reviewed, QuickBooks Time allows employees to clock in and clock out whether they’re working on-site or remotely. Employers can configure the tool to their specific time-off policy and employees can request PTO and manage their leave from a web platform or mobile app. Workers can also track time specific to a project or client, allowing managers to monitor their job progress. 

An employee scheduling feature allows employers to build schedules with a drag-and-drop functionality, while a geotechnology feature allows employers to notify workers close to the locations of open jobs. We liked the QuickBooks Time crew functionality feature, which allows a crew leader to clock an entire team in or out of a job site at the same time. 

The service also features mileage tracking and job costing tools, allowing managers to access detailed reporting and analytics to better manage their resources. Prospective customers should be aware that QuickBooks Time lacks shift-swapping tools and in-app messaging and is more expensive than other time and attendance tracking software we reviewed. 

Learn more about the service’s features, perks and drawbacks in our detailed QuickBooks Time review.

When it comes to PTO, knowledge is power

Employee absenteeism can be a challenge for any business. To head off any future issues with employee leave, employers should stay up to speed on relevant employment laws and work out a time-off policy to ensure that everyone is on the same page about when employees can take PTO. 

Tracking time on and off the job is especially important for employers to understand when, where and how employees are working. Time and attendance tracking software can offer a helpful picture of how employees are using PTO at your company and whether any changes are needed. If you’re informed about employee attendance and PTO, you can make better decisions about how to manage your employees.

Erin Donaghue contributed to this article. Source interviews were conducted for a previous version of this article.

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Jennifer Post, Business Operations Insider and Senior Writer
Jennifer Post has spent nearly 10 years advising small business owners on best practices for human resources, marketing, funding and more. She devotes her time to ensuring entrepreneurs are equipped with not only the knowledge necessary to launch and grow a successful business but also the software products and tools that are essential for everyday operations. These range from CRM and credit card processing solutions to legal services and email marketing platforms. Post, who has a bachelor's degree in journalism, has shared her expertise through Fundera, The Motley Fool, HowStuffWorks and more. Most recently, she has focused on risk management and insurance, two key areas business owners must understand to sustain their enterprises.
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