Write A Vacation Policy That Works: 5 PTO Formats to Boost Usage and Cut Burnout

Ever heard a colleague brag about how they never have a personal day? Or had extra pressure piled on you the week before your vacation? “PTO doesn’t stand for ‘paid time off,’ does it? It stands for ‘prepare to overwork the week before and the week after you dare take time off’,” says Leigh Elena Henderson of HRManifesto on TikTok.

Thanks to nose-to-the-grindstone company cultures, vacation can be as stressful as it is relaxing. But unused time can lead to an even more vicious cycle – one of high employee burnout, low productivity and crappy company cultures.

On the flip side, a PTO policy that truly sets your employer brand apart is one that supports work-life balance and encourages workers to actually take the days they’re owed. But what does that look like exactly?

Today, we’ll look at the five core types of vacation and PTO policies, plus why they work and when to use them.

5 types of time-off policies

• Paid Time Off (PTO) banks
• Unlimited PTO
• The rollover policy
• Use it or lose it vacation policy
• Flex time off (shorter days vs. long breaks)

Why your standard vacation policy isn’t enough

While there’s still no federal right to general-use PTO, a handful of states (e.g., Maine, Nevada, Illinois) have enacted laws requiring employers to offer earned PTO that can be used for any reason. 

With data proving that offering PTO reduces the likelihood of quitting by 35%, you don’t want lack of an effective time off policy to be the reason you lose talent.

If you want your policy to stand out, define PTO clearly (types of leave: vacation, sick, personal), set fair and predictable accruals, and make it easy to use. 

Here’s why it pays to have a clear company policy for guilt-free annual leave:

• 88% of private sector workers have paid vacation, but that figure drops to less than 40% for part-time employees. (Center for American Progress)
• 47% of Americans left PTO unused (HR Daily Advisor), and 23% took zero vacation days in the past year. (FlexJobs)
• Policy design varies widely: 42% accrue PTO, 17% have a fixed allotment, 12% follow use‑it‑or‑lose‑it, 11% have unlimited PTO, and 18% have no PTO at all. (FlexJobs)
• Workload and cultural norms block usage: 43% cite too much work, 30% fear falling behind, 29% feel pressured to look committed, and 25% say managers would discourage a full week off. (FlexJobs)

PTO may be available, but it’s not always accessible. When workloads feel relentless and expectations are fuzzy, people hesitate to take time – even when they need it.

5 annual leave policy examples that make it easy to request time off

Here are some of the core types of vacation and PTO policies to test. Whichever model you choose, take time to write clear request/approval rules, clarify accrual rates, and document how unused vacation time will be treated (rollover, payout, forfeiture).

1. Paid Time Off (PTO) banks

PTO banks give full-time employees ultimate control over their paid leave. All time off (including sick pay, any number of vacation days, and personal leave) is piled into a vacation ‘bank’ which employees can draw from whenever they need to.

The number of PTO and vacation days off typically varies by years of service, but it usually hovers around 11 days for newer hires and 17 to 20 days off for longtime team members.

👍🏻 The benefits: More flexibility for employees, easier to administrate, and boosts employee engagement.

👎🏻 The drawbacks: Higher volume of requests, often an uneven spread of time off over the year, and employee resistance to using PTO as sick time.

⭐️ Example policy: A “hybrid bank” with a guaranteed floor (e.g., 20 days banked PTO) plus a small flex/FTO layer (e.g., 3–5 days) with explicit usage norms. This keeps the predictability candidates want while offering extra flexibility without moving to “unlimited.”

2. Unlimited PTO

Now for the controversial choice. With unlimited vacation policies, employees are free to take off as much time as they want, as long as they finish their tasks on time. The focus is on productivity and results, rather than being chained to your desk. But with no accrued balance to cash out at year-end, many candidates view unlimited PTO as a cost-saving measure that benefits the company more than its people.

👍🏻 The benefits: Increased productivity, better recruitment and retention results.

👎🏻 The drawbacks: Fear of employees abusing the system, vacation overlap, increased chance of employee ‘martyr syndrome’ where workers don’t take enough time off.

⭐️ Example policy: Unlimited PTO paired with a usage incentive (e.g., modest stipend or recognition for taking a minimum annual break). Publish minimum-time-off guidelines and track approvals (not balances). Coach managers to approve shorter days and long breaks to prevent underuse, especially among junior staff.

3. The rollover policy

With the rollover policy, employees have a set amount of annual accrued vacation time off, but if they don’t use it by the end of the year, they can roll it over to the following year.

👍🏻 The benefits: Increased employee flexibility, opportunity for unofficial sabbaticals, and avoiding the end-of-year race to take time off.

👎🏻 The drawbacks: Employees could end up rolling over too much leave, or they could avoid taking regular breaks from day-to-day work schedules in an effort to “save up” vacation time.

⭐️ Example policy: Cap carryover at a defined limit (e.g., 4–6 weeks or hours) so employees can bank time for longer, restorative breaks and prevent the year-end rush.

4. Use it or lose it vacation policy

No more cashing out on unused holidays or rolling multiple days of vacation over to the following year. The use it or lose it policy does what it says on the tin: use your annual vacation policy before the year’s end, or lose it completely.

👍🏻 The benefits: Employees are more likely to take time off, companies avoid balance sheet liabilities, and no risk of employees using a ton of time off all at once.

👎🏻 The drawbacks: Employees may lose out on much-needed time off (especially if they don’t feel able to ask for it), use it or lose it isn’t a great pull for potential new employees, and there’s often an end-of-year race to take time off all at once.

⭐️ Example policy: Mandatory PTO framework with manager coaching and regular reminders. Clear expectations help frontline employees use their days without fearing negative career impact.

Note: Use it or lose it policies are banned in some states. Always do your homework and seek legal advice from a trained professional before changing or updating your human resources (HR) policies.

5. Flex time off

For “always on” teams, flex time allows shorter days or ad hoc hours rather than multiweek vacations.

👍🏻 The benefits: Stronger work/life balance in high-demand roles, easier coverage for short absences.

👎🏻 The drawbacks: Can blur boundaries if norms aren’t set; performance management must reinforce actual time away.

⭐️ Example policy (simple flex): Discretionary time off, no accrual; encourage ~20 days/year with at least one 5-day break; approvals logged by managers, no payout or rollover.

⭐️ Example policy (hybrid): 20 banked PTO days + 5 flex days; 5-day rollover cap on PTO (location-dependent); flex days don’t roll or pay out; standard notice for PTO, 24–48 hours for flex.

⭐️ Example policy (hours-first): Up to 8 flex hours/week for appointments + 10 PTO days for longer breaks; same-day approval for ≤2 hours; PTO follows local rollover/payout rules.

How to write a vacation policy your employees will love

Start with the basics – eligibility, accrual, and administration:

• Tenure tiers vs. flat allotments: Choose predictable tiers (e.g., 20/25/30 days by service) or a generous flat allotment (e.g., 30 days for everyone). Limit negotiation to protect equity, but allow experienced hires to start at a higher tier when it supports recruiting.
• Accrual methods: choose between a fixed annual allotment (simple, clear minimums), accrued PTO (earns over time), or unlimited PTO (trust-based, requires norms).
• Request/approval: define notice periods, blackout dates, and how coverage is handled.
• Treatment of unused time: state your rollover caps, payout rules at separation, or forfeiture (where legal).

Document the “bones” of your PTO policy. If you want people to use their days, go “use it or lose it.” Prefer longer breaks? Choose rollover.

Either way, set clear rules for how PTO can be used, how to request it, and how much notice you need (e.g., one–two weeks).

Here are some additional factors to consider:

• Front-load balances: Consider letting employees use their annual allotment up front while accruing monthly. It boosts usability without delaying rest.
• Unlimited/flex norms: If you choose “unlimited” or “flex,” set explicit usage expectations (~4 weeks/year encouraged), coach managers, and clarify that shorter days are fair game.

• Rollover caps: Define carryover ranges (by location, if needed) to balance flexibility and liabilities.
• Incentives for unused PTO: consider optional conversions (e.g., 401(k) contributions, student loan payments, wellness stipends) to align employee benefits with actual worker needs.

• Milestone boosts: Offer an extra week at key anniversaries (e.g., 10/15/20/25 years) to reward loyalty.

• Year-end closures: A paid shutdown between Christmas and New Year’s is a popular, practical perk.

• Volunteer time off (VTO): offer PTO for volunteering to boost engagement and teamwork without heavy operational impact.

Most US workers get around 8 paid holidays. To keep things fair and flexible, add 1–2 floating holidays, consider a paid shutdown between Christmas and New Year’s, and offer 1–2 mental health days to keep burnout at bay.

A stronger company culture from day zero

A well-planned vacation policy not only keeps employees happy, it also helps you attract the right candidates now and in the future.

Manager playbook: encourage employees to use PTO, set minimums, and lead by example. Most workers skip days due to fear of falling behind or hurting advancement–clear norms and visible leadership use are your antidote.

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FAQs

What am I required to offer legally?

While there is no federal law mandating PTO, some states have specific legal requirements concerning vacation time and sick leave.

California, Connecticut, Massachusetts, Rhode Island and Vermont, for example, all require employers to provide paid vacation days. Some of these states also obligate companies to pay out unused PTO if an employee quits. However, laws differ from state to state, so be sure to do your research.

Note: “Unlimited” policies typically have no accrued balance to pay out. If you offer accrual-based PTO, define your payout rules at separation and communicate them clearly.

Legal risk check: Some states treat accrued vacation as earned wages–making “use it or lose it” illegal. Coordinate your PTO policy with FMLA and local ordinances to stay compliant.

What’s the best way to handle sick leave?

When structuring your PTO policy, consider how you’ll handle sick days. Will you have distinct vacation and sick leave policies? Or will employees draw from the same bank of time on both accounts?

Many state sick leave laws specify accrual (often ~1 hour per 30–40 hours worked), caps (e.g., 40–56 hours), and carryover requirements.

While the Family and Medical Leave Act (FMLA) requires employers to provide protected days off in the case of personal or family illness, they don’t require that time off to be paid. 

How should we handle PTO for new hires (prorated or front-loaded)?

Many companies prorate first-year PTO based on start date but let employees use the full annual allotment up front while accruing monthly. This boosts usability for new hires while keeping accrual rules clear.

Can candidates negotiate PTO? How do we keep it fair?

Set clear tenure-based tiers or a generous flat allotment. Allow experienced hires to start at a higher tier when it supports recruiting, but avoid one-off side deals that can create a sense of “playing favorites”.

Will unused PTO be paid out when someone leaves?

Spell this out. If you offer accrual-based PTO, state whether earned, unused time is paid at separation (and where state law requires it). Note that “unlimited” policies typically have no accrued balance to pay out.

How do we prevent underuse with “unlimited” or flex PTO?

Publish minimum-use guidelines (e.g., ~4 weeks/year with at least one consecutive week), coach managers to approve time away, and normalize shorter days for appointments. Track approvals (not balances) to ensure consistency.

How does rollover work across locations–and what’s the accounting impact?

Use location-based caps (e.g., 5–30 days) to stay compliant and manage balance sheet liabilities. Communicate caps, carryover dates, and any cash-out rules clearly during onboarding and year-end reminders.

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