It’s a simple question, with a seemingly simple answer that you should be able to figure out before lunchtime. But defining and implementing a PTO policy for your company is actually a strategic, and often challenging process.

For starters, there is no statutory minimum on paid vacation or paid public holidays, so it’s up to you to figure out what makes the most sense for your company. Throw in a buffet of new company benefits and the rise of remote work (telecommuting is the fastest growing employee benefit according to a recent SHRM study), and you’ve got yourself wondering if you should just give in and have an unlimited vacation policy — and hope that it works.

Before you toss out a number, sit down and ask yourself a lot of questions about your future self, your budget, your company’s demographics, and your culture. Then, start doing the math.
What’s normal when it comes to PTO?

According to the US Bureau of Labor Statistics, 77% of private employers offer paid vacation (or PTO) to their employees. Full-time employees earn, on average, 10 vacation days after one year of service. Similarly, 77% of private employers give their employees paid time off during public holidays, on average 8 holidays per year. But some employers offer no vacation at all. If you work at startup in an urban area, you might be surprised.

For private companies, it’s not uncommon to see the following paid time off breakdown:

• 0 days before the 1st year of service
• 10 days after 1 year of service
• 14 days after 5 years
• 17 days after 10 years
• 20 days after 20 years

Future-proofing your PTO policy

A great PTO policy is one that factors in your company’s culture, demographics, industry, geography, and seasonal fluctuations in business.

Although you’re free to change your company policies at any time, you’ll want to avoid doing so often, and especially not soon after you’ve introduced one, because your employees will feel blindsided and/or expect a net gain in exchange for the transition. When introducing a PTO policy for the first time, be sure to make it clear, attractive, and fair. If you’re revisiting your PTO policy, do so at a time when things are going well, or when you can pair the change with something employees will view as a net positive (like an employee bonus). And always be sure to provide plenty of notice.

Next, put on your fortune teller hat (borrow one from your aunt Jan, if you must…)

A great PTO policy is one that factors in your company’s culture, demographics, industry, geography, and seasonal fluctuations in business. It offers employees the best that you can offer, without overreaching.

Who you are today, and 5 years from now

Take a long tail approach to your business. How many employees do you have now? What kind of growth do you anticipate year-to-year, over the next five years? Offering no vacation to employees who likely won’t be with you three years from now (hello, millennials), probably means you should consider if more vacation days could be a good benefit to encourage retention.

Take careful consideration of who you are now and how you plan to expand your business / product offering before you design and implement your policy.

Hourly, salaried, skilled, semi-skilled, younger, older: your demographics

Depending on your company’s demographics, your employees will have different expectations when it comes to paid time off. At a tech startup where employees are highly skilled and salaried, the expectation is flexibility and trust.

If most of your employees are hourly, a vacation policy that would allow an employee to take a month off to surf in Bali likely won’t work out. Depending on who your workers are, they may also be more or less motivated by leave policies.

Young 20-something employees may enjoy being able to go away on an extended trip while those with young families may prefer the flexibility to take time as needed. Match your policy to reflect these different circumstances.

Industry

Depending on whether you’re in the manufacturing, sales, high tech, service, or retail industry, the type of time off you’ll be able to offer employees will vary, dramatically. Not only does your industry often dictate the types of people you employ (salaried vs. hourly, skilled vs. semi-skilled) but the flow of your work and schedules can make some options more attractive than others for your employees.

Seasonal fluctuations

You’ve probably worked during a time when your company’s leadership has told employees it was “all hands on deck.” For retailers, it might be Christmas; for tourism, perhaps, summer. Either way, your PTO policy should factor in seasonal fluctuations that demand employees take their time off during a slower period. It’s not enough to just say, “We’ll be busy.”

Geography

Have multiple offices? Welcome to the delicate world of balancing the needs of your employees across oceans, cultural norms, and national holidays. When their Italian co-worker is nowhere to be seen for the month of August, some U.S. employees might feel rubbed. As a leader, your job is to ensure that you comply with specific country laws and offer what’s appropriate, at a minimum. For example, Lululemon, a Canadian company, offers all employees a leave policy that’s considered standard in Canada. For some global employees, this means getting extra time off, but never less. You could consider ways to make things more balanced by giving American employees a few extra days. Again, do what works for your company’s culture.

What about sick leave?

Most employers still offer separate sick and vacation leave, but you do have a few options when it comes to factoring sick leave into your paid time off policy. If you operate in a state where you have to pay out earned benefits, such as unused sick days, you need to consider the total days you’ll offer.

To save yourself time and headaches later, you might just decide on a number of days that employees can use any way they want (for personal leave, a sick day, or vacation). Administratively, it’s a much simpler approach. You could also separate these allotted days into “vacation” and “sick” categories. Total days offered may be less than if offered separately, as they might become a liability upon termination.

Remember to consider paternity and maternity leave, too. FMLA covers individuals who need time off for a disability such as childbirth. And while the U.S. is still far behind (no paid maternity or paternity leave), these world standards are increasingly being talked about in the context of U.S. benefits. If you have a more international work force, paid parental leave is definitely something to consider when designing your paid time off policy.

So how does an unlimited vacation policy actually work?

For the right company, an unlimited vacation policy can be a great motivator, and can help employees stay productive and loyal to your company.

The concept of an unlimited vacation policy has been made popular in Silicon Valley, and glorified by the media as an over-the-top perk granted to overpaid employees. But it can be a practical approach to adapting to the changing needs of a modern workforce. It also will absolutely not work for all. So, how does it play out?

When you offer your employees unlimited PTO, you have to do the work of setting expectations around when they can use this time (i.e. not in the middle of your busiest time), as well as what’s expected in term performance and results. Some companies don’t allow employees to take advantage of this benefit until after the first 90 days of employment, or even the first year, when trust is more established.

For the right company, an unlimited vacation policy can be a great motivator, and can help employees stay productive and loyal to your company. But of course, it brings to light a lot of questions such as: How do you deal with terminated employees? How much vacation time will they have earned? Will people actually take extended time off when they need it, or will they feel awkward about it? Will performance improve or suffer? How will leadership stay committed to showing employees to use this time off?

If you choose to offer an unlimited PTO policy like Netflix, and live in a state that requires carry over or payout of unused time, you’ll need to set a rollover and payout cap amounts in your employee agreement, based on state law. You can set caps or require (with or without notice) that workers use their earned vacation time annually.

A flexible policy requires trust and understanding between employees and leadership so if you choose to go this route, be sure to clearly outline parameters, including a maximum payout an employee will get if he or she leaves the company, any blackout days, and company results. The key to making this policy work for you comes down to good management, so make sure your people are taking vacation and not just rolling it over. Remember to always lead by example.

Sorry, there’s no magic formula

Unfortunately, when it comes to figuring out how much time off to give to your employees, there is no magic formula. Time off is a benefit intended to help your employees stay happier, engaged, and working for your company longer. So instead of asking yourself what you’ll gain if you offer more or less, consider what you stand to lose if you don’t offer leave. Will you be able to attract and retain the talent you need and keep pace with company growth? Take a look at what your competitors are doing, what’s common in your industry and your location. This is a benefit you’ll want to get right.

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Source: Julien Emery