Dear Dean,

I need your help. I run a real estate agency that’s small, but growing. We don’t currently offer any paid time off, but I’d like to change that. How much PTO is normal for a company like mine to offer?

We just hired our 10th employee. During the interview process, a lot of candidates asked us, “How much PTO do you offer?” Obviously, “none” was not what any of these candidates were expecting to hear.

Up until now, we’ve figured out time off on a case-by-case basis. It was generally understood that if you don’t show up to work, you don’t get paid. This seemed to work well enough, and discouraged people from taking unnecessary vacations.

But our first choice candidate declined our offer. They went with a much bigger company that had a very nice benefits package, including unlimited PTO. With our plans to continue hiring, creating a good PTO policy is now top priority.

How many days of PTO do I need to offer? Do we need to offer unlimited PTO to keep up? How do I make an attractive PTO policy that won’t negatively impact our productivity?

Signed, A Vacation From Vacations

Dear Vacations,

Losing a top-choice candidate to a competitor doesn’t feel great. It sounds like, for you, it was a wake-up call. At the same time, implementing PTO policies when you have a small staff presents some realistic challenges.

I know because I’ve been there.

When we hired Samantha, our customer experience manager, she was our third employee. Because we only had one of her, we quickly realized that it was too challenging for her to be out — almost devastating to our company.

So we hired Alicia.

In other words, PTO isn’t the problem, but lack of manpower is.

Your employees need paid leave.

You can't just say, "We need you here 24/7." Even with vacations off the table: people still get sick, have family emergencies, or other things that will require time off. The rest of your team shouldn’t suffer trying to cover for that person.

At the same time, you definitely need to leave vacations on the table. You say your current PTO policy (or lack thereof) prevents “unnecessary vacations.” But what about necessary vacations?

Every worker needs time off to do with as they please, otherwise they’ll be quite miserable.

Without allocating paid personal time, you won’t just have a problem attracting new talent. You’ll have a hard time hanging on to the talented workers you already have — and all the resources you invested into hiring and training them will go to waste.

As a small business owner, you need to offer PTO, from both a company standpoint and a people standpoint. As your staff grows into double digits, now is the perfect time to create a policy that works for your organization.

But the average PTO policy probably won’t work for offices as small as ours. That’s why I won’t offer you one-size-fits-all advice today. Instead, here’s what you need to know about making a policy that will work for you (and keep your talented workers happy).

First thing’s first: there is no “normal” amount of PTO.

Your company has a unique culture and team, and your PTO policy should be your own. There’s no average number of PTO days you should offer. Instead, you’ll need to develop your own opinion on what a normal amount of days off per year looks like for your company.

But let’s entertain the question. According to the U.S. Bureau of Labor Statistics, the average PTO days for civilian workers spans 14-23 days per year (depending on tenure). Based on this, you might think that 2 weeks is the minimum of what’s considered “normal.”

But federal law doesn’t require any paid leave. So how much to offer is up to the company’s discretion. In fact, many companies don’t offer any PTO at all. On the other end of the spectrum, companies with thousands of employees may be able to offer PTO in abundance.

Note that state laws may mandate certain types of paid leave. You’ll need to do research to find out if that applies to you. For example, my home state, Michigan, requires paid sick leave, but not for companies with less than 50 employees — so small businesses like mine are excluded. That said, chances are these types of laws will influence what’s “normal” in your locale.

So, what constitutes a “normal” amount of PTO? Context matters. Your job applicants will come with a range of expectations for PTO based on their past work experience, your industry standard, and so on.

Paid time off is more than a perk.

Like I said earlier, just because vacation time isn’t required by law doesn’t mean it’s not essential. I look at it as part of compensation: you don’t have to take a hit in your pay just because you want to take a vacation, or you need to take a day off here and there.

It’s also important for work-life balance. We all should be taking time off. That’s especially true if you’re the workaholic type who loves to just work, work, work, work, work — it’s not a way to live.

Plus, evidence shows that time to rest is crucial to job performance and productivity. In other words, time away from your job makes you better at your job.

Allocating time off lets your workers know it’s safe to take time for themselves. It’s our job as leaders to encourage them to actually take that time to rest. Get away from work, recharge, take a vacation. We all need that.

So, how much PTO should a small business offer?

Like I said earlier: forget the idea of an “average PTO” amount that you should offer. Statistics aside, it’s going to vary by industry, job role, and organization size. You need to figure out what works best for you.

Step 1: Find your look-alikes

Start by looking at companies like yours — not necessarily your direct competitors, but small companies with similar organizational charts. Then, you’ll need to find the PTO policies of these companies. Job openings on Indeed and LinkedIn will give you a sense of what they’re offering.

Step 2: Identify their PTO averages

Once you have that information, you can figure out what a “normal” amount of PTO is for your company. Ask a trusted colleague to do this analysis with you — for me, my chief operating officer, Nicole, helped me out a lot. We identified the low, medium, and high end of what’s being offered. That gave us a sense of the average relative to our unique business.

Step 3: Make the best offer possible

The key to attracting good talent is to offer more than the average, to the best of your ability. Small companies like ours won’t be able to offer as much as larger companies, but aim for above the middle of the road.

What type of PTO should you offer?

While doing your research on “normal PTO,” you’ll likely run across different types of PTO. These days, it’s trendy for companies to offer 1) unlimited PTO and 2) flexible PTO (a.k.a. flex time or flex hours) — for better and for worse.

A third, less-trendy PTO type is combined. In my experience, combined PTO is a great option for small businesses, as it keeps things super simple. But, of course, it’s up to you to decide what makes sense for you.

Unlimited PTO

When I first heard of unlimited PTO, it sounded really good. If everybody could balance time off, they could take it when they need it. It’s great in theory, but in practice, it can go a few different ways.

Best case scenario, people will actually use it like they should, coordinating with their teams to take planned downtime, preventing burnout and creating space to prioritize outside obligations like family. That’s ideal.

But, even in the best case scenario, you may end up with one person who takes a month off at a time. They’re not abusing the policy — the policy is unlimited, after all — plus, this person is probably incredibly productive, so they feel a month-long sabbatical is well-earned. But regardless, their absence will disrupt things for the rest of your team.

And there’s an even bigger problem with an unlimited PTO policy. With unlimited PTO, people don’t know how much they can really take. The result? They end up taking less than they should.

It’s so ambiguous that you end up living in fear. Fear of not getting a raise, of upsetting co-workers, of making people think you’re slacking. Surprisingly, unlimited PTO suddenly feels very limited.

When you set actual definitions for what people should be taking, then they actually take it. For that reason, I caution you against unlimited PTO policies. Instead, allocate PTO days based on your employees’ years of service, or allow them to accrue days off over time — I’ll say more on the difference between PTO allotment and accrual later.

Flex Hours

Schedule flexibility is crucial to work-life balance. So while crafting your PTO policy, you might consider offering flex time as a benefit. For the uninitiated: flex time (a.k.a. “flex hours”) essentially allows workers to set their own schedules, usually with some limitations.

We offer flex time at OnTheClock. To make it work for us, we decided to classify flex time in 2 different ways: customer-facing and non-customer facing.

For non-customer facing roles, like developers, does it matter if they work from 4:00 AM to noon? No — as long as they’re getting their work done.

But for customer-facing roles, it’s a little different. It’s more important for them to be available during regular office hours. Customers depend on their availability, as do their teammates.

So when implementing flex time for these roles, communication is key. They need to make sure that there’s enough staff available to support the rest of the team and meet customer expectations. There are busy times and slow times during the day, for example, that should be taken into account.

At the same time, I'm really big on people being together. There's something that happens when we’re together in the office that doesn't happen when we’re all apart. If people's schedules are so far off to the point where they're not actually meeting together and physically in a room, you’re missing out.

So our solution is to have core office hours and a hybrid office. That way, people come together in person to talk, laugh, take goofy pictures — the stuff we’d miss out on if we never came together in person. But they also have the flexibility they need to prioritize their life outside of work.

Combined PTO

Speaking from experience, I’d encourage you to offer combined PTO. Combined PTO is everything — sick, personal, vacation, you name it. At OnTheClock, we offer our employees combined PTO plus paid holidays.

There are a couple reasons why we decided to do this. First, it’s just simple. I like simple things. The simpler, the better.

Secondly, it really allows people to just take the time that they need. You don’t have to tell people if you’re sick or on vacation if you don’t want to — you just take your time off. It allows people to be as personal as they want with their time.

We also decided combined PTO was more practical than granting 10 sick days per year. Sick time doesn’t typically roll over the way unused vacation days do. With combined PTO, everyone’s unused PTO can roll over — and we avoid the awkward situation of having half our staff suddenly call in sick for a week in December each year.

PTO Allocation vs. Accrual

Last but not least, when creating your policy, you’ll need to make a decision about allocating PTO, or letting PTO accrue.

PTO accrual means that time off accumulates based on hours worked. PTO allocation means that a bulk amount of time off is given for a specific time period. Either way, you’ll need to keep track of each employee’s time off (which is something our software can help you do).

Personally, I prefer to allocate PTO. It’s easier to track allocated PTO time for both you and your employees. Employees seem to prefer it, as it makes it easier to plan their vacations.

But accrual has its perks, too. For example, if you have a lot of part-time workers, seasonal employees, or prefer to pay your staff on an hourly basis, accrual might make more sense. Our free PTO calculator can help give you a better idea of how to set this up.

If you decide to go with PTO accrual, note that overtime may impact how PTO is earned. While you aren’t required to offer additional PTO for overtime hours, it can be a nice perk!

Ready to create your PTO policy? Not so fast!

So, if you’ve read this far, you probably have a good idea of how to approach your PTO policy. But there’s one crucial piece of the puzzle still left: communication.

You need to talk to your workers about this upcoming change. It’s best to do this before you write your policy — let alone implement it. Just give everybody a heads-up so they know what's coming — preferably, a few months in advance.

Also, it doesn't hurt to ask around. Survey your people about what their previous employers offered. That helps for you with expectations, because as soon as you announce something, people are going to wonder

Have a meeting with your staff. Gather their input. Set a date for when the policy will become active — and make sure everyone stays in the loop. One perk of a smaller team is that it’s easier to communicate directly with your staff. That gives everyone a chance to be clear on what’s rolling out when. It also makes it easier for you to do your homework, both internally and externally, as you craft your first PTO policy.

I hope this helps! And remember to book yourself a vacation, too. Like I said, time off is beneficial, and you’ll be leading by example for the rest of your employees.

Please feel free to reach out to me directly if you have any questions, and keep in mind that we offer a 30-day free trial of OnTheClock to help level up small businesses like yours.

Regards,
Dean Mathews CEO,
OnTheClock