Why Time Off Policies Confuse so Many Small Business Owners


Imagine being a small business owner whose operation has finally grown large enough to start bringing employees on. You have relied on your spouse and children thus far, but now it’s time to hire outside help. Suddenly you find yourself worrying about all sorts of things – including time-off policies.

You remember from previous jobs that employers offered you a certain amount of paid time off (PTO). You know you cannot afford that right now, but what about unpaid time off (UTO)? And what about providing time off for people with health problems? What about new parents looking to take off for a new baby?

Time off policies can be confusing to small business owners who find themselves in HR’s ‘no man’s land’ due to the size of their companies. According to BenefitMall, a Dallas company that provides payroll and benefits administration services, small business owners have to account for both federal and state laws. There might even be local laws in play too.

Paid Time Off

PTO is time that employers are willing to compensate for even though employees are not on the job. The two most common forms of PTO are vacation pay and sick pay. Most employers in the U.S. also provide holiday pay, though the nature of some industries still requires workers to put in holiday hours.

The easiest thing to understand about PTO is that it is not mandated in this country. With the exception of a small handful of states that mandate paid family leave, companies are not required to pay their employees for vacation time, sick days, personal days, etc. PTO is completely voluntary.

Unpaid Time Off

Granting UTO is also not mandatory with the exception of time covered under federal family leave regulations. Those regulations require employers to give employees a certain amount of unpaid time off to allow them to handle a personal health crisis, take care of a sick loved one, or have a baby.

The key to giving employees UTO is clarity. In other words, it is no longer good enough to address UTO on a case-by-case basis. Small businesses really need to protect themselves by instituting written policies that are implemented equally and across the board.

A typical UTO policy defines:

  • whether or not UTO is offered
  • who is eligible to take advantage of it
  • the amount of UTO days available
  • how employees go about requesting time off.

Some employers offer both PTO and UTO. In such a case, a company’s policy should define how the two interact. For instance, UTO may not be available until after an employee uses up all PTO. This prevents employers from taking off too many days.

Payroll Department Considerations

PTO and UTO can be confusing when it comes time to run payroll. Regardless of a company’s policies, federal and state laws governing how payroll is run are non-negotiable. Employers are still required to record all employee hours worked in a given work week. They are still required to pay the same hourly rate and guarantee that employees are paid every penny earned.

It is generally the payroll department’s responsibility to record all PTO and UTO in accordance with company policies. That may require separate entries into payroll software depending on the product a given company uses.

Does your company offer PTO or UTO? If so, are there written policies in place to govern both benefits? PTO and UTO are fairly common in this day and age, but they can be confusing. If your company needs help with them, it is best to contact a payroll services provider.