As temperatures rise and employees eye summer vacations, small and mid-sized business owners may find themselves fielding the same question: What’s our vacation policy — and is it fair and equitable?
The question isn’t just about who can take time off and when. Paid time off (PTO) remains one of the most tangible ways a company demonstrates its commitment to its employees’ well-being and to fairness in the workplace. But what, exactly, makes a PTO policy fair? The answer lies at the intersection of transparency, consistency, and legal and policy clarity.
First, let’s understand what’s mandated. In the U.S., legal requirements are surprisingly minimal, or even nonexistent. The Fair Labor Standards Act (FLSA), for example, does not mandate paid time off at all. In fact, the U.S. is the only advanced (OECD) economy that does not require that employers offer paid vacation, at least at the federal level.
You should think of legal compliance as the floor, not the ceiling, of PTO policy. There are serious business considerations behind offering PTO. For example, employees and job candidates increasingly compare their employer’s vacation policy not against regulatory baselines but against competitor offerings. Even if your PTO is compliant, if it lags behind others in your space, your team will notice, and it might start affecting recruitment and retention.
In one study, voluntary turnover fell by 35% among employees who were offered PTO. “While workers may feel satisfied with their job, the absence of adequate resources like PTO can still drive them to quit,” says LeaAnne DeRigne, a professor at Florida Atlantic University’s Phyllis and Harvey Sandler School of Social Work. “Even when employees are content in their roles, the lack of sufficient time away from work can lead to burnout, stress or a sense of being undervalued, ultimately prompting them to leave.”
Beyond the basic requirements and best practices, it’s crucial to think about fairness in vacation policy-setting as well. That’s the only way to ensure your program maximizes its benefits, minimizes tradeoffs, and avoids triggering resentments or accusations of discriminatory practices.
But fairness in the workplace doesn’t necessarily mean giving everyone the same number of days, regardless of context. Even employees themselves think differential allotments of PTO make sense under certain conditions.
For example, unlimited PTO is a popular and desirable approach to time off (as we’ll discuss further below), but nearly half of workers (41%) believe only staff who have been with a company for at least a year should qualify for it. It’s widely understood and even expected that vacation benefits come with years of service.
Instead, crafting a fair vacation policy really comes down to applying rules consistently and transparently while allowing room for business-specific nuances and meeting the needs of your specific workforce.
This is particularly important when balancing PTO access across different roles. For example, salaried employees may find it easier to schedule time off without financial consequences, while hourly workers may worry about lost income. A fair PTO policy could account for this by offering creative alternatives, such as the option to accrue additional time off, flexible scheduling, or allowing shift-swapping. Flexible policies ensure that all employees, regardless of classification, feel they have equal access to rest and recovery.
One of the biggest challenges for small businesses is ensuring that a generous PTO policy won’t cripple operations. After all, if half the team disappears during July or August for summer vacation, who’s covering the workload?
This is where proactive planning and smart communication become essential. A strong vacation policy includes built-in structures that protect the business while promoting fairness in the workplace. These structures can include:
What separates a burdensome policy from a fair one is the degree of mutual accountability it promotes. When employees know the system is designed to work for everyone, they’re more likely to uphold their end of the bargain by providing sufficient notice, preparing handoff notes, and respecting limitations.
One of the most debated aspects of any PTO policy is accrual. Should new employees earn time off gradually or receive a bank of days up front? Should tenure be rewarded with additional vacation days? What about part-time or seasonal staff?
These decisions can significantly impact fairness — or, at least, the perception of fairness — in the workplace. For example, front-loading PTO may benefit new hires and make your job offer more competitive, but it also increases the risk of employees using time off early, leaving soon after, and making tenured workers feel resentful they’re not being rewarded for their loyalty. On the flip side, slow accruals can feel punitive and reduce job satisfaction.
A fair compromise might be a hybrid model: front-load a few days after a probationary period, then shift to monthly accruals.
Regardless, transparency is key; make sure the method is clearly documented, and ensure employees understand how and when they can use their time.
Also consider equity across roles. Is your vacation policy inadvertently favoring certain departments, positions, or employee statuses over others? Does remote staff feel like they can take time off just as freely as in-office teams? Ensuring consistent access and cultural support for time off is as important as the number of days themselves.
Additionally, in policy-setting, make sure you address how your PTO program will be administered. In many cases, the barrier to time off might not be the availability of PTO at all. Instead, it might be that time off requests are not getting approved or are getting approved inconsistently. In other words, beyond the actual PTO offering, is the PTO program administered in a fair way? If approvals don’t or can’t keep pace with requests, it can have the same effect as not offering PTO at all.
Some companies, especially in tech and creative industries, have embraced “unlimited PTO” to increase flexibility and trust, not to mention recruitment and retention. Employees love the idea of unlimited PTO. Nearly a fifth (19%) of workers said they would turn down a job without unlimited PTO; over a quarter said they’d accept a position, even if it paid less than others, if it meant they got unlimited PTO.
However, the real crux of success with unlimited PTO — as with any PTO program — is clarity. “While HR policies may be clear about PTO (in terms of number of days off and those kinds of parameters), clients frequently tell me that there is a lot of ambiguity around supervisor and team expectations,” Dr. Erika Bocknek, a licensed therapist, told Glassdoor. “This may include a lack of clarity around tasks, or it may reflect supervisor and colleagues’ ambivalence about the individual having taken time off.”
This can be particularly true of “unlimited” PTO, which can raise the question of “how much is too much”? Without clear guidelines or cultural understanding, employees often take less time off, not more. It can help for leaders to take time off themselves and ensure direct reports feel empowered to do the same. Some businesses institute a “minimum time off” requirement or block out slow periods for collective rest.
Still, for many small businesses, traditional vacation policies with set accruals and clear limits offer more clarity and stability. What matters most is that employees know the rules, feel they’re applied fairly, and see that their rest is both respected and valued.
When in doubt, ask! Survey your team. What do they want? Ask how they feel about the current policy. Do they use all their time? Do they feel guilty requesting time off? Are there specific barriers, formal or informal, that limit access?
Use this feedback to improve, not just in the name of retention, but in support of fairness in the workplace. A vacation policy that is written with employees rather than for them will always be more sustainable, more inclusive, and more effective. It’s the employer’s job to find the approach that fits your workforce’s needs most closely.
CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about our Professional HR Administration Services, contact us today.
**The information provided on this website is for general informational purposes only and does not constitute legal advice. While we strive to ensure the accuracy and completeness of the information, we make no guarantees about its correctness, completeness, or applicability to your specific circumstances. Laws and regulations are subject to change, and you should consult a qualified legal professional before making any decisions based on the information provided here.