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Vacation, sick time, personal days—it's enough to make your head spin when you're trying to come up with a perfect paid time off (PTO) policy for your company. While there isn't a "perfect" solution that all businesses should adopt, there are some guidelines that will help you make the best PTO policy for your business.

What Do Your Competitors Do?

While it's important to look at your direct business competitors, what you really want to look at here is competitors for your talent. What businesses are your new hires coming from? When people quit, where are they going? People highly value vacation as one of their benefits. If your "competitors" are offering more vacation, or more flexibility, you're going to find it difficult to attract the best people.

Incentivized Yearly Vacation

This may seem an odd concept—we'll pay you to take time off!—but it's increasingly common for startups and tech companies. Why? People are more productive if they take a break once in a while, and investing in down time could prevent burnout, disengagement and turnover.

Separate Sick and Vacation Days or One PTO Bucket?

There are pros and cons to both systems. If you live in a state that has mandatory sick days, then you'll definitely want separate buckets. But, otherwise, it's up to you. People who don't get sick often really enjoy having the ability to use all their days off for fun things, but people who are prone to illness find it frustrating that they can never take a vacation because they've used all PTO up for the flu. I come down firmly on the side of separate buckets, precisely because I want people who are sick to stay home and recover, rather than worrying that this illness will use up all their vacation days.

Unlimited PTO

Some businesses—most notably Netflix—have adopted an unlimited vacation day policy. The theory is, as long as you're getting your work done, you can take whatever time you want. In practice, this requires a high caliber of worker and a higher caliber of manager. How can you be sure everyone is getting things done and receiving the time off that they so desperately need? Some studies show that people with unlimited PTO take fewer vacation days than people who are under a strict limit.

Should Vacation Rollover?

Lots of government jobs allow people to accrue vacation with no limits. So, people do. When they quit they receive a huge vacation payout. This means your books are full of unpaid liabilities, which isn't good. Additionally, your employees never get the breaks that they need. Instead, limit the amount of time someone can rollover to the next year, and encourage everyone to use their vacation time.

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