annual leave policy

7 tips for the best annual leave policy for your company.

Design the best annual leave policies to retain employees.

Paid leaves are one of the best perks any company can offer. This will certainly add up to a high degree of employee satisfaction in addition to other perks that your company can offer. So, spending a little time to learn about the various way to reward an employee with Paid Time Off can go a long way and maintain an excellent working environment.

Paid Time Off policies can vary from country to country. In our experience, we have gathered the best approaches we have come across and outlined it here. You can choose the best one that suits your company or simply can mix and match the various approaches to design one that will make your employees happy.


Keep it simple.

Whichever method you choose, be sure to keep it simple. Having lengthy procedures and introduce a lot of to and fro communication and can, in turn, ruin the whole purpose of designing a good policy.


The frequency of accrual.

Before you move forward with any type of leave, you will need to decide how you would need to give the annual leave to each employee. You can give it annually all at once or allow your users to accrue them weekly, every two weeks or monthly. The most popular ways to accrue are during the pay period. This means employees are rewarded the annual leave in increments on a two-week period or monthly.

By having an accrual policy employees feel they have earned their leaves and do not try to finish it for the sake of doing so at the end of the rollover period.

For example: If I am allowed to take 24 days off in a year, I am awarded 2 days every month if I am paid monthly, or I am awarded one day every two weeks if I am paid every 2 weeks.


Annual Leave Types

Generally, companies have two to three types of leaves on an average. For Example, Casual Leaves, Sick Days etc.  You can have a different accrual policy for each leave type. But remember the more you have the more complex it may get for your employees to understand the various types of Paid Time Off.


It is common for companies to have only one leave type with accrual policies. They are free to use up this leave anytime they wish as long as they have accrued it over time. This is also commonly referred to as PTO Bank. Users simply save up their leave days or hours like they do with money in the bank and use it as and when it’s needed.


Roll Over Period

There are only two types of rollover period.

  1. Company Leave Calendar: The company decides the rollover period. All employees fall under this range and must plan how they want to use their leaves before they expire.
  1. Work Anniversary: This rollover date is the date on which your employee had joined your organization. This means that employees have the option to use their annual leaves within their work anniversaries. This is a preferable option because it avoids all employees trying to take leaves and finish their balance before the end of the year.


Roll Over Action

Your organization must also decide how the balance annual leaves are carried forward from the previous year to the next year. As a common practice, companies will allow employees to carry forward a fixed number of leaves or carry forward all of it but cap it a certain amount. You can also allow your employees to encash the balance leaves if needed.

Rollover also decides how many leaves can be accumulated by the employee before which it is used.

For Example: If you have a MIN PTO of 24 and MAX PTO of 48 with an unlimited rollover policy, this means this employee would be eligible for 48 days of leave after 2 years in the organization and not taking a single day off from their PTO Bank.

Depending on the nature of your business you can also decide to pay employees for any additional leaves that they may have left over at the end of the year. This ensures that there is no compulsion to finish the annual leaves before the tenure. Employees are bound to take leaves only when they really need it.


Reward your most loyal employees

The employees that have been with you the longest deserves to be rewarded. You must have a higher leave allocation for those that have completed more number of years in the organization.

For example: if an employee completes more than 2 years they can get an additional 5 days than the rest of the employees.


Fine Tune Your Policy

Beginning and End: You will need to decide if your employee get the PTO at the beginning of the week or end of the week depending on your accrual type

Probation: Would you want to stop new users from applying for a leave for a certain period? A good practice is to allow users to use the balance only after a month of joining.


Our Ideal Annual Leave Policy

From our experience with various companies, we have adopted this is our ideal policy.

Accrual Frequency

We follow a monthly pay period and hence have opted for monthly accruals.

Leave Types

We have only one leave type. Casual Leaves. We leave it up to the user to decide when they would like to utilize it.

Roll Over Period

Work Anniversary

Roll Over Action

Unlimited rollover. We’d like our employees to know that any saved up leaves is always available for use later.



Key take away points.

Give your employees a sense that they have earned the leaves rather than give it in a single go. They will value earned leaves more than ever.

Let them roll over leaves but have a max cap. No one likes to loose hard earned leaves. Having a max cap will push them to use some of it and take a healthy number of breaks during the year if not all.

Go for a work anniversary roll over, this will ensure your company is not empty during your leave calendar end.



Basil Abbas

Basil is the Founder and CTO at ClockIt. With over 10 years of experience in the products space, there is no challenge that is too big in front of him be it sales, marketing, coding, etc. A people person and loves working in a startup for perfection.