How to Write a Leave Policy: What to Include, Plus a Free Template

Most small companies don’t have a leave policy. They have a habit. Someone asks the founder if they can take Friday off, the founder says “sure”, and that becomes the rule until two people want the same Friday, or someone leaves with fifteen days unused and asks to be paid for them.

A written leave policy turns those habits into rules everyone can read. This guide covers what a leave policy is, the sections it needs, the leave types to include, and the mistakes that cause trouble later. At the end there is a template you can copy and adapt.

What is a leave policy?

A leave policy (also called a time off policy, PTO policy or absence policy) is a document that explains the rules for time away from work. It covers paid annual leave and vacation, sick leave, family leave and any other absence your company recognises. It also explains the process: how to ask for time off, how much notice to give, and how balances are calculated.

It usually lives in the employee handbook and is referenced in each employment contract. Contracts set the entitlement for an individual. The policy explains how that entitlement works day to day.

Why every team needs a leave policy

It keeps you compliant

Most countries set a minimum amount of paid leave and rules for sick pay, parental leave and record keeping. Across the European Union, the Working Time Directive guarantees at least four weeks of paid annual leave. In the UK most workers get 5.6 weeks. The United States has no federal paid vacation requirement, but many states and cities require paid sick leave. A written policy shows how you meet those obligations, and writing it often uncovers places where you don’t.

It makes decisions consistent

Without written rules, every request is a judgement call, and judgement calls feel unfair to whoever got the “no”. A policy lets managers point to the rule instead of making one up.

It prevents expensive surprises

Unused leave that carries over without limit builds up on the balance sheet. In many places, untaken holiday has to be paid out when someone leaves. Our PTO payout calculator shows how quickly that adds up. A carry-over cap and a clear payout rule keep it predictable.

It helps people actually take time off

When people know their allowance and how to book it, they use it. That matters more than it sounds. Teams that rest work better, and unused leave piling up in December is a planning problem for everyone.

Before you start writing

Answer four questions first. Every section of the policy depends on them.

1. Where do your employees work? Statutory minimums, public holidays and sick pay rules follow the employee’s location, not the company’s. If you hire in several countries, you may need a core policy with a short appendix per country.
2. What is the legal minimum there? Check official government guidance for annual leave, sick leave, parental leave and public holidays. Your policy can be more generous than the law, never less.
3. What do you want to offer? Decide your annual allowance, whether it grows with length of service, and which extra leave types you provide.
4. Who runs it? Name who approves requests, who keeps the records and who answers questions about the policy.

What to include in a leave policy: 12 sections

1. Purpose and scope

One or two sentences on what the policy covers and who it applies to. Say whether it covers full-time and part-time employees, fixed-term staff, interns and contractors (contractors usually aren’t covered).

2. The leave year

Say when the leave year starts and ends. The calendar year is simplest. Some companies use the financial year or each person’s start date, but individual leave years make reporting and planning much harder.

3. Annual leave entitlement

State the yearly allowance for a full-time employee and whether public holidays are included in it or given on top. This is the single most misread line in most policies, so spell it out: “25 days of annual leave plus public holidays” is clear. “25 days including public holidays” is also clear. “25 days” is not.

If the allowance increases with length of service, list the steps, for example one extra day after three years, up to a maximum of 30.

4. Part-time staff, new starters and leavers

Explain how leave is pro-rated. Part-time employees normally get the full-time allowance in proportion to the days or hours they work. Someone joining or leaving mid-year gets a share based on the part of the year they are employed:

Pro-rated entitlement = full allowance × (days worked per week ÷ 5) × (months employed ÷ 12)

Say how you round: to the nearest half day, or always up. Our pro-rata holiday calculator and holiday entitlement calculator work through these numbers for you.

5. Accrual or up-front

Do people get the whole allowance on the first day of the leave year, or does it build up each month or pay period? Up-front is easier to understand. Accrual protects the company if someone takes the full year early and then resigns. If you accrue, state the rate, for example 2.08 days per month for a 25-day allowance. The PTO accrual calculator works out the rate for any allowance and pay frequency.

6. How to request leave

Name one channel for every request, whether that’s a form, an email address or your leave management system. Then set notice periods. A common rule is notice of at least twice the length of the leave, so two weeks of notice for a week off. Longer breaks, such as more than two weeks in a row, can need a month or more.

7. Approval

Say who approves requests (usually the line manager), who covers when they are away, and how quickly they should respond. Two working days is a reasonable target. Explain the grounds for declining a request, such as minimum staffing levels or a busy period, and that requests are handled first come, first served unless the policy says otherwise.

8. Blackout periods and company closures

If there are times when leave is restricted, such as year-end close for a finance team or the run-up to a product launch, list them. If the office closes between Christmas and New Year, say whether those days come out of the annual allowance.

9. Public holidays

List which public holidays the company observes, or point to the official calendar for each country. Say what happens when a public holiday falls on a non-working day, and whether people who work on a public holiday get a day in lieu or extra pay. You can find dates for every country in our public holidays tool.

10. Carry-over and unused leave

Decide how many unused days can roll into the next year and when they expire. A cap of five days, to be used by the end of March, is a common choice. Check local law: some countries require employers to carry over leave that someone couldn’t take, for example because of sickness or parental leave.

11. Leave when employment ends

Explain what happens to the balance when someone leaves. In most countries, accrued but untaken statutory leave must be paid out, and leave taken beyond the accrued amount may be deducted from the final salary only if the contract allows it. State how holiday pay is calculated. The holiday pay calculator covers the common methods.

12. Records and questions

Say where leave is recorded, how employees can check their balance, and who to contact with questions. Keep past records; many countries require employers to hold working-time and pay records for several years.

Leave types to cover

Annual leave is only part of the picture. For each leave type below, state whether it is paid, how many days it gives, whether it needs approval and what evidence, if any, is required.

For sick leave, some companies track patterns of short absences using the Bradford Factor. If you do, explain it in the policy and use it to start a conversation, never to punish someone automatically. The Bradford Factor calculator and absence rate calculator explain how both measures work. For parental leave dates, the maternity leave calculator works out the key deadlines.

Leave policy template

Copy this outline into your handbook and replace everything in square brackets. It is a starting point, not legal advice. Check every number against the law where your employees work.

Common leave policy mistakes

• Leaving public holidays ambiguous. Say whether they’re included in the allowance or given on top. This causes more disputes than anything else.
• Counting calendar days. Leave should come off the balance in working days, skipping weekends and public holidays, based on each person’s working pattern.
• Forgetting part-time staff. A policy written only for five-day weeks gives the wrong answer for everyone else.
• Unlimited carry-over. Balances grow every year until someone leaves and the payout lands at once.
• Copying another country’s rules. A template written for UK employees won’t fit staff in Germany or California.
• “Unlimited” leave with no guidance. Unlimited PTO policies often lead people to take less time off, not more. If you offer it, set a recommended minimum.
• Writing it and never using it. A policy that lives in a PDF while requests still happen in chat changes nothing. The process section has to match how people actually book time off.

Rolling out the policy

1. Review it. Have someone who knows employment law in each country check it, especially the sick pay and payout sections.
2. Share it with a short summary. Most people only need five facts: their allowance, how to request leave, the notice period, the carry-over rule and who to ask.
3. Set up your tools to match. Configure leave types, allowances, carry-over and approvers in your leave tracker so the system enforces the policy and nobody has to remember it.
4. Ask for acknowledgement. Ask employees to confirm they have read it, and add it to onboarding for new starters.
5. Review it once a year. Laws change, and so does your team. If carry-over keeps hitting the cap or requests keep clashing, the policy needs to change.

If you are still tracking leave in a spreadsheet, our guide on how to track employee leave covers the setup, from balance formulas to choosing software.

The bottom line

A good leave policy is short, specific and matched to the law where your people work. Define the leave year, the allowance and whether public holidays are included. Explain how part-time staff and new starters are pro-rated, how to request leave, who approves it and what happens to unused days. Then make sure the tools you use follow the same rules, so the policy is something people use rather than something they read once.