Manage time off policies

Accruing time off and negative balances

To apply accrued hours off to a payroll, you must first create a corresponding policy. If you're an employee looking to view your balance, click here.

Keep in mind: A time off balance will go negative automatically if an employee uses time off they do not have. A payroll admin can also save a negative balance in the employee's details screen under the time off tracking section. 

• Time off only accrues on regular payrolls. 
  • For off-cycle and bonus payrolls, you'll need to manually update the time off balance for that employee if time off should have accrued. 
• Employees can borrow time off before it’s accrued. 
  • If an employee uses more time off than they’ve accrued, the time off balance will go into the negative.
  • The employee can work toward a positive balance by accruing time off on future payrolls based on hours worked. Or, you can manually edit their balance as needed. 
• Time off does not accrue for new hires mid pay period.
  • If you hire an employee in the middle of a pay period, our system will not accrue time off. You'll need to manually add in the appropriate accrual amount. PTO will start accruing on the first full pay period.

Anniversary accrual 

Time off will accrue for an anniversary date only if the anniversary date is the first day of the pay period. If the anniversary date falls in between a pay period, the accrual will take place on the following payroll.

• Anniversary date: Dec 1, pay period Nov 27 - Dec 8 - PTO will accrue on following payroll.
• Anniversary date: Dec 1, pay period Dec 1 - Dec 15 - PTO will accrue on this payroll.

However, if the payroll includes time from the previous year, the employee won't see the accrual until the next payroll fully in the new year.

• Anniversary Date: January 1, pay period Dec 26 - Jan 10 - PTO will accrue on the Jan 11 - Jan 25 payroll.

A carry-over limit is the amount of accrued (or unused) time off that can be carried over from one calendar year to the next. Some employees earn more time off on the anniversary of their hire date, while others earn it on January 1.

When you create a time off policy, you can choose how to handle carryover limits at the end of the calendar year. Carryover limits can be set for the following policy types:

• Fixed – All at once (beginning of the year)
• Fixed – Earned throughout the year in pay periods
• Hourly – Accrued by hours worked

Heads up: Carry-over limits are not supported on the policy type “Fixed – All at once (each anniversary date)”.

Choose from two carry-over limit options:

• Yes, there’s a limit
• If you don’t want hours to rollover, enter 0 for the “Max carryover” amount.
• No, all hours can be carried over
• Reductions due to a carryover max will be accounted for in the Time off balances report

Keep in mind: Some state sick time mandates do not allow for time off balance resets, so balances will not automatically zero out at year's end unless a payroll admin manually zeroes out the balance on an account.

PTO and Sick time policies will calculate using the employee's regular hourly wage amount automatically, and this cannot be updated. Example: If an employee earns $35/hour, $35 will be the hourly rate used for PTO or sick time in Gusto.

Hourly

Enter the actual hours worked in step one of the payroll run, then enter the actual PTO hours taken in step two of the payroll run where PTO is entered.

• Example: If an hourly employee should be paid for a total of 71 hours worked, but 12 of those hours were PTO, you'd enter 59 hours in step one of the payroll run, and 12 hours in step two (PTO page).

Salaried

Leave the standard hours worked as-is on step one of the payroll run, then enter the PTO hours taken in step two (PTO page) of the payroll run—the PTO hours entered will automatically reduce the regular hours worked/reported.

• Example: If your salaried employee usually works 80 hours a week but took 6 hours of PTO during the pay period, leave their standard 80 hours as-is on step one of payroll, then enter 6 hours of PTO in step two of the payroll run—their paystub will automatically adjust to reflect 74 regular hours works and 6 PTO hours paid.

Dismiss an employee

Gusto will default to paying out time off upon dismissal based on how you created your time off policy. Remaining Sick time hours will not automatically pay out.

• Only limited time off policies can be paid out (except unpaid time off). 
• If you want to manually pay out time off for any reason, you'll have the option to pay out any remaining time off during the dismissal payroll.

Learn more about dismissal paycheck requirements by state.

Rehire an employee

Employees will automatically regain any time off balance that they had at their dismissal.

Limited time off polices mean you can set a limit to how much time an employee can take off in a given year. 

1. Click the Time tools section and select Time off.
2. Click Add Policy.
3. From the dropdown, select the policy type you’d like to create.
4. Name the time off policy.
   • Some cities and states have mandatory sick time regulations—be sure to check your state’s mandatory sick leave policies. If applicable, you can set up and name a sick policy that applies to your employees in that given state or city.
5. Select Yes, there is a limit to the amount of time off your team can take.
   • When an employee is dismissed, time off in a limited policy will automatically be paid out on their dismissal paycheck.
6. Select the way you’d like your team to accrue hours.
   • For fixed: Enter the total time off per year and how it’s earned.
   • For hourly: Enter the amount of time off hours that employees will accrue based on the actual number of hours worked.
7. Click Save & continue.
8. Choose if you want employees to go through a waiting period before they can start accruing hours and requesting time off. If so, enter how long it is.
   • Waiting period: The allotted period of time an employee must wait before they can begin accruing time off. For example, an employee must have a 30 day waiting period before they can accrue time at their company.
9. Choose if you want your employees to have a max balance per year. If so, enter that amount.
   
   • Maximum balance: The maximum amount of time off hours that an employee can have at any given time. If an employee has reached their max balance but uses some time off during a given pay period, they may still accrue back up to their max balance. For example, an employee earns 10 hours of time off every month, but they have a max balance of 20 hours total. 
10. Choose if you want your plan to have a carryover limit.
    • Carry-over limit: The amount of accrued (or unused) time off that can be carried over from one calendar year to the next. Some employees earn more time off on the anniversary of their hire date, while others earn it on January 1.
11. Select the dismissal payroll settings by choosing if you would like employees to be paid out their remaining unused time off balances.
12. Click Save & Continue.
13. Choose if you’d like your employees to earn by tenure. If so, enter the anniversary when they’ll begin to earn additional hours and the total they’ll receive. Then, click Add Milestone. 
    • Earn by tenure: Sometimes used to determine when an employee will get an increase in time off. For example, an employee receives an additional 24 hours of time after 2 years of tenure with their company.
14. Click Save & Continue.
15. Click the + icon next to the employees you want to enroll. 
16. Click Save & Continue.
17. Add any existing balances for employees. 
    • If your employees have an existing balance, enter those hours.
    • Employees moving to this policy from another will carry over their accrued hours.
18. Click Create Policy.

You can view and update your policy by clicking Time tools and selecting Time off. 

For Plus and Premium customers, we recommend you also set up time off requests for your team. This enables your employees to request time off in Gusto and automatically records the hours in payroll once they’ve been approved.

Once you’ve completed setting up time off, you can edit or cancel your policy at any time. 

Information you can change at any time

• Policy name
• Policy description
• The accrual method
• Waiting period
• Max balance and carryover limit

Edit a time off policy

1. Click the Time tools section and select Time off.
2. Click the Policies tab.
3. For the policy you want to change, click the three dots on the right and click Edit. 

Any changes you make to your policy will affect all enrolled employees.

1. Click the Time tools section and select Time off.
2. Click the Policies tab.
3. For the policy you want to delete, click the three dots on the right and click View. 
4. Click Delete Policy in red on the right-hand side.

If you're unable to delete the policy, it means there are still pending time off requests. These requests will need to be deleted before you can delete the policy.

Once a policy is deleted, employees will no longer accrue or be able to request time off, but their balances will remain on file if you should want to re-add the policy at a later time.

1. Click the Time tools section and select Time off.
2. Click Add Policy.
3. From the dropdown, select the policy type you’d like to create.
4. Name the time off policy.
5. Select No, it's unlimited.
   • When an employee is dismissed, time off in an unlimited policy will not pay out on their dismissal paycheck.
6. Click Save & continue.
7. Click the + icon next to the employees you want to enroll. 
8. Click Create Policy. 

You can view and update your policy by clicking Time tools and selecting Time off. 

For Plus and Premium customers, we recommend you also set up time off requests for your team. This enables your employees to request time off in Gusto and automatically records the hours in payroll once they’ve been approved.

Once you’ve completed setting up time off, you can edit or cancel your policy at any time. 

Information you can change at any time

• Policy name
• Policy description
• The accrual method
• Waiting period
• Max balance and carryover limit

Edit a time off policy

1. Click the Time tools section and select Time off.
2. Click the Policies tab.
3. For the policy you want to change, click the three dots on the right and click Edit. 

Any changes you make to your policy will affect all enrolled employees.

1. Click the Time tools section and select Time off.
2. Click the Policies tab.
3. For the policy you want to delete, click the three dots on the right and click View. 
4. Click Delete Policy in red on the right-hand side.

If you're unable to delete the policy, it means there are still pending time off requests. These requests will need to be deleted before you can delete the policy.

Once a policy is deleted, employees will no longer accrue or be able to request time off, but their balances will remain on file if you should want to re-add the policy at a later time.

You can keep track of paid holidays for when your employees do not work but receive regular wages and Gusto will automatically pay your team for those holiday hours when you run payroll.

Just like a sick policy, this type of policy should be added if employees are not working but being paid for their time away.

Reminders

• Employees will be paid for the full 8 hour holiday day. 
• Federal holidays will be observed on Friday or Monday, if the holiday falls on a Saturday or Sunday respectively. 
• Federal holidays selected will automatically apply to all future years.
• Custom paid holidays will need to be created individually for each year and you can create holidays up to three years in advance.
  • Custom holidays cannot be created if the date is in the past. 
  • Custom holidays are available to Plus and Premium customers - upgrade your plan at any time. 
• Holidays cannot be removed once the holiday has passed. 

Create a holiday pay policy

1. Click the Time tools section and select Time off.
2. Click the Polices tab.
3. Click the Holiday Pay tile.
4. Select your company's paid federal holidays.
   • We'll automatically count them as paid time off when you run payroll.
5. [Plus and Premium customers only] Click Add Custom Holiday if you'd like to add your own company holidays here (i.e. day after Thanksgiving).
   • Name your holiday.
   • Enter a date range for the holiday and click Save.
   • If a custom holiday date range overlaps with a preexisting Federal holiday, Gusto will not double-count the holiday hours for that day.
   • The Custom Holiday PTO feature is available to Plus and Premium customers - upgrade your plan at any time.
6. Review all holidays and click Continue.
7. Add employees you'd like to enroll in the Paid Holiday policy.
8. Click Create Policy.

You can now sync the holiday pay schedule to your personal calendar if you would like. Employees will also be able to see the holiday schedule in their Gusto dashboards.

Once you've set up a holiday pay policy, you can make the changes below as needed. 

 Remove a paid Federal holiday

1. Click the Time tools section and select Time off.
2. Click the Policies tab.
3. Scroll to the Paid Holidays policy and click the three dots on the right-hand side.
4. Click view.
5. Click edit under Federal Holidays on the right-hand side to change the current settings.
   • Changes made to Federal Holidays will only affect future dates.
6. Uncheck or check the desired Holiday name.
7. Click Save.

Change or delete a custom holiday [Plus and Premium plans]

Custom holidays are available to Plus and Premium customers - upgrade your plan at any time. Custom holidays can only be edited for a future date, not if the date has already passed.

1. Click the Time tools section and select Time off.
2. Click the Policies tab.
3. Scroll to the Paid Holidays policy and click the three dots on the right-hand side.
4. Click view.
5. Click edit next to the custom holiday.
6. You can edit the custom holiday title and date.
7. Click Update holiday to save changes or exit.
8. If you need to delete the custom holiday entirely, click Remove Custom Holiday.