Set up a paid time off policy

You can keep track of time off taken for your employees, and pay your workers for vacation or sick hours within your Gusto account. Some cities and states have mandatory sick time regulations. Check out our article on these laws to make sure you choose a compliant policy. 

Step 1. Set up a company time off policy 

  1. Click the Time Off tab.
  2. Click either Vacation: Set up default policy or Sick: Set up default policy.
  3. Select one of the following Earning Methods:
    • Annual
      • Select fixed amount of time off hours earned throughout the year in pay periods
      • Select fixed amount of time off hours earned all at once (at beginning of the calendar year).
      • Select fixed amount of time off hours earned all at once (on the employee's anniversary date).
    • Hourly
      • Enter the amount of time off hours employees will accrue based on the actual number of hours worked. Time off hours will not accrue based on vacation hours or sick hours taken.
  4. Enter the Max Balance if employees are not able to earn more hours after a certain limit. If no amount is specified, any remaining hours will rollover each year.
  5. Click Save.

Step 2. Enroll your employees in the time off policy

  1. Click the People tab.
  2. Click your employee's name.
  3. Navigate to the Time Off Tab.
  4. Click Add Vacation Time Policy or Add Sick Time Policy
  5. Click Apply default company settings to apply the current company's default policy settings.
  6. If your employee already has some time off hours saved up, you can Add a Starting Balance.
  7. Click Save.

What’s next? Now that you've added a time off policy for your employees, allow your employees to request time off by setting this up in your Gusto account.

Questions and Answers

Q: What if I want to combine vacation and sick hours into one shared policy?
A: We do not recommend setting up a single time off policy with shared vacation and sick time because states tend to require that all combined time off be cashed out upon termination, which is usually not the employer's intent. However if you'd like to set this up, simply input all hours in the vacation policy field and this will happen automatically.

Q: Do time off balances automatically zero out at year's end?
A: No, 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 the administrator for a company's payroll manually zeroes out the balance for an account.

Q: Can an employee go into the negative for time off?
A: Yes, the balance will go negative automatically if the employee uses vacation he or she doesn't have. You can also save a negative balance in the employee's details screen under the time off tracking section.

Q: Do remaining vacation and sick hours pay out when an employee is dismissed?
A: When you dismiss an employee and run a final termination payroll, any remaining vacation hours will automatically pay out to the employee. Sick hours however will not pay out. If an employee is re-hired, they will automatically regain any sick balance that they had upon their termination.

Q: Is there a report I can run for paid time off?
A: You bet! You can run a Paid Time Off Summary report to view employee time off balances and time off hours taken for the year.


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