Use time off policies (also called PTO policies, vacation policies, or leave policies) in Gusto to manage how your team earns, requests, and gets paid for time away from work. This article covers policy types, plan requirements, and step-by-step instructions to create a new policy.
Before you get started, here's what you can and cannot do with time off policies in Gusto.
You can:
Create multiple policies of the same type
Manually adjust team member balances
Record time off on behalf of team members
You cannot:
Add US or non-US contractors to time off policies
Switch a policy between paid and unpaid — you need to delete and recreate it
Switch a policy between limited and unlimited — you need to delete and recreate it
Remove past holidays
Add employees to more than one policy of the same type (regardless if paid or unpaid) — you'll need to set up a custom policy instead
Time off policies are available on Simple, Plus, Premium, and Time & Attendance Plus Simple plans. Some policy types — like Custom, Unpaid, or certain leave types — require Plus or higher. You can upgrade your plan at any time.
When time off requests are enabled, team members can submit requests in Gusto on a computer or in the Gusto mobile app. Approved requests are automatically synced to payroll.
Admins with the right permissions can approve requests, record time off on behalf of team members, and assign managers to handle requests. For details on what managers can do, see managing time off requests as a manager.
Every time off policy in Gusto has two core settings: limited or unlimited, and paid or unpaid. You cannot switch a policy between limited and unlimited, or paid and unpaid. To change this, you must delete the policy and create a new one.
Expand the sections below to learn more about each setting.
Limited: Team members accrue or earn a set amount of time.
Unused hours can be paid out at dismissal (depending on setup)
Unlimited: Team members can take time off as needed.
Unused time is never paid out at dismissal
Cannot be converted to limited later
Paid: Time off is paid in payroll.
Unpaid: Time off is tracked but not paid. This is only available on Plus, Premium, or Time and Attendance Plus Simple plans.
Availability depends on your plan:
Sick (Simple, Plus, Premium) — for required or optional sick leave
Time off / Vacation (Simple, Plus, Premium) — general PTO or vacation time
Personal day (Plus, Premium, Time and Attendance Plus Simple add-on) — one-off personal days
Parental leave (Plus, Premium, Time and Attendance Plus Simple add-on) — time off for birth, adoption, or fostering
Bereavement (Plus, Premium, Time and Attendance Plus Simple add-on) — time off after a death in the family
Floating holiday (Plus, Premium, Time and Attendance Plus Simple add-on) — flexible holidays for non-federal holidays or personal observances
Volunteer (Plus, Premium, Time and Attendance Plus Simple add-on) — paid time off for volunteering
Weather / emergency (Plus, Premium, Time and Attendance Plus Simple add-on) — closures due to weather or emergencies
Jury duty (Plus, Premium, Time and Attendance Plus Simple add-on) — time off for court or jury service
Learning and development (Plus, Premium, Time and Attendance Plus Simple add-on) — training or professional development time
Holiday pay (Simple, Plus, Premium) — paid company holidays for days not worked. See Set up a holiday pay policy.
Custom (Plus, Premium, Time and Attendance Plus Simple add-on) — any other policy type you need to track
Use Limited + Paid for PTO you might pay out at dismissal
Use Unlimited when you do not track earned balances
Use Custom for special tracking needs like emergency leave
Some states and cities have mandatory sick time rules. If your state requires separate emergency sick leave and you already have a regular sick policy, create a separate Custom policy for that emergency leave.
For Washington employers, sick policies must be marked as qualified (tax-exempt) or non-qualified (taxable) during setup.
Check your state and local sick leave requirements before finalizing your policies to stay compliant.
🎥 Watch this video to see an example time off policy setup.
To create a time off policy, follow these steps.
Go to Time & Attendance, then Time Off.
Click Add policy.
Choose the policy type — Sick, Vacation, Personal day, Custom, and more.
Name the policy and (optional) add a description.
Choose Paid or Unpaid.
Choose Limited or Unlimited.
Continue through accrual, balance, waiting periods, and dismissal settings.
Important: If you don’t see the option to add a waiting period, you may not have set up time off requests. Time off requests must be enabled in order to add or edit a waiting period.
Add milestones for employee tenure (optional). See below for more information.
Enroll team members and add starting balances if needed.
Click Create policy.
Next, turn on time off requests so employees can request time off and we can apply it to payroll once approved.
Milestones allow a time off policy to automatically move an employee to a higher accrual rate once they hit a specific tenure threshold (e.g., 1 year, 5 years). No additional policy is needed.
In step 3 of policy setup, click Add another milestone.
Set the Milestone— the number of years worked.
Enter the Total per year— number of hours an employee can accrue.
Update the Max hours accrued per year if there is a difference for employees of that tenure.
Repeat for additional tiers (e.g., 5-year, 10-year milestones).
Save the policy — the system will automatically move employees to the next milestone when their anniversary hits.
Pro tip: Gusto suggests common policy types at the bottom of the policies page. Click Add policy next to any suggestion to get started quickly.
You can change the policy name, description, accrual method, waiting period, and max and carryover limits.
Note: Paid vs unpaid and limited vs unlimited cannot be changed after a policy is created. To switch those, you need to delete the policy and create a new one.
To edit a time off policy, follow these steps.
Go to Time & attendance, then Time off.
Click Policies.
Next to the policy, click More actions (⋮) and select Edit.
Waiting periods can be set for time off accrual and usage. Time off requests must be enabled in order to add or edit a time off usage waiting period.
To edit a waiting period, follow these steps.
Go to Time & attendance, then Time off.
Click Policies.
Next to the policy, click More actions (⋮) and select Edit.
Click Save and continue to go to the next step.
Edit waiting periods.
When you delete a policy, we stop future accruals and requests, but we keep past balances and history for reporting.
Note: Delete is not available directly in the More actions menu. You must select View first to access the Delete option.
To delete a policy, follow these steps.
Go to Time & attendance, then Time off.
Click Policies.
Next to the policy, click More actions (⋮) and select View.
Click Delete policy.
You must decline or delete any pending time off requests before you'll be able to delete a policy.
To add or remove team members from a policy, follow these steps.
Go to Time & attendance, then Time off.
Click Policies.
Next to the policy, click More actions (⋮) and select View.
Open Enrolled team members.
Click Add or remove team members.
Search for team members and click + Add or click X to remove.
Click Save and continue.
You can also add new employees to a time off policy during onboarding.
Note: If you enrolled a team member with the wrong start date, remove them from the policy and re-add them with the correct date. Their last balance will auto-populate and their full accrual history will repopulate in the Time Off Tracker. If time should have been accruing while they were not enrolled, you will need to manually adjust their balance to account for that period.
If you're unable to remove a team member or policy, there are likely pending time off requests that need to be declined or deleted first.
Holiday pay policies (also called paid holidays or company holidays) pay team members for time not worked on company holidays. Only one holiday policy is allowed per company. Team members are always paid eight hours per holiday, regardless of full-time, part-time, hourly, or salaried status.
Once a holiday has passed, it cannot be removed because it may already be tied to processed payroll.
Federal holidays auto-apply to future years and are observed on Friday or Monday if they fall on a Saturday or Sunday.
Custom holidays must be created every year (up to three years ahead).
Holiday hours can only be adjusted during payroll, not in the policy (for example, paying 6 hours instead of 8).
Hours-based waiting periods only work on policies that accrue by hours worked or all paid hours. They do not apply to Holiday Pay policies.
If a custom holiday overlaps with a selected federal holiday, we will not double-count the hours.
Team members can see the holiday schedule in their Gusto account, and you can sync it to your own calendar.
Holiday pay policies are available on Simple, Plus, and Premium plans.
Custom holidays are only available on Plus, Premium, or Time and Attendance Plus Simple.
You can create custom holidays only for future dates, up to three years in advance.
To create a holiday pay policy, follow these steps.
Go to Time & attendance, then Time off.
Click Policies.
Click Add policy.
Choose Holiday Pay.
Select federal holidays.
(Plus and higher only) Add custom holidays. If a custom holiday overlaps with a federal holiday, we will not double-count the hours.
Enroll team members.
Click Create policy.
(Optional) Sync the holiday schedule to your calendar.
You can only edit holidays that have not yet happened. Changes apply to future dates only.
To edit a paid federal holiday, follow these steps.
Go to Time & attendance, then Time off.
Click Policies.
Find the Paid Holidays policy, click More actions (⋮), and select View.
Under Federal holidays, click Edit.
Check or uncheck holidays and save.
To edit a custom holiday (Plus, Premium, or Time and Attendance Plus Simple), follow these steps.
Go to Time & attendance, then Time off.
Click Policies.
Find the Paid Holidays policy, click More actions (⋮), and select View.
Click Edit next to the custom holiday.
Update the name or date and save.
To delete a holiday pay policy, follow these steps.
Go to Time & attendance, then Time off.
Click Policies.
Find the Paid Holidays policy, click More actions (⋮), and select View.
Click Delete policy.
This section covers how to manage negative balances, set carryover rules, and edit team member time off balances (also called PTO balances or accrual balances) in Gusto.
You can decide if you want to allow team members to borrow time.
If negative balances are allowed, a team member's balance will automatically go negative when they use more time off than they've accrued.
Negative balance preferences are only available if time off requests are enabled.
Admins and managers can always record time off, even if it causes a negative balance.
Negative balances accrue back toward zero on future payrolls and carry over if carryover is set to 0.
If you turn off negative balances, we do not auto-change existing pending requests. You can decline them.
To change the negative balance settings, follow these steps.
Go to Time & attendance, then Time off.
Next to the policy, click More actions (⋮) and select Edit.
Update the setting and save. We apply changes right away.
Carryover limits control how much unused time moves to the next accrual period. We do not support paying out non-carried hours.
Note: All limited policies reset their accrual period — either annually or on each team member's anniversary date. This reset is what allows carryover to work. Without a new accrual period starting, there is no period to carry hours over to.
Carryover limits apply to:
Fixed accruals (all-at-once or throughout the year)
Hourly accruals
Reminders:
Carryover is not supported for anniversary all-at-once policies.
If you set a carryover max, we show any hours reduced due to the carryover limit in the Time off balances report.
Some state sick leave laws do not allow resets. If state law does not allow sick time resets, balances will not automatically zero out at year-end. Admins may need to manually zero them out.
To change the carryover setting, follow these steps.
Go to Time & attendance, then Time off.
Next to the policy, click More actions (⋮) and select Edit.
Update the setting and save. We apply changes right away.
To edit a team member's balance, follow these steps.
Go to People.
Click the team member's name.
Click Time off.
Select the policy and edit their balance.
After you save, the team member will see the updated hours.
Admins and team members may see different balance numbers because:
Team members see their total balance including approved and upcoming time off.
Available hours may be lower than the total balance if the team member has approved time off that has not yet been paid in payroll.
Admins see current balance and requested hours broken out separately.
Q: Why did my balance not update?
A: Balances update after the payroll that includes the time off hours is paid (on or after the check date).
Q: Why were hours not deducted right away?
A: Time off needs to be approved and included in payroll. Balances update once payroll is processed.
Q: Why can't I change this policy?
A: Some settings — paid vs unpaid, limited vs unlimited — require deleting and recreating the policy. See Create a time off policy for details on policy types.
This section covers how to enter PTO, sick time, and other time off hours in payroll for both hourly and salaried team members, and how to record time off on their behalf.
We calculate time off differently for hourly and salaried team members. Approved time off hours sync to payroll automatically — you only need to manually enter hours if they were not requested and approved before running payroll.
Start to run your regular payroll.
Enter Regular hours worked in the corresponding column.
Enter Time off hours in the corresponding column (holiday, sick, and other time off policies will each be in a separate column).
Click Review summary.
Example:
80 total hours
8 hours of sick time
12 hours of PTO
Enter 60 regular hours + 8 sick time hours + 12 PTO hours.
Note: In the legacy view, time off is entered by clicking + Time off beneath regular hours.
We automatically reduce regular hours by the amount of time off entered. Do not reduce the salaried employee's regular hours, as this will affect their pay.
Start to run your regular payroll.
Leave standard hours as-is.
Enter Time off hours in the corresponding column.
Time off is always paid at the employee's regular hourly rate. This cannot be changed.
Employees can make their own time off requests. To enter or edit time off for them, follow the steps below.
Important: Time off requests must be enabled for this feature. If you don't see the options below, go to Time & attendance → Time off and click Enable in settings.
Go to Time & attendance, then Time off.
Open Time off requests.
Click Record time off for a team member in the US.
Enter the details.
Click Record time off.
What happens next:
The request is auto-approved.
The team member gets an email letting them know time off was added.
Hours appear in payroll.
Balances update after the related payroll is paid (on or after the check date).
Q: I had pending time off requests but already ran payroll. What do I do?
A: If you already paid the hours in payroll, decline the matching request so it is not double-counted. If you did not pay the hours:
For salaried team members — approve the request and manually adjust their time off balance to reflect the approved time.
For hourly team members — run an off-cycle payroll and add the time off with the correct work period and request dates. We'll autofill the hours and update the balance.
Q: Does Payroll on AutoPilot still run if I have pending time off requests?
A: Yes. Payroll on AutoPilot does not approve, decline, or apply time off requests automatically. Requests still need to be reviewed and included in payroll as needed.
Q: Why can only salaried team members request time off in past payroll periods?
A: Taxes for hourly team members are based on the actual hours worked and paid in each pay period. Changing those hours after the fact can affect taxes that were already filed. To avoid tax issues, hourly team members cannot make historical time off requests.
Q: What happens when a historical time off request for a salaried team member is approved?
A: The request moves from Pending to Paid in the payroll view. The team member's time off balance updates, and the paystub for that period is updated to show the new time off hours.
Q: I use a time and attendance integration. How does that affect time off in Gusto?
A: You can still sync regular hours from your integration. If you also track vacation or sick hours in that tool, Gusto will not import those hours. Time off paid in Gusto still comes from time off requests and balances in Gusto.
Time off balances (also called PTO payout or vacation payout) behave differently when someone is dismissed or rehired in Gusto. This section covers what pays out, what doesn't, and what happens when you rehire someone.
By default, limited paid policies pay out unused balances on the dismissal paycheck. Remaining sick time does not automatically pay out.
Unpaid policies and most sick time balances do not pay out automatically. You can manually pay out time during the dismissal payroll.
Some states require payout of unused balances when a team member leaves. Make sure your policy settings align with your state's rules.
Note: If you dismiss an employee mid-pay period and their policy accrues per pay period, all unused hours — including hours from the current pay period — will be paid out in full. Hours will not be prorated.
See steps on running a dismissal payroll.
Team members regain their previous time off balances when rehired.
This section covers how to track time off balances, understand the Time Off Tracker, and run time off reports (also called PTO reports or leave reports) in Gusto.
The Time Off Tracker shows team member activity during the time they were enrolled in a limited policy. Unlimited policies do not have an earned balance to track.
Admins and team members may see different balances due to pending requests. Here's what each term means:
Available hours — time off the team member can still use
Requested hours — pending and approved requests that have not been fully paid in payroll yet
Pending requests — requests waiting for approval
Approved requests — approved time off that has not yet been paid in a payroll
Past vacation / sick time — time off already processed in payroll
Maximum hours — the policy's max balance or yearly accrual limit, if set
Accrual — hours earned by the policy rules
Admin adjustment — manual change made by an admin
Team member request / Admin recorded request — time off requested by the team member or entered by an admin
Carryover limit reached / Max balance reached — hours capped because the policy's carryover or max rules were hit
Payout of unused hours — payout during dismissal payroll
Removed from policy / Added to policy — when a team member is enrolled in or removed from a policy
Payroll reversed or cancelled — a payroll was reversed or cancelled, causing previously accrued time off to be removed or adjusted
Historical accrual adjustment — a past time off request that adjusts a prior accrual
Some states require you to share time off balances with team members. You can do this by giving them access to Gusto or sharing the Time off balances report.
Note: If an admin has PTO-only permissions, they can run time off reports but may not see liability totals because those use pay rate data.
To run the Time Off Balances report, follow these steps.
Go to Reports, then Time off balances.
Choose a time period and select team members.
Generate and download the report.
Reminders:
Manual adjustments show immediately.
Approved time off requests show after the related payroll is paid.
Liability totals only appear for policies set up to pay out balances at dismissal.
Reports show historical data for any period when a policy was active, even if the policy has since been deleted.
Dismissed team members appear in reports only for the dates when they were covered by the policy.
Time Off Requests report — shows request status, dates, notes, and totals for each request
Paid Time Off Summary report — shows how much time off team members have taken during the year
Q: When does a time off request appear in reports?
A: In the Time Off Requests report it will appear as soon as the request is submitted. In the Time Off Balances report it will appear after the payroll tied to the request is paid (on or after the check date).
Q: How do rollover rules affect what I see in reports?
A: Rollover changes appear in reports after the payroll that runs on or after the rollover date.
Q: How are removed or dismissed team members shown in reports?
A: Team members appear only for the dates when they were enrolled in the policy.
Q: Can I run reports for a policy I deleted or disabled?
A: Yes. Reports show historical data for any time period when the policy was active.
Q: Why can I run a report but not see liability totals?
A: Admins with PTO-only permissions can run reports but cannot see liability totals because those use pay rate data.