PTO policy basics: what small businesses get wrong

Ask 10 small business owners about their PTO policy and you'll get 10 different answers. I promise that at least three will be some version of "we kind of wing it." That works until someone quits with 90 hours of unused vacation and you have to figure out what you owe. Virginia doesn't require you to offer PTO, but once you promise it, you're on the hook for what you promised. And a new Virginia paid sick leave law is on the way, so this is a good year to get your policy in order.

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What Virginia requires today

Virginia doesn't have a general law requiring private employers to offer vacation or PTO. The main exception is home health workers, who've had paid sick leave protections since 2021.

What Virginia does have is the Virginia Wage Payment Act. If your policy says earned PTO gets paid out when someone leaves, that PTO is treated like wages, and withholding it can mean paying the amount owed plus additional damages and attorney's fees. If your written policy says unused PTO is forfeited at separation, that's generally allowed as long as it's clearly written down before the time is earned. The written policy is the deciding factor.

What's coming: Virginia's paid sick leave law

Virginia passed a paid sick leave law in 2026, and it phases in by employer size:

Under the law, employees earn at least one hour of paid sick leave for every 30 hours worked, up to 40 hours per year. Part-time employees are covered from their first day. Unused leave carries over to the next year, unless you give employees the full 40 hours upfront. The law doesn't require you to pay out unused sick leave when someone leaves.

If you already offer at least 40 hours of PTO per year, and employees can use it for the same reasons and under the same conditions as paid sick leave, that policy can satisfy the law.

Seven mistakes small businesses make

1. No written policy. If your policy lives in your head, it can't protect you. Put it in your handbook and have everyone sign an acknowledgment.
2. Not deciding what happens at separation. Pay it out, cap it, or forfeit it, but pick one and write it down before time is earned. An employee earning $25 an hour with 80 unused hours is a $2,000 line item, and you don't want to find that out on their last day.
3. Mixing up sick, vacation, and PTO. They're different buckets with different rules. With the new sick leave law coming, decide now whether you'll keep them separate or combine them into one PTO bank that meets the sick leave rules.
4. Approving time off inconsistently. If one manager says yes to everything and another says no to everything, you have a fairness problem waiting to happen. Write down the request process and the deadlines.
5. Not tracking balances, or liability. Spreadsheets get lost. Accrued PTO can also be a real liability on your books, especially if you pay it out at separation. This is a good time for your bookkeeper and your HR advisor to talk to each other.
6. Unlimited PTO without guardrails. It sounds generous, but people often take less time off, and managers end up arguing about what's "reasonable." If you go this way, put expectations in writing for approval, coverage, and how it's handled if someone is out for a long stretch.
7. Docking exempt employees' pay. Reducing a salaried exempt employee's pay for a partial day off can put their exempt status at risk. Charging time against a PTO bank is a different thing, and usually fine. If you're not sure how your team is classified, that's a separate conversation, and one we cover in our post on exempt vs. non-exempt employees.

What a policy that holds up includes

• Who's eligible and when they can start using time
• How time accrues (per hour worked or per pay period) and how it's capped
• Whether unused time carries over, and how much
• How to request time and how far ahead
• How sick time works, and how it meets the new Virginia law
• What happens to unused time when someone leaves
• A signed acknowledgment from each employee

Keep reading

• At-will employment in Virginia: what it means for your business: why your handbook language matters.
• Exempt vs. non-exempt: the classification question that isn't about 1099 vs. W-2.

Not sure your PTO policy will hold up?

An HR audit is a good way to find out. We look at your handbook, your policies, and your practices, and tell you what to fix first. Start with a Vibe Check.

This post is for general informational purposes and doesn't constitute legal advice. Virginia's paid sick leave law was recently enacted and details may be clarified before it takes effect. Talk to an employment attorney or HR professional before you finalize your policy.