Types of Time Off for Small Business Owners: What’s Required and What’s Yours to Decide

Employee time off falls into three categories: leave required by law, days off employees in your industry typically expect, and leave you choose to offer.

For a business with 1 to 9 employees, most leave decisions are yours to make.

Federal law sets no requirement for most leave types. State-mandated paid sick leave is the main exception, and because it varies by location, it’s the right place to start.

Leave decisions connect directly to how you run payroll.

‍SurePayroll By Paychex tracks leave balances along with every pay run, so your policy and your records stay aligned.

‍What the Law Requires at Your Size

‍Leave requirements come from two places: federal unpaid-leave rules and state paid sick leave mandates. Federal law does not require you to offer paid vacation, paid sick leave, or paid holidays, but it does set minimum standards for certain types of unpaid leave.

Federal law does require you to give employees unpaid time for jury duty, military service under the Uniformed Services Employment and Reemployment Rights Act (USERRA) and voting where state law requires it. You cannot penalize an employee for taking that time.

The Fair Labor Standards Act (FLSA) sets wage and hour rules but does not require paid leave.

The Family and Medical Leave Act (FMLA) provides up to 12 weeks of unpaid, job-protected leave, but it applies only to employers with 50 or more employees.

State paid sick leave is where required becomes real for you. As of 2026, more than 20 states and Washington, D.C. require private employers to provide paid sick leave, according to the National Conference of State Legislatures.

These rules vary widely, so general guidance doesn’t apply. Check your ​​state labor department before finalizing your leave setup. The U.S. Department of Labor is a reliable starting point for understanding paid leave categories, but it does not publish a list of state paid sick leave laws.

If you have hourly employees with variable schedules, you are likely to fall under state paid sick leave rules. Accrual works differently when hours change week to week, and your state’s regulations will spell out how to calculate it.

‍Leave Types for You to Decide

‍Paid vacation, paid holidays, bereavement leave, personal days, and floating holidays are not required by federal law. They are leave benefits you choose to offer, adjust as you see fit, and modify as your business grows.

If you have a mix of full-time employees and part-time employees, each benefit works differently depending on hours and schedule. You set the terms for each group.

‍Vacation Time and PTO

‍Paid time off is one of the strongest retention and work-life balance tools you have. Employees who can rest and recharge are less likely to burn out or leave. Roughly 70% of employers with fewer than 50 employees offer paid vacation according to the U.S. Bureau of Labor Statistics (BLS) Employee Benefits in the United States, March 2024 report.

You can separate vacation and sick time or combine them into a single PTO bank. You’ll also need to decide whether balances of unused time carry over year to year or expire under a use-it-or-lose-it policy. Each structure has trade-offs. If you’re looking for a lower-overhead alternative, you could also consider unlimited PTO. Document your decision in your written paid time off policy.

See our guide to building a PTO policy for small businesses for an overview.

‍Paid Holidays

‍Paid holidays are optional. Federal holidays like Memorial Day and Labor Day are widely recognized, but you don’t have to observe them. Choose which days your business recognizes and decide how you’ll handle holiday pay for part-time, hourly, or variable-hour employees before you put your policy in writing.

‍Bereavement Leave

‍Most employers offer bereavement leave because it supports employees through loss. Decide whether your policy covers an immediate family member only or extended family as well. Offering two to three PTO days is a reasonable starting point. It’s a low-cost benefit that provides meaningful support to your team.

‍Personal Days and Floating Holidays

‍Personal days, floating holidays, and other forms of personal time give employees the most flexibility. They offer high value at a relatively low cost. You can offer them on their own or roll them into a PTO bank, the same choice you make with vacation time.

If you offer or are considering disability coverage, see our overview of short-term disability for context on how it fits with your leave policy.

‍How to Decide What to Offer

‍Law sets the leave you must offer, and industry norms show what employees typically expect.

Private-sector employees average 10 paid vacation days after one year of service, according to the BLS report, with most falling in the 10-to-14-day range. Everything beyond that is your choice, based on your team, your budget, and your goals.

When you know what’s required, what your market expects, and what you choose to add, you can build a policy that fits your small business.

For insight into what employers your size offer, see our guide to building a PTO policy for small businesses.

If you compete with larger employers for talent, matching the standard vacation allotment helps you see whether your paid time off aligns with what candidates expect or if it’s pushing them to look elsewhere. Make these decisions before your team asks.

If you run an hourly operation, the leave most valued is usually the simplest to offer: clear paid holidays, a straightforward sick day plan, and a simple allotment your team can follow. A fixed number of sick days often works better than an accrual setup. It’s easier to explain, easier to track, and gets fewer questions when weekly hours vary.

Build a policy your employees understand, including a clear process to request and use PTO, and it becomes a benefit they trust.

‍How Unpaid Leave Works and When It Applies to You

‍Some unpaid leave rules apply to all employers. Jury duty, military leave under USERRA, and voting leave (where your state mandates it) are non-negotiable.

You must give employees that time off, and you cannot penalize them for it. Federal law is clear, and most state laws reinforce it. You do not have to pay your employees for that leave in most states, but you cannot deny the time off.

Some states have their own family and medical leave requirements that kick in below FMLA's 50-employee threshold. Check your state labor department even if federal law does not apply to you.

‍How Leave Types Connect to Your Payroll Process

‍Every type of leave you offer starts with three things: accrual rates, who’s eligible, and what you pay out when someone leaves. Set those up before your team starts earning leave.

With automated payroll software, the system tracks balances on every pay run. If you manage it on your own, you’re doing the math each pay period and calculating any pay out when an employee leaves.

That workload adds up fast. With four or five employees, especially with variable schedules and multiple leave types earning at different rates, you’re recalculating balances by hand every payday. When hours shift week to week, the numbers change every time.

Know your state’s payout rules before an employee leaves. In many states, you must pay out accrued unused vacation with the final paycheck, no matter what your employee handbook says. That requirement comes from state law, not your policy.

Payroll software built for small businesses automates that.

‍SurePayroll structures leave at the company level, so you build vacation, sick, and PTO policies by employee group and set the accrual rates and eligibility for each. Balances update automatically on every pay run.

Connect time tracking software and hours and leave stay in sync. No separate spreadsheet, no year-end reconstruction.

Learn more about payroll services for small businesses.

For more on how leave connects to payroll obligations, see federal payroll taxes.

‍From Leave Types to a Policy That Works for Your Team

‍Your next step is to turn the decisions you make into a written policy your team can follow and your payroll process can run.

Our guide to building a PTO policy for small businesses walks through how to document your policy, set accrual rates, define eligibility for new and part-time employees, communicate it to your team, and handle unused PTO at termination.

‍SurePayroll has processed more than 3 million payrolls for small businesses over 25 years. When you are ready to set up your leave types in payroll, the SurePayroll small business payroll platform automates the details -- accruals, tracking, payout rules, and records -- so you can stay focused on running your business.

See how you can put SurePayroll to work for your small business.  

"I had no idea how to run payroll… I canceled [another service] and went running to SurePayroll. My support specialist walked me through it. I've now processed two months of payroll without stress, hours on the phone or errors."

— KC, Trustpilot review