Leave policy template for a small company: fixed, unlimited or minimum leave, and the rules that go with each

Why a two-person company still needs a written leave policy

The first time someone asks "can I take three weeks in August?" you will answer from instinct, and that answer becomes precedent. The second person to ask will be judged against it. A written policy exists so that the answer does not depend on who is asking, who they ask, or how busy the week was.

It also matters legally. In most jurisdictions, paid leave above a statutory floor is a contractual term, which means what you write down is what you owe. Vague policies create disputes at exactly the moment, resignation, when neither side wants one.

Fixed, unlimited or minimum leave: the trade-offs

There are three honest options. All three can work for a team of two to fifteen; the choice is mostly about what you want to make easy and what you want to make explicit.

Our own experience with unlimited leave at an earlier stage was the common one: nobody knew what was acceptable, so the cautious people took ten days and the confident people took thirty. We moved to a minimum-leave policy with a stated allowance above it, which is what the template below describes. If you prefer a plain fixed allowance, delete the minimum clause and the policy still works.

Statutory floors: check your jurisdiction first

Your policy can be more generous than the law but never less. The floor varies a lot:

• United Kingdom. Most workers on a five-day week must receive at least 28 days of paid annual leave a year, which GOV.UK describes as the equivalent of 5.6 weeks; employers may count the eight bank holidays within that figure.
• European Union. The Working Time Directive (2003/88/EC, Article 7) requires at least four weeks of paid annual leave; most member states set a higher national figure.
• United States. There is no federal requirement for paid vacation. The Department of Labor's guidance states that the Fair Labor Standards Act does not require payment for time not worked, including vacations, and leaves it to agreement between employer and employee. Some states regulate accrual and payout of whatever you do offer.

Public holidays, sick leave, parental leave and compassionate leave are separate entitlements in most countries and should be separate sections in your policy. This template covers annual leave only and points to where the others go.

The leave policy template

Copy this into your handbook or your policies page. Square brackets are the values you must choose. Everything else is written so you can publish it as is.

LEAVE POLICY — [Company name]
Effective: [date]    Owner: [role, e.g. Head of Operations]    Review: every 12 months

== 1. Who this covers
All employees on a permanent or fixed-term contract. Contractors follow
their own agreements. Part-time staff receive the same entitlement
pro-rated to their contracted days.

== 2. Annual leave allowance
Each full-time employee receives [25] days of paid annual leave per
leave year ([1 January – 31 December]), plus public holidays in their
country of employment. This is above the statutory minimum in
[country]; where local law is more generous, local law applies.

== 3. Minimum leave
Every employee must take at least [20] days of leave each year. Your
manager will raise it in your 1:1 if you are on track to take less
by [1 October]. Rest is part of the job.

== 4. Accrual
Leave accrues at [1/12] of the annual allowance on the first day of
each month, from your start date. You may book leave before it has
accrued, up to [5] days ahead of your balance, with manager approval.

== 5. Carry-over
You may carry up to [5] unused days into the next leave year. They
must be used by [31 March] or they lapse. Carry-over above this is
only permitted where leave was refused for business reasons or you
were on sick or parental leave, in which case it is agreed in writing.

== 6. Booking and approval
Request leave in [the People tab / the leave tool] with at least:
  - 1 week's notice for 1–2 days
  - 2 weeks' notice for 3–5 days
  - 4 weeks' notice for more than 5 days
Your manager approves within [2 working days]. Approval may be
withheld only for a clear business reason, which will be given.
No more than [one] person from the same team of [three] may be off
in the same week unless agreed in advance.

== 7. Company closure
The company closes between [24 December and 1 January]. [These days
are given in addition to / These [3] days are deducted from] your
allowance.

== 8. Leaving the company
Accrued, untaken leave is paid in your final salary. Leave taken
above what you have accrued is deducted from it. The company may ask
you to take outstanding leave during your notice period.

== 9. Other leave
Sick leave, parental leave, compassionate leave and unpaid leave are
covered in [their own policies / Section X of the handbook].

== 10. Acknowledgement
Everyone confirms they have read this policy on joining and whenever
it changes.

How to choose the numbers in the brackets

1. Set the allowance. Start from your statutory floor, then add what the market in your industry expects. For UK and EU software companies, 25 days plus public holidays is the common figure; in the US, 15 to 20 days is typical for small companies that offer fixed leave.
2. Set the minimum. If you are using a minimum-leave clause, 15 to 20 days is the range that actually changes behaviour. Below that it is decorative.
3. Decide carry-over. Five days with a hard deadline is enough to be humane and small enough to stop balances becoming a liability on the balance sheet.
4. Set notice periods. The point is to protect the rest of the team's planning, not to make leave hard to get. Scale them to the length of the absence.
5. Decide on closure days. If you close over the holidays, say whether those days are extra or deducted. Both are fine; silence is not.
6. Name the owner and the review date. A policy with no owner is not updated when the law changes.

Running the policy day to day

A policy is only as good as the balance it produces. For a company of three, a shared calendar and a spreadsheet are enough. Beyond that, you want three things in one place: a request-and-approve flow, a balance that updates itself, and a record that each person has read the current policy.

Atrix covers this in its People area and it is what we use ourselves, with the usual caveat that it is one option among several. Leave requests go to the person's manager, balances show accrual and carry-over, and the leave calendar sits next to the team calendar so that clashes show before approval rather than after. Policies live as documents with acknowledgement tracking, so section 10 of the template above is a report rather than a hope. The leave policy template is pre-filled with the clauses above, and the People overview describes the rest of the HR records. The limits: Atrix does not calculate statutory entitlements for you, has no payroll, and does not file anything with a government; it keeps the record and the approvals. For payroll and statutory reporting you will still need a provider in each country you employ in.

Dedicated HR tools such as BambooHR, Personio and CharlieHR do the same job with deeper country coverage, at a per-employee price; if you are already in one, there is no reason to move.

Four mistakes we have seen small companies make

1. Unlimited leave with no floor. It reads well in a job advert and produces the least rest of any option.
2. No carry-over rule. After three years, one person has forty untaken days and a payout claim you did not budget for.
3. Approval by whoever is around. Without a named approver, leave is approved by the most lenient person and resented by everyone else.
4. Never revisiting it. Statutory rules change; so does your team. Review it yearly, with a date in the policy.

FAQ

What should a leave policy for a small company include?

The allowance, how it accrues, how much carries over and until when, who approves and with what notice, what happens on company closures, what happens to accrued leave on leaving, and a pointer to sick, parental and other leave. If it fits on one page, people will read it.

Is unlimited PTO a good idea for a startup?

It can be, but only with a stated minimum and managers who enforce it. Without a floor, people take less than they would under a fixed allowance. The other cost is on exit: with no accrued balance there is usually nothing to pay out, which some employees see as a loss once they understand it.

How many days of leave should a small company give?

At least your statutory floor, which is 28 days including bank holidays in the UK and four weeks across the EU. In the US there is no federal minimum, so the figure is set by what your market expects; 15 to 20 days is common for small companies with fixed allowances. Public holidays are usually counted separately.

Should leave accrue monthly or be granted upfront?

Monthly accrual is simpler on exit, because the balance owed is always clear. Granting the full year upfront is friendlier for someone who wants a long trip early in the year but can leave you paying out days that were never earned. Many companies grant upfront and allow deductions from final pay for leave taken above accrual, which the template above supports.

Can an employer refuse a leave request?

In most jurisdictions yes, for a genuine business reason and with reasonable notice, though the employer must still make it possible to take the statutory minimum within the year. Write the reasons you would refuse into the policy so that refusals are predictable.

Do contractors get paid leave?

Usually not; their rate is expected to price it in. Keep contractors out of the annual leave policy and cover any agreed time off in their contract. Note that in several countries, treating contractors like employees on leave is one of the markers regulators use to reclassify them.

Next step

Take the leave policy template, fill in the brackets, and have one other person read it before you publish. If you want requests, balances and acknowledgements in the same place as the rest of your team's records, the People features page shows how that works in Atrix.