I'm going to take a little different approach to what I'm seeing on here so far. Everyone else seems to almost be saying "Time Off = Bad", and "Danger! Don't trust your team to take time off correctly!"
I just don't see it that way.
So this is as much a response to those other answers as it is to the question.
It kind of depends on who you're talking about. If you're talking about co-founders, let them take the time off when they need it. They're as dedicated to the effort as you are (if you've done your job and chosen good co-founders to work with) so let them do as they see fit. They'll probably be spending piles of their time both on their vacation, and in the weeks before and after, to make up for their time off. If they're not at the founder level, but simply early employees, you've probably already negotiated a number of days off that they can have in their contract (if not, you're doing it wrong) and as long as they haven't gone over the limit, let them take it. I'd push for all people to let others know as soon as possible, but sometimes, things come up at the last minute (yes, even vacations) and so don't be too strict or pushy. You want these critical early employees to love coming to work, not dread it, so play nice. Now, to really get back to the original question...
A lot of people like formal high-tech approaches, like the shared Google calendar and that TribeHR thing, but I really don't know if that's really required. With a small company, you can probably get away with simply having people send an email. When you're small, it's easy enough to keep track of who's going to be gone in your head.
I guess I'm just thinking that in a startup, everyone is really busy with a lot of other things, and having to learn one more web-based tool, and be committed to using that tool all the time is going to take up precious time that they have for other stuff. (Though, admittedly, a Google calendar is pretty easy to use.) I'd just recommend keeping it as simple as it can be. At the last startup I worked for (as an early employee) I simply kept track of my time off on my own, and sent my boss (the VP) an email when I was going to be gone, or called in when I was sick. It was simple and worked very well.
Open communications is important, as is a shared calendar. Using something that automates your scheduling as well as your vacation accrual is also important. Something like TribeHR (www.tribehr.com) could help with that.
Disclaimer: I'm one of the co-founders of TribeHR, so I'm biased. Yes we use it too.
In an early stage startup where number of employees are founders + 2 or 3 max, it is very difficult to give a long vacation to anyone. Startups demand more than just a job - it requires sacrifices [like vacation even time with girl friend :-)] . So when offering jobs to your company clearly tell your plan. Here is what you may try (IMHO):
You can use a system like: http://www.leaveplanner.com/ for all employee requests. If not a normal old style wall calendar will do the trick if the number of employees is small.
However if you are looking for a holiday structure then follow the labor law of the country you are in.
That said, granting a leave application always depends on the situation. Also, make sure you do not piss off anyone with your holiday policy. A startup should be a fun and open place to work - if anyone feels shy about asking you something be it holiday, half day or anything for that matter - its a bad sign.
Set up a Google Calendar and then share it with everyone in the team. Colour code leave, so people can see that a purple shaded area on a particular day or day is when you are on leave. Then a comment on the day that the employee is to return.
It's what they do here at my work and it works really well as everyone can see who is going to be away and when they are returning.
My short answer is that I don't want to see myself as a policeman so an email to let me know which days they decide to take is more than enough. If I can't trust them to choose smart the days (i.e. making sure that they don't affect the internal deadlines at work) then maybe I shouldn't have them with me (of course this applies in the context of an small startup)
Managing holidays includes two parts. Lets ignore the "time off is bad" and other ridiculous answers here. Lets also ignore the big and well written but slightly off topic answer by rbwhitaker.
People have a right to time off and it has to be managed.
Here are the issues:
* You must keep the company operational or shut it down well controlled. For example, you can not have everyone taking off the same week without announcing it first to customers (and you may not legally be able to do so if you ahve contracts with customers), but you may move to emergency mode for example between christmas and new year, or even shut down totlaly depending on business.
* You need to keep track of every emploeees part here, also so that people can see when their time off is.
* You must establih a policy to get holidays and resolve conflicts. Can be as easy as "first application has piority" but it is also good to give families with children priority during holiday time - people without children are free when they can go to holidays, those without are limited to school hliday time.
For that you need:
* Some forms. Email suffices, but it is always nice to have some form with a signature. You wont fully autoamte at the start, so - don't even try. Word form, signed, finished.
* Some central calendar to show holidays. This is important also during planning. If f 3 developers 1 has to be ther all the time, guess where they can see that ;)
This can e easy. Google calendar can be used, as can be sharepoint - the team I am consulting with at the moment uses a shared sharepoint calendar. But be carefull - those get very confuing the moment you have tons of people there, you may want to not use one but one per team. Also makes sense - I need 1 eveloper and adminsitration stuffed, but separately.
In the past, people were hanging up big calendard on a wall in the HR office or somewhere and color coding holidays. Also works.
In my own company, ther ules are like that:
* You can get holidays whenever you want. Higher ups (your manager) has to approve the timing. For administration that is me (make sure I am aware when the office is not available). This is siple.
Basically, simple rule: you dont have a problem tracking holidays if you dont need an administrative person / office (3 people in an office = easy to track) and the moment you get a half time secretary to handle the paperwork - she will already have an idea (unless you hire your neighbors daughter without any education in this area - which is not a smart move anyway).