Accruals (Leave)

What is Paid Time Off Accrual?

Paid time off accrual is a method many businesses use to distribute paid time off, or PTO, to their employees. This time can be used towards vacations, personal time, or sick days (though some businesses offer sick days as a separate benefit).

Employers often give their workers the option to cash out on the unused time, allow a certain amount of time off to roll over to the next year, or do a mix of the two options. Alternatively, employers can enact a “use it or lose it” policy that would expire previous accrued time to encourage employees to take the time off.

When employees leave a business, the employer may need to cash out the remaining unused accruals in their final pay. Employers do not have a responsibility to cash out on time off that wasn’t accrued or earned otherwise.

What is the Difference Between Accrued Leave and Annual Leave?

Annual leave is given to an employee at the start of the year and can be used as soon as possible, while leave acquired from accruals is given to the employee as the year progresses. 

For example, say Kyle works for a company that gives him 4 weeks of vacation at the start of every year. He can use all of that time at once or can space it out through the year. Beth works for a company that also offers 4 weeks of vacation time, but she earns 1 week of vacation every three months. By the end of the year, Beth will have earned the same amount of vacation as Kyle.

How Do You Calculate Annual Leave Accrual?

Employers should first decide how many hours of leave they want their employees to accrue in a year. Then it can be decided what type of accrual rate to use: yearly, monthly, bi-monthly, daily, or by hours worked.

Yearly

Yearly accruals work similarly to annual leave in that all time off is given at the start of the year or on a work anniversary. When an employee takes time off, simply subtract it from the total amount of hours they can accrue. Any time they don’t use before the next year can be rolled over.

This is a good option for long-term employees who already have worked at your company for a year. It’s not commonly used since most employers don’t want to make their employees wait a full year before they’re allowed time off.

Monthly/Bi-Monthly

Divide the total number of hours that can be accrued by 12 for monthly accruals or by 24 for bi-monthly accruals.

This accrual rate is very easy to track and calculate since it will be consistent throughout the entire year.

Daily

There are 260 working days in the year, which you can use to divide from the total amount of hours previously decided on. For example, if your employees can earn up to 80 hours of paid leave, divide 80 by 260. This gives you 0.307, which you can then multiply by the total days an employee worked in a pay period.

While this is a fine method for part-time employees, it doesn’t work well for part-time employees who work less than eight-hour shifts.

Hourly

Employers can still use the previously determined amount of time off they would like to offer in a year, but it won’t be guaranteed for hourly accruals. However, this number will show up in our calculations.

Let’s say you want to give an employee 80 hours of paid leave in a year. There are 2,000 working hours in a year, so you would divide 2,000 by 80 and get 0.04. So, for every hour an employee works, they get 0.04 hours of PTO.

This option works great for part-time employees who work variable hours. It’s a great way to have an employee’s vacation time accurately reflect the time they worked for the company.

Do You Accrue PTO While on Leave?

Employers can decide if they want their employees to accrue PTO while they are on leave. Your accrual policy can allow for employees to continue accruing time off while on vacation, or the accrual can pause while they are using it.