PTO Accrual: How to Calculate in 3 Easy Steps | Eddy (2023)

What Is PTO Accrual?

Paid time off (or PTO) is one of the many benefits employers may offer to employees. Although PTO is not required by federal law, giving employees some time away from work has been proven to be overwhelmingly positive for both the worker and the company. In fact, over 73% of businesses offer PTO to their employees, and the average employee takes around 10 days off work each year.

PTO accrual, or accrued PTO, is the type of PTO that employees can earn over time. It is often treated like a vested benefit or “bank account” for time off, where PTO days are earned, saved and spent like money would be with a bank account. In some cases, employees can even cash out their unused PTO days when they leave the company. PTO accrual plans often include maximum balances, where employees cannot accrue over a certain amount each year or during their tenure at the company.

Lump Sum vs Accrued PTO

With accruing PTO, employees will earn PTO per a certain period of time throughout the year (chosen by the employer). Employees will be able to save that PTO for another year, instead of having it expire annually like with use-it-or-lose-it PTO policies.

Using the lump sum method, employees are given a set number of PTO days each year. They receive all their days at once, and at the end of the year, the days either roll over to the next year or expire. With lump sums, employees often receive more PTO days when they hit an important milestone; for example, when they reach 5 years at the company, they might receive additional PTO.

Is an Accrual Policy Right for Your Company?

As with every benefit your company implements, it’s important to consider what experience and culture you are trying to foster at your company. Here are some reasons why an accrual PTO policy might be right for your company:

  • Your employees don’t currently have PTO. An accrual PTO plan is very standard across most industries and is a great place to start when setting up a PTO plan for your company.
  • You don’t want your employees’ PTO to expire. Accrual PTO plans are a great option if you don’t want your employees’ PTO to expire.
  • You want employees to own their PTO. Because accrued PTO does not expire like use-it-or-lose-it PTO, employees feel a sense of ownership over their PTO.
  • Your company is financially ready. You feel that your company is ready for any financial implications or payouts associated with accrued PTO. Some states require that unused PTO is paid out to the employee when they leave the company.

Find out how to set up and manage your PTO policy in Eddy

How to Implement PTO Accrual

While there is no set way to set up a PTO accrual policy for your company, here is a general guide to help you get started:

Step 1: Consider Why and for Whom You Are Adding a PTO Policy

Before writing your policy, consider why you are looking to create a PTO policy in general and why you want it to be an accrual policy instead of a use-it-or-lose-it policy. What work culture are you trying to foster at your company and how does an accrual PTO policy contribute to that? Also consider which employees will be added to the PTO policy (i.e., full-time, part-time, exempt, nonexempt employees).

Step 2: Consider Legal Requirements And Potential Budgetary Costs for Payout

Take a look at the labor and PTO laws of the state(s) where you have employees. When drafting your PTO policy, you’ll need to consider what the requirements are for each state where you have employees. Some states may require a cash payout of PTO when an employee leaves the company. If this is the case in your state, you may want to consider the budgetary implications of such an accrual PTO policy.

Step 3: Decide the Details of Your PTO Policy

When figuring out the details of your company’s PTO accrual policy, there are several key factors to take into consideration:

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Accrual Frequency. When creating your PTO plan, you’ll first want to ask yourself about the accrual frequency. We’ve seen companies do this in many different ways, so you’ll have to consider the best option for you.

One option is to allow employees to accrue PTO after a short passage of time. You could create a system where once a week or once a month, every employee accrues a designated amount of PTO hours. Another option when considering accrual frequency is to allow employees to accrue time based on the number of hours they work. The final accrual frequency you might consider is one where employees earn micro-amounts of PTO every day based on hours worked. While many employees favor this kind of policy, it can be a headache for the HR team to handle.

Accrual Amount. Accrual amount is simply the number of hours you grant to employees at each accrual. When considering how many hours to allow your employees to accrue each year, we recommend thinking about the following things. First, ask yourself how important it is to recruit and hire truly great people to come and work for your company. If you need elite talent or highly skilled workers, you’ll be competing with many other businesses for those employees. Offering generous amounts of PTO is one way to attract great talent.

Second, you’ll want to determine how PTO fits into your company’s business structure. If your business literally cannot afford to have certain people miss extended periods of work, then you might offer less paid hours away from work. Finally, you may decide to create different accrual schedules (as well as determine different accrual amounts) for part-time and full-time employees.

Milestones. The next aspect of your accrual-based PTO policy to consider is tenure milestones. In many companies, employees who have worked at the company longer are either granted more frequent accruals or accrue more hours than the average employee. Milestones are incredibly easy to integrate into a policy. They’re also a fantastic way to reward long-tenured employees.

Max balance. The max balance is simply the maximum number of hours an employee can accrue. Some employers choose to cap accruals for various reasons. One common reason is to encourage employees to use the PTO they’re accruing. If an employee never takes a vacation, it’s actually detrimental to their health, and it negatively impacts the company. With a max balance, an employee cannot accrue more time off until they’ve used some of the time they have stored.

Another common reason is to cap an employers’ liability. In some states, employers are liable for the number of PTO hours accrued by their employees. If the employer were to terminate an employee who had 50 hours of PTO accrued, they’d have to pay out the equivalent of 50 hours worth of wages when the employee leaves the company.

Carry-over limits. One final decision you’ll make when creating your accrual-based PTO policy is in regards to carry-over limits. A carry-over limit dictates how many hours of unused PTO an employee can carry over from year to year. Carry-over limits are common but are not universal. Many employers do not place a carry-over limit on PTO and allow employees to maintain their balance regardless of when the time was accrued.

Companies who use carry-over limits may do so in different ways. Some companies designate a “max carry-over” that outlines the maximum number of hours an employee can carry from one year to the next. Other companies simply do not permit any carry-over and force employees to use the time accrued in the year it was allotted.

The reasons for a carry-over limit are similar to the reasons for a max balance. If an employee knows that they’ll potentially lose the PTO they’ve accrued, they’re more likely to use it. Additionally, carry-over limits can reduce employer liability for unused time off.

Step 4: Determine the Logistics

Identify the system you would like to use to track earned, saved and spent PTO. This may be on spreadsheets that you create yourself or by using a PTO management software like Eddy to automate things for you.

(Video) PTO FAQ: 10 Common Questions and Answers About Paid Time Off Policies

Step 5: Write Your Policy, Revise and Communicate It to Your Company

Once you have determined the details and logistics of your accrual PTO plan, all you need to do is write out your policy, revise it and communicate it to your team. We recommend that you have a mentor, colleague or attorney review your policy and make suggestions before making it official at your company.

When communicating your new PTO policy to your company, you’ll want to make sure that it is accessible to all your employees. This can be done by sending out an email, adding the policy to the employee handbook and even providing a physical copy to your employees.

How to Calculate How Much PTO an Employees Has Accrued

While many HR applications may calculate PTO accruals for you, here are some guidelines for calculating accrued PTO for your employees should you need to pay out unused PTO or simply help an employee understand their balance.

For purposes of this article, an employee earns $20 per hour and accrues one hour of PTO for every 40 hours that they work. The employee has worked 2,000 hours.

Step 1: Divide

Divide the number of hours that the employee has worked (2,000) by the number of hours it takes to earn an hour of PTO (40):

2,000 hours worked / 40 hours = 50 total hours of accrued PTO

Step 2: Subtract

If you want to know the employee’s current PTO balance, you can do so by subtracting the amount of used PTO (20 hours) from the total amount of accrued PTO (50 hours), which was calculated in Step 1:

50 total hours of PTO – 20 used hours = 30 hours PTO balance

Step 3: Multiply

Now, since we have the amount of unused PTO hours (30), we can calculate how much money needs to be paid out for the employee’s PTO if they are leaving the company. We will need the employee’s hourly wage ($20/hr) to do this. We will multiply the number of unused hours by the hourly wage to get the total amount that is to be remitted to the employee:

30 hours of unused PTO * $20/hour = $600 to be paid out

Tips for Creating a Successful PTO Accrual Policy

Here are some additional tips for creating a successful PTO accrual policy.

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Tip 1: Cater Your Policy to Their Needs

Make sure that you cater your policy to the culture and needs of your employees, specifically as it relates to the frequency at which they accrue PTO. Employees at some companies may prefer receiving all of their PTO up front each year and then accruing their PTO from year to year, while some might prefer earning PTO on a monthly basis. It really depends on various factors, including turnover frequency and average employee tenure at the company.

Tip 2: Ensure Your Budget is Prepared

Make sure that your budget is prepared for payouts if that is required in your state or if you have employees in a state where a PTO payout is required upon leaving the company. These payouts can get really expensive, especially if you don’t establish an accrual limit or that limit is very high.

Tip 3: Connect With HR Mentors

Consider connecting with HR mentors in similar industries to learn how they do PTO and how they think your employees would respond to a specific plan. While every company is different, there may be similarities between work cultures in the same industry. This may give you insights into how you can craft an effective accrual-based PTO policy.

Wondering where to get started? HR Mavericks is a group of HR pros who share knowledge in many ways, including connecting with fellow members one-on-one and answering their questions in a community Slack channel. Join HR Mavericks for free!

Example Accrual-Based PTO Policy

Here is an example of an accrual-based PTO policy with carryover and accrual guidelines:

Purpose

[Company] has designed a paid time off (PTO) plan to assist employees with finding a healthy work-life balance. All full-time employees at [Company] will be added to this PTO plan, which combines all vacation, personal and sick leave into one singular program.

Accrual Schedule

PTO will be earned and accrue according to the following schedule and years worked at the company. PTO is accrued per pay period, which is semi-monthly.

0-1 years: 2.5 hours per pay period or 7.5 days per year

2-3 years: 3.5 hours per pay period or 10.5 days per year

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4-5 years: 4.5 hours per pay period or 13.5 days per year

For purposes of this policy, there are 24 pay periods in a year, a day is 8 hours and the year begins on the employee’s date of hire.

Procedures

All PTO usage must be requested and approved by HR and the employee’s supervisor, using [Company’s] HR software. Employees will record PTO usage for vacation, sick, family and extra holiday leave. If needed and with approval of their supervisor, an employee may enter into a negative PTO balance before accruing their hours.

Employees must request PTO usage at least 2 weeks in advance of their intended absence. Requests made within 2 weeks of the intended absence date may be denied if there is a job-related scheduling conflict. For sick leave, employees should contact their supervisor the morning of their absence to notify them.

Employees may carry over a maximum of 30 hours of unused PTO time from one calendar year to the next and may hold a total maximum balance of 150 hours of unused PTO time at a time.

If an employee should leave the company with a balance of unused PTO, they will be paid for all of the said PTO in the form of their final paycheck and according to their hourly wage. Employees will not be able to receive a payout for PTO while they are currently employed by the company.

Create the Right PTO Accrual Plan for Your Company

Accrual-based PTO policies can take many twists and turns. There is no “best” way to create a plan. Each question needs to be answered while considering the other factors of the equation. The right PTO plan for one company will most certainly not be the right one for another. As you build out your plan, be sure to take your time. Think through each question individually and cohesively. As you do so, you’ll create a PTO policy that works best for your business.

How Eddy People Can Simplify Your PTO Processes

Eddy People is part of an all-in-one HR software solution reducing the administrative load on small business owners and HR leaders. While creating custom PTO plans in spreadsheets can take hours, it only takes a few minutes with Eddy. With easy-to-access PTO balances, one-click time off approval, and a company-wide time off calendar, Eddy People is a powerful time management tool. And that’s just the beginning.

PTO Accrual: How to Calculate in 3 Easy Steps | Eddy (1)

FAQs

How do you calculate PTO accruals? ›

Multiply your pay period PTO by time worked.

Multiply the amount you accrue each pay period by the number of pay periods you've worked. If you've worked two months without taking any time off and are paid semimonthly, you've accrued 20 hours; 5 PTO hours per pay period times 4 pay periods equals 20.

How are PTO points calculated? ›

An athlete's overall PTO WRS score is calculated as the average of their top three Overall Race Scores within a rolling 52-week period.

What is the accrual rate for 1 hour for every 30 hours worked? ›

Note: To accrue 1 hour of sick time for every 30 hours worked, the basis is the TOTAL HOURS formula, the rate is 1/30th of an hour per hour worked. If an employee works 15 hours, they accrue .

How do you calculate PTO accrual in Excel? ›

The PTO Earned would simply be =SUM(A1*B1), with A1 being the accrual rate and B1 being the week worked. I was going to enter in 1 for each week, to update the PTO Earned.
...
Excel PTO Formula Inquiry
  1. Labels:
  2. Excel.
  3. Formulas and Functions.
Sep 24, 2020

What is typical PTO accrual? ›

When it comes to PTO, most businesses offer 30 days of paid time off per year. As mentioned, employees can use these days however they choose, but it benefits your business to establish some guidelines in your employee handbook so team members don't abuse the benefit.

How do you calculate PTO for part time employees? ›

Calculating vacation days for part-time employees

Start by dividing the average number of hours your part time employee works by 40 and continue by multiplying that number by the number of vacation days for a full-time employee.

How many days is 130 hours of PTO? ›

Employees accrue a specific amount of hours based on the number of hours worked or the passage of time (i.e. every 2 weeks). For instance, a policy that offers employees an accrual of 2.5 hours of PTO for every 40 hours worked would translate to 130 hours (roughly 16 days) of annual PTO.

How much PTO should you keep? ›

Average Paid Time Off
1-99 employeesAll companies
PTO after 1 year9 days10 days
PTO after 5 years13 days15 days
PTO after 10 years15 days17 days
PTO after 20 years17 days20 days
Sep 23, 2019

How many hours is 2 weeks of PTO? ›

Based on a 40-hour work week, you may want to give 40 hours (1 week of vacation time), 80 hours (2 weeks), or some other number in between. Based on the accrual method you choose, you can calculate how much time employees accrue each pay period.

How do you prorate PTO hours? ›

How to prorate PTO
  1. Determine the number of days that an average employee works during a given time.
  2. Divide that number by the number of total days in that period.
  3. Multiply it by their accrual rate.
Jan 26, 2022

How many days is 240 hours of PTO? ›

For example, a full-time employee who works 8 hours per day and 5 days per week, the vacation leave maximum at their anniversary date would be 240 hours (8 hours x 30 days = 240).

What is the formula for accrual? ›

You can calculate the daily accrual rate on a financial instrument by dividing the interest rate by the number of days in a year—365 or 360 (some lenders divide the year into 30 day months)—and then multiplying the result by the amount of the outstanding principal balance or face value.

Is PTO measured in days or hours? ›

Essentially, PTO allows employees to accrue time-off based on hours worked. For a certain number of hours worked, an employee earns a specified amount of PTO that's credited to the employee's “bank,” typically after a pay period. If an employee takes one day off, that's considered eight hours of PTO.

What is an example of a PTO policy? ›

An employee is required to use PTO hours according to his or her regularly scheduled workday. For example, if an employee works a six-hour day, he or she would request six hours of PTO when taking that day off. PTO is paid at the employee's straight time rate. PTO is not part of any overtime calculation.

What is PTO explained? ›

PTO is the time that employees can take off of work while still getting paid regular wages. This does not include times in which an employee is working remotely or telecommuting. Often, PTO policies combine vacation, sick, and personal days.

How much leave do you accrue per week? ›

Annual leave on overtime and unpaid breaks do not accrue. Assuming there is no additional entitlement beyond the NES, a full-time employee accrues 2.923 hours of annual leave for each completed week of work (based on the standard 38-hour week).

How do you calculate paid leave? ›

Leave encashment is calculated with the following formula. = [(Basic Salary + Dearness Allowance) / 30] * No of EL Here, EL= Earned leave.

How do you calculate PTO for a fringe? ›

3) Fringe benefit percentage for vacation time: Divide the number of hours of annual vacation time provided to the employee by 2080 (80 hours (2 weeks)/2080 = 3.85%). 4) Fringe benefit percentage for paid holidays: Divide the number of paid holiday hours by 2080 (64 hours (8 holidays)/2080 = 3.07%).

How many days off is 40 hours of PTO? ›

How many days is 40 hours of PTO? 40 hours of PTO is 5 days of work, assuming you work 8-hour shifts. If you want to know how many days of PTO you have, simply divide the hours by however long your workday is (8 hours, for most people). So 104 hours divided by 8 would be 13 days, for example.

What is a fair PTO policy? ›

Every PTO plan is different, but while traditional leave policies typically grant employees 30 paid days off per year — 10 days of paid vacation, 8 sick days, 2 personal days, plus 10 paid holidays, most PTO policies give employees between 15 and 20 days plus company-observed holidays, according to the Society of Human ...

What is the average PTO in USA? ›

According to the US Bureau of Labor Statistics, the average number of paid vacation days is 11 days. This average is based on a US employee working in the private sector, with 1 year of service. Taking weekends into account, this works out to just over 2 full weeks of vacation leave per year.

How do I create a PTO policy? ›

What should you consider before developing your PTO policy?
  1. Require manager approval. ...
  2. Require a deadline for calling in sick. ...
  3. Determine a PTO policy for different employee types. ...
  4. Decide how much time off to provide each year. ...
  5. Decide whether or not employees can accrue time.
Feb 21, 2023

Does 2 weeks of PTO mean 10 or 14 days? ›

If you get “2 weeks” paid vacation from your company - it generally means 10 working days.

Does 2 weeks vacation mean 10 days or 14 days? ›

Under California law, earned vacation time is considered wages, and vacation time is earned, or vests, as labor is performed. For example, if an employee is entitled to two weeks (10 work days) of vacation per year, after six months of work he or she will have earned five days of vacation.

What is accrued vs prorated? ›

Prorating reflects an earned time off approach to accruals; an employee accrues time for the fraction of time they work between scheduled accruals at the beginning and end of the policy. If you're using new time off, you can only prorate accruals at the beginning of a policy.

How do you calculate prorated? ›

The easiest way to work out pro rate salary is by dividing the total annual salary by the number of full-time hours. You can then multiply the result by the pro rata hours worked. Let's take the example from above.

How many days is 160 hours of PTO? ›

8 Hours Per Day
Print 8 Hours Version
Hours to Days Conversion 8 Hour Formula
16020
16821
17622
28 more rows

How do you calculate 10 days of PTO? ›

How to calculate PTO
  1. Determine the number of hours you accrue annually.
  2. Divide your annual hours by 12 or 24.
  3. Multiply pay period PTO by time worked.
Apr 17, 2020

How do you prorate PTO accrual? ›

How to prorate PTO
  1. Determine the number of days that an average employee works during a given time.
  2. Divide that number by the number of total days in that period.
  3. Multiply it by their accrual rate.
Jan 26, 2022

How much leave do I accrue each week? ›

a full time employee accrues 2.923 hours of annual leave for each completed week of work (based on the standard 38 hour week)

How many days is 250 hours of PTO? ›

Determine how many days a full-time employee can work each year if he works full-time for the year. 3. Divide the annual PTO hours that a full-time employee can accrue (80 days) by the total number of days that a full-time employee can work in a year (250 hours).

How many hours of PTO is 40 hours? ›

For every 40 hours worked, that employee may accrue 1 hour of PTO. If the employee saved up all their PTO during the year, they would have approximately 52 hours in a year to use. Assuming this employee works the average 8-hour shift, then this would break down to 6.5 days of total PTO during the year.

How long does it take to accrue a week of PTO? ›

For example, if your organization gives 15 days (or 120 hours) of PTO to the employees, and the total number of work hours in a year is 2000, then the hourly PTO accrual rate is 0.06 hours for every one hour worked (120 / 2000). To calculate the accrued time off by days, just divide the hourly accrued time off by 8.

How many days leave do you accumulate per month? ›

Calculation of accrual of leave – 1,25 days per month or 1,5 days per month. If the employee is working a five-day week, then the annual leave will accrue at the rate of 1,25 days per month, and if the employee is working a six-day week then the annual leave will accrue at the rate are of 1,5 days per month.

How do I calculate my PTO hours? ›

One metric that employers can follow to calculate PTO is to divide the annual PTO hours by annual work hours. For example, if an hourly employee earns 80 hours of PTO each year and works 40 hours a week, or 2,080 hours per year, divide 80 by 2,080.

Videos

1. PTO Balances Video
(Easy Time Clock)
2. What’s the Difference Between Allotted and Accrued PTO?
(HR Party of One)
3. Accrual Concept EXPLAINED - By Saheb Academy
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4. PTO Assignment and Accrual (V-16)
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5. How to Record Accrued Paid Time Off in QuickBooks Online
(Goshen Accounting Services)
6. Accrual Basis Accounting: Reconciliation Using Accounting Equation with Example
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