PTO Accrual

What is PTO accrual?

PTO accrual refers to the process of earning paid time off (PTO) over time rather than receiving a set amount all at once. Employees accumulate PTO based on factors like hours worked, length of service, or a predetermined schedule set by their employer.

How does PTO accrual work?

PTO accrual works by allowing employees to gradually earn paid time off based on their hours worked or tenure with the company. The specifics depend on the employer’s policy, but here’s how it typically functions:

• Accrual rate: Employers set an accrual rate, which determines how much PTO an employee earns per pay period. This can be based on:
  • Hours worked (e.g., earning 0.05 hours of PTO for every hour worked)
  • Days per month (e.g., 1.25 days per month, totaling 15 days per year)
  • Annual allocation divided by pay periods (e.g., if an employee gets 20 days per year and is paid biweekly, they accrue 0.77 days per pay period).
• Tenure-based accrual: Some companies increase PTO accrual rates based on years of service. For example, employees with one to five years of tenure might earn 15 days per year, while those with six to 10 years of tenure might earn 20 days per year.
• Accrual caps: Many employers place a cap on how much PTO an employee can accumulate. Once the cap is reached, additional accruals may stop until some PTO is used.
• Rollover policies: Companies may allow unused PTO to roll over into the next year, limit the amount that rolls over, or have a “use-it-or-lose-it” policy where unused PTO expires.
• Accrual tracking: Employers typically track PTO in payroll or HR systems, and employees can check their available balance through pay stubs, employee portals, or HR departments.
• Accrual start date: Some employers allow PTO to start accruing from an employee’s hire date, while others may require a probationary period before accrual begins.

Overall, PTO accrual ensures employees earn their time off gradually rather than receiving a lump sum at the beginning of each calendar year.

How to calculate PTO accrual

Calculating PTO accrual depends on the accrual method used by the employer. Here’s how you can do it:

1. Hourly accrual based on hours worked

If PTO is accrued per hour worked, use this formula:

For example, if an employee works 40 hours per week (2,080 hours per year) and earns 80 hours of PTO annually:

80 hours of total PTO per year ÷ 2,080 hours worked per year = 0.0385 hours of PTO accrued per hour

If the employee works 35 hours per week:

35 hours worked per week × 0.0385 = 1.35 hours of PTO accrued per week

2. Accrual per pay period

If PTO accrues every pay period, use this formula:

For example, if an employee earns 120 hours of total PTO per year and is paid biweekly (26 pay periods per year):

120 hours of total PTO per year ÷ 26 pay periods per year = 4.62 hours of PTO accrued per pay period

3. Monthly accrual

If PTO accrues monthly, use this formula:

For an employee with 15 days (120 hours) of total PTO per year:

120 hours of total PTO per year ÷ 12 months per year = 10 hours of PTO accrued per month

4. Daily accrual

If PTO accrues daily, use this formula:

If an employee gets 120 hours of total PTO per year and works 260 days per year:

120 hours of total PTO per year / 260 workdays per year = 0.46 hours of PTO accrued per day

What is a good PTO accrual rate?

A good PTO accrual rate depends on company policy, industry norms, and employee tenure. However, a standard accrual rate for full-time employees in the U.S. is around four to six hours per pay period for a biweekly payroll, which translates to 10 to 15 days of PTO per year.

Here’s a general breakdown of common PTO accrual rates:

• Two weeks (10 days) per year → 3.08 hours per biweekly pay period
• Three weeks (15 days) per year → 4.62 hours per biweekly pay period
• Four weeks (20 days) per year → 6.15 hours per biweekly pay period

Many companies also increase PTO accrual rates based on tenure. For example:

• Up to two years: 10 days per year
• Three to five years: 15 days per year
• More than five years: 20+ days per year

If the company offers unlimited PTO, accrual rates don’t apply, but many businesses still track time off for operational planning.

HR best practices for setting a PTO accrual policy

1. Clearly communicate PTO policies: Communicate PTO policies to your employees as part of your HR handbook, ensuring they’re all on the same page. Ensure procedures on how to request time off are well-documented and easily accessible, and clearly communicate potential limitations, such as staffing requirements. 
2. Respond promptly to requests: Be sure to inform employees promptly if their request has been approved or denied. If approved, the organization should honor the request even amid extenuating circumstances. Employees may make travel arrangements or appointments on their days off, so rescinding PTO requests can be very costly for them. It an also damage the company’s relationship with them.
3. Destigmatize taking leave: Instead of maintaining separate balances for vacation and sick time, consider offering an all-encompassing annual balance for any time taken off. This can help reduce the stigma of calling in sick to the office if an employee needs to recover from an illness they’d rather not disclose.
4. Encourage employees to take time off: Avoid burnout and decreased productivity by encouraging employees to take time off when needed. A healthy working environment encourages a good work-life balance for employees. 

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