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PTO Accruals: How They Work and How to Calculate Them

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    No perfect strategy exists for PTO accruals and the policies that define them. Finding the best approach for your company can take time, patience and a clear understanding of what employees expect. Read how PTO accruals work, the different options to implement them and how to spot a solid policy for your people and business.

    Not every paid time-off (PTO) policy can be as simple as, “Work X hours and receive Y PTO.”

    More physically strenuous work could justify more downtime. On the other hand, employees for a business with exceptionally flexible scheduling may not need ample PTO. Other companies might not have traditional PTO accrual at all by assigning an identical allowance to every worker at the start of the year.

    With so many variables to consider, what’s best for your company isn’t always obvious. While we can’t design a policy for you, we can help you understand the options you have to create the best policy for your people. Let’s get started.

    What is PTO accrual?

    A PTO accrual is the policy that determines how and when employees earn PTO for the hours they work. PTO may cover vacation time, sick time, bereavement and personal days. It can also be:

    • awarded in a lump sum
    • earned per each hour worked
    • given periodically

    Accrual policies may be written as an equation, but even if this approach isn’t viable, how PTO accrues should always be clear.

    Can employees use PTO anytime?

    Having PTO doesn’t entitle an employee to use it at any time. Employers may have blackout dates where employees are not allowed to request time off based on business needs or levels of coverage.

    Additionally, employers may impose restrictions on how long an employee must be with the organization before their time off accrues or can be used.

    How does PTO accrual work?

    PTO accruals don’t have a one-size-fits-all approach. Consider these accrual types and options as you evaluate your policy.

    Accrual rates

    Accrual rates refer to the amount of PTO given for a certain milestone. It could be “one day off per two weeks worked” or “one hour earned for every 25 hours worked” — the exact accrual rate is up to your organization. In other words, it’s generally expressed as a ratio of hours worked.

    Certain organizations may calculate PTO differently, and the rate may vary based on an employee’s:

    • tenure
    • title
    • employment status (e.g., full-time, part-time or seasonal)

    For example, a company has an annual PTO accrual rate of 15 days for full-time employees. On average, they work 40 hours per week. Here’s how this rate would be calculated:

    • Weekly accrual rate: 15 days per year/52 workweeks per year = .2885 hours of PTO earned per week
    • Daily accrual rate: 0.2885 days earned per week ÷ 5 workdays per week = 0.0577 hours of PTO earned per day

    In this example, the employee would accrue approximately 0.29 PTO days each week (roughly a full PTO day every 3.5 weeks). This would be added to their PTO balance.

    Accrual period

    An accrual period refers to a segment of time that an accrual rate applies to. Salaried employees — those without formally tracked hours — often rely on periods over specific rates.

    An accrual period may be one week, one pay period, one month, one quarter or even one year. Regardless, this approach lets employees earn PTO based on the accrual period and awards it after that period has been worked.

    Hours worked

    Basing PTO accrual on hours worked allows employers to pace out employees’ time. This method can easily scale according to tenure, too. In other words, if an employee has just started, they can’t immediately request PTO outside a pre-hire arrangement.

    Even if a company administers PTO per hours worked, these policies may apply to salaried workers. In this case, the policy should be written to explicitly describe that employees who work 40 hours per week accrue PTO based on that fixed unit of measurement.

    PTO accrual on FMLA

    The Family and Medical Leave Act (FMLA) does not require employers to provide PTO during the leave period. FMLA mandates job-protected, unpaid leave for eligible employees with family or medical reasons.

    However, employers may have their own policies regarding the accrual or use of PTO during FMLA leave. Some employers may require employees to use PTO concurrently with unpaid FMLA leave. If employees receive any other form of compensation — like health insurance — while on FMLA, the leave is not considered unpaid. Additionally, employers must allow employees to choose whether or not to use their accrued PTO to supplement FMLA leave.

    PTO use during FMLA leave should be clearly outlined in the organization’s employee handbook. Likewise, employees should review their employer’s PTO and FMLA policies and procedures since they typically vary among companies.

    PTO accrual on sick leave

    State or local law and company policy often dictates how PTO accrues during sick leave.

    Employers that allow PTO to accrue during sick leave should address this in their company’s broader PTO procedure. If they do allow for this kind of accrual, it means employees continue to earn PTO while taking sick leave.

    However, employees should check their company’s guidelines to understand how PTO accrual works during sick leave. If the company has a separate sick leave policy distinct from general PTO, it could alter the rules for accrual. Additionally, state laws may influence the accrual of sick leave and PTO, as some states have specific regulations over paid sick leave.

    When in doubt, employees should consult HR for clarification. An easy-to-use tool for sorting and responding to your workforce’s questions simplifies this process.

    PTO accrual on disability leave

    Like sick time, state or local laws and employer policy determine PTO accrual during disability leave. Depending on the circumstances, disability leave can fall under different categories, such as short-term disability or long-term disability.

    Disability leave might be paid under an insurance policy or by the employee’s worked-in state. Each employer may have specific rules and policies governing PTO accrual during disability leave, and these details should be clearly outlined in a company’s policies or employee handbook.

    Consider these common scenarios:

    1. Employer policies: Some employers allow PTO to accrue during disability leave, treating it like other leave types. A business could also separate this leave from PTO, suspending PTO accrual during a period of disability.
    2. Short-term disability and long-term disability insurance: In cases where disability leave is covered by insurance, the provider’s policy likely influences PTO accrual. Some may allow for continued PTO accrual, but it’s not guaranteed.
    3. Applicable laws and regulations: Depending on the jurisdiction, legal requirements may determine PTO accrual during disability leave. Some states — like California and Washington — have specific regulations addressing the interaction between disability leave and PTO.

    It’s crucial for employees to review their employment contract, company policies and relevant insurance guidance to understand how PTO accrual is handled during disability leave.

    How to calculate PTO accruals

    You may know how many organizations calculate PTO, but that doesn’t mean the most common method is inherently better. Keep these options in mind to help identify which PTO accrual is ideal for your employees.

    Per hours worked accrual

    Employers with teams of hourly or salaried positions can compensate PTO based on hours worked. For salaried employees, PTO can be calculated based on a standard, 40-hour workweek. Alternatively, you may have these workers track their hours and administer PTO based on their reported time.

    Plus, providing PTO based on hours worked doesn’t always mean PTO accrues automatically. If your company relies on a fixed formula, consider investing in time and attendance tools to automate these calculations.

    Per pay period accrual

    Accruing PTO by pay period can make it easier for employees to predict their accrual and plan accordingly. For example, a biweekly pay schedule creates 26 pay periods in one year. If employees get 20 days off annually, then they can readily see that their PTO accrues at a rate of less than one day per pay period.

    With this or hourly accruals, workers who go negative in their PTO balance would receive more frequent balance updates than if they had to wait a full month for additional time to accrue.

    Front-loaded PTO

    Front-loaded PTO is when the employees are given all their PTO in one lump sum that refills at designated intervals, usually at the start of the year.

    Full-time vs. part-time PTO accrual

    Depending on company policy, part-time employees can earn PTO, too.

    It could be as simple as allowing them to generate PTO on the same per-hour basis as full-time staff. However, certain employers may set caps on the maximum amount of PTO that part-time employees can accrue or require them to use accrued PTO before accumulating more.

    Some state and local jurisdictions may have their own rules that govern PTO, including requirements for part-time employees. For example, California has introduced laws that mandate a minimum amount of paid sick leave for all employees, regardless of their status.

    Tiered PTO accrual

    Not all PTO must be awarded the same for every employee. In a tenure-based structure, for example, an organization may choose to give employees one additional week of PTO for every five years of service. This could be an effective way to reward loyalty and boost retention.

    Bonus PTO

    In addition to time-based PTO accruals, employers may use PTO to incentivize performance. For instance, an organization might give its sales team the last Friday of a quarter off if they surpass $1 million in monthly sales. The exact target or outcome to trigger the bonus, of course, will be up to your organization.

    5 important PTO accrual considerations

    Whether you’re developing your first handbook or tweaking one you already have, think about the following factors before you implement a PTO accrual policy.

    1. PTO payouts

    Employees with a positive PTO balance when they resign may receive a payout, given PTO is a form of compensation. Put simply, they would receive pay for the PTO hours they didn’t use.

    If your company doesn’t pay out PTO, it’s not a bad idea to explain why so workers understand the rationale.

    2. Protected leave

    Protected leave refers to time off protected by federal or state laws. During protected leave, employees may take time off for reasons specified within the legislation without fear of termination or retaliation. Protected leave may also require businesses to extend health care coverage and other benefits during that period.

    Even so, employees still have the right to use their PTO during specific protected leaves. This provision can be relevant with the following examples:

    • FMLA: Under FMLA, eligible employees are entitled to up to 12 weeks of unpaid leave for qualifying reasons. Employers may allow or require employees to use PTO during FMLA leave.
    • Pregnancy disability leave: Some states provide protected leave for pregnancy or related conditions. During this leave, employees may be allowed to use PTO and keep receiving pay during their absence.
    • Military leave: The Uniformed Services Employment and Reemployment Rights Act provides job protection for employees who need to take leave due to military service. Employers may allow the use of accrued PTO during this period, too.

    Both employers and employees need to be aware of all relevant laws related to protected leave. Employers should clearly communicate their policies regarding the use of accrued PTO during protected leaves to ensure compliance with relevant regulations and provide employees with clarity.

    3. Probationary period

    Some organizations may choose to enforce a probationary or a “waiting period” for PTO. This means new hires must wait for a preset duration — like 90 days — for PTO accruals to kick in. This protects companies against new hires joining the team and immediately taking time off before they’ve proven they can handle the responsibilities of their job.

    Additionally, this means that if someone joins the company and the relationship doesn’t work out, the organization won’t have to pay out leave since it was never accrued.

    4. Accrual rollover

    Employees who accrue time off may be tempted to save up their time to take it all at once. Depending on the your industry, this practice could disrupt business due to a lack of coverage. Employers who want to encourage their workers to take PTO in more regular intervals may choose to limit rollover.

    This means that at a predetermined interval, employees may lose the PTO they didn’t take within a certain period. One common rollover policy is to have a certain amount of time off expire at the end of each calendar year. For example, employees may accrue 20 days of PTO per year, but they can only roll over 5 days into the next.

    This type of policy encourages employees to take the time off they have earned and prevents anyone from accruing a disruptive amount of PTO. This has the added benefit of preventing companies from paying hefty payouts if employees leave with a lot of PTO in tow.

    5. Negative balances

    Employers need to set parameters around employees asking to take more time off than they have accrued. In such instances, you may construct a policy that allows employees to have negative PTO — such as for emergencies — that they must “earn back” before requesting time off again.
    These policies should include guidance or caveats. For instance, you may choose to allow a negative balance only if the time is being used for:

    • bereavement
    • illness
    • family emergencies
    • other unexpected life events

    You could also adjust the nature of this policy based on tenure, similar to tiered PTO accruals. Regardless, your policy should be explicit and consistent to avoid favoritism or discrimination.

    Ultimately, PTO accruals aren’t just a box to check, but a strategic tool that supports employee well-being and contributes to the overall success of a dynamic and thriving workplace.

    How does Paycom simplify time-off requests?

    A PTO accrual policy is only effective if employees actually use it. But for many organizations, time off is a hassle to manage. For supervisors, these requests can force them to manually approve or deny a request then calculate the new balance — all while still making sure they have coverage for upcoming shifts.

    And if it takes days or weeks to respond, employees may have to:

    • cancel plans because of late approvals
    • blame their leaders for unclear scheduling policies
    • miss a slim window to book an affordable flight or cruise
    • abandon the trust their employer painstakingly built with them

    But just because reviewing time-off requests involves choice doesn’t mean they can’t be automated.

    GONE™ is a revolutionary enhancement to Paycom’s time-off requests tool. It lets you set a variety of time-off decision-making criteria to keep your operations running smoothly. It also makes it easy for you to provide prompt responses without harming business continuity.

    Once GONE is set up, Paycom takes care of the rest, with automated decisions flowing seamlessly and accurately into payroll.

    Explore Paycom’s resources for more insight into time-off management and other HR topics.

    DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.