The Ultimate Guide To PTO Accruals

Do you have a sneaking suspicion that your understanding of PTO accruals and management stinks? Well, it’s not just you.

There are plenty of HR managers out there who don’t fully understand how employment policies, laws, and practices related to PTO accruals work. But with some due diligence and a little bit of knowledge, you can go a long way in helping you manage your team’s PTO better. Keep learning to learn more about what PTO accruals are and how they work.

What is PTO?

PTO, or Paid Time Off, means exactly what it sounds like.

Let’s start with a definition. According to the Oxford English Dictionary, PTO is referred to as “a program of benefits offered by employers in which employees may use specified amounts of time away from work without loss of pay.”

How does PTO work?

Although PTO is most commonly used to refer to vacation days or the time you get to spend away from work, it can also refer to other paid time off, such as paid sick days and paid parental leave after giving birth or adopting a child or paid bereavement leave after the death of a loved one. All types of leaves are usually clubbed together to make for easier manual bookkeeping and easier leave tracking.

What are PTO accruals?

PTO accruals refer to a system where an employee has earned PTO but has not yet used it. 

The importance of a leave policy of this kind typically becomes evident at the end of each fiscal year or when an employee leaves your company. According to your internal policy, employees might earn general personal time off hours that they can delegate toward vacation, sick, or personal time. Or, they might earn sick and vacation days separately.

In many businesses, accrued PTO expires at the end of the year. The employee then has to decide whether they want to roll over their time off to next year, cash it out, or do a mix of the two options. Lastly, when an employee leaves your business, you may need to pay out their accrued time off and include it in their final pay.

What is required to implement PTO accruals?

There are a couple of important factors you must take into account to prepare before you decide to offer this feature to your employees.

Determining eligibility

Depending on your business’s internal leave policy, employees may earn PTO after a certain number of hours, weeks, or months worked. For example, if your business operates on an accrual method, PTO accrues after an employee works a certain amount of hours, days, or months. After working X hours (or X days, weeks, etc.), they accrue Y hours of the day off. Pretty simple.

Setting a duration

The next step in implementing PTO accruals is deciding how much time off you’re going to give to your employees. It’s important to remember that PTO is entirely optional. So, you can decide on the number of hours that work for your business. Some common PTO offerings are:

• 40 hours (the equivalent of 5 days off)
• 80 hours (the equivalent of 10 days off)
• 120 hours (the equivalent of 15 days off)
• 160 hours (the equivalent of 20 days off)

These numbers are based on an eight-hour workday. Your policy may differ according to the work environment at your company. Again, you can choose any number you want — or none at all. It all depends on what makes the most sense for your business.

Implementing rollovers (or not)

Another crucial factor to consider when setting up PTO Accruals benefit is the rollover policy you’ll apply to any leftover hours. Some employers require all employees to use their PTO within a calendar year, eliminating the need for a rollover policy. Those hours that remain at the end of December are wiped out at the beginning of January. Some employers permit employees to transfer a certain number of PTO hours from year to year.

For example, a company may offer 40 hours of PTO per year, but if an employee only uses 35, they may add those five unused hours to next year’s total (for a total of 45 hours).

How can I set PTO Accruals?

Setting PTO Accruals is by no means an easy task. There are many different ways to compute PTO accrual — some simple, some complicated. Let us show you one from each end of the spectrum. 

Business owners looking to set up a new PTO accrual policy may choose from six common options:

1. Accrue PTO hours each pay period.
2. Gain PTO hours each week.
3. Accrue PTO hours each month.
4. Reset PTO accrual by the calendar year.
5. Reset PTO accrual by fiscal year.
6. Create PTO accrual based on each employee’s work anniversary.

In each of these cases, most HR teams will have to manually calculate the number of days or hours each employee is entitled to based on their work history and rollover hours from the past year.

How we can help

If the thought of doing all this work manually has shivers going down your spine, we’ve got some good news for you!

Vacation Tracker is here to rescue you from the shackles of manual leave tracking. Our tool is the ultimate leave management assistant used by more than 1500+ organizations worldwide to handle their leave management. Furthermore, with Vacation Tracker, you can request, approve and manage leaves from your favorite collaboration tool. You can also set your own locations, leave policies and leave types. In addition, you can also export reports and integrate the tool with your favorite calendar, set labels, and more using our online dashboard! Try it for free today.

Snigdha Gupta

An avid writer and aspiring marketer, Snigdha is a student at Concordia University’s John Molson School of Business.