What is Accrual?

Accrual refers to the process by which employees earn leave over time, rather than being given a lump sum at the start of a period (e.g., a calendar year). This method allows leave to accumulate progressively, based on factors such as hours worked, length of service, or specific company policies. 

Feel free to read our whole article about PTO Accrual where you will find all the details.

Key Elements of Accruals

Accrual Rate

The rate at which employees earn leave time. This rate can vary depending on company policy, employee tenure, or other criteria. For instance, an employee might earn 1.5 days of vacation leave per month worked.

Accrual Period

The timeframe over which leave accrues. This could be daily, weekly, biweekly, semi-monthly, monthly, or annually.

E.g: Monthly accrual means leave is calculated and added to the employee’s balance at the end of each month.

Carryover

The ability to transfer unused leave from one period to the next. Companies often set a maximum limit on the amount of leave that can be carried over.

Example: An employee may carry over up to 10 days of unused vacation leave into the next year.

Cap on Accruals

The maximum amount of leave an employee can accumulate. Once this cap is reached, no additional leave will accrue until some leave is used.

Example: An employee may have a cap of 30 days of vacation leave. Once they reach this cap, they need to use some of their leave before they can accrue more.

Read more: PTO Accrual Cap - Everything You Need To Know

Pro-rated Accruals

Accruals are adjusted based on part-time or irregular work schedules. Part-time employees earn leave at a proportional rate compared to full-time employees. (This is also applied in some companies at the moment when an employee joins the company; their accrual is pro-rated until they reach full entitlement.)

Example: A part-time employee working 20 hours a week might earn leave at half the rate of a full-time employee working 40 hours a week.

Initial Waiting Period

The initial period after hiring during which employees do not accrue leave. This is often used as a probationary period.

Example: New hires might not start accruing leave until after their first 90 days of employment; this is the most common provision in the leave laws of most states in the US, especially for mandatory sick leave.

Read more about waiting period: An Overview of the PTO Waiting Period and How to Put It into Practice

Accrual for Different Types of Leave

Companies may have different accrual rates and policies for different types of leave, such as vacation, sick leave, and personal leave. An employee may accrue vacation leave at a different rate than sick leave.

Tracking Accruals

Keeping accurate records of accrued leave is crucial. Many companies use leave management systems or HR software to track accruals automatically.

Accrual Adjustments

Changes to accrual rates can occur due to policy updates, changes in employment status, or legislative changes. A company might increase the accrual rate for employees after five years of service.

Importance of Accruals

Employee Satisfaction: Regular accruals ensure employees have a steady accumulation of leave, promoting work-life balance and reducing burnout.

Compliance: Adhering to accrual policies helps companies comply with labor leave laws and regulations.

Financial Planning: Proper accrual tracking aids in financial planning and ensures that leave liabilities are accounted for accurately.

Employers and employees can benefit from a fair and transparent leave system by understanding and effectively managing accruals.