What is an Accrual Cap?

In this article, we will explain the meaning of the accrual cap, while also explaining how the cap works in specific cases.

If you’re looking for a step-by-step guide on how to set up the accrual cap on your leave policies, this article is for you: How Do I Set an Accrual Cap?

What exactly is an accrual cap?

Think of a PTO accrual cap like a savings jar for your paid time off.

There’s only so much room in the jar, and at some point, it’s going to get full. In this case, the lid over your PTO accrual jar is called a PTO accrual cap.

Having an accrual cap is a way of managing employee PTO balances in the workplace. It basically serves as a limit on how much PTO a user can save up. Depending on the company policy, factors like the position within the company and the length of service can influence the cap that applies to the users.

Why is the accrual cap necessary?

• Limits financial exposure

For employers, setting a PTO accrual cap is a smart financial strategy.

It prevents situations where employees accumulate a massive number of unused PTO days that could lead to significant financial liabilities like hefty PTO payouts when they leave the company. With a cap in place, employers can ensure that they won’t be hit with massive payouts for unused PTO upon an employee’s departure.

• Ensures work-life balance

A PTO accrual cap encourages employees to use their earned time off consistently throughout the year. When there’s a limit to how much PTO can be accumulated, employees are more inclined to take breaks periodically, rather than hoarding their time off for an extended period.

This regular time off allows employees to recharge, relax, and return to work with renewed energy and focus. It prevents the accumulation of excessive unused PTO, ensuring that employees truly benefit from the time they’ve earned.

• Creates a happier workforce

The introduction of a PTO accrual cap acts as a friendly reminder to employees that taking breaks is not just acceptable but encouraged.

It helps employees strike a balance between their professional responsibilities and personal well-being. When there’s a limit to how much PTO can be accumulated, employees are motivated to use their time off regularly, preventing burnout and fatigue. By emphasizing the importance of taking breaks, the accrual cap indirectly contributes to a more productive and engaged workforce.

How does the accrual cap work?

Now that we explained what it means, it’s time to show you how the accrual cap works.

The accrual cap allows you to set a limit to the maximum number of days someone can have at any moment. This feature is based on a multiplier, so you can set a cap to vary from 1.25x to 3x the annual leave quota Users have.

Examples:

Let’s use a simple example, where an employee has a yearly PTO quota of 12 days, which they accrue monthly at a rate of 1 day per month. If you set your accrual cap to have a 1.5 multiplier, that means that the highest number of days an employee can have available at any moment is 18 days ( 12 * 1.5 = 18).

This would mean that, if an employee didn’t use any PTO days in the previous year, and they carry over (bring forward) all 12 days, they can only earn 6 additional days in the current year, unless they spend some of the already earned days.

What are some examples you can expect?

• Role and Seniority - An employee has a base leave quota of 12 days, but based on their role and the number of years spent in the company, they have additional 8 days per year. In this case, the accrual cap will include the additional days they were awarded, so instead of using a 1.5 multiplier on 12 days, we would apply it to the full 20 days of annual leave quota, which would cap the employee at 30 days (20 * 1.5 = 30)

• Employee Stays Below the Cap – Looking at the previous example, if an employee carries only 2 days from the previous year, they will be able to accrue their full 12 day leave quota for the current year, since that would be a total of 14 days, which doesn’t go over the cap of 18 days at any point in the year.

• Employee Reaches the Cap – The other possibility is that the employee carried 12 days into the new year. When that happens, they can only accrue 6 more days before reaching the cap. If they don’t use any days until July, they will not earn any days on the next accrual period.

• Employee Used Some Days After Reaching the Cap – If the employee reached the cap in July, and then used 2 days of PTO, they will accrue at a regular rate of 1 day per month in August and September before reaching the cap again. After that, they will need to use some PTO days again before being able to accrue more.

• Using Less Than the Accrual Rate – If a user earns 1 day per month, the user can reach the accrual cap of 18 days and if they decide to take a half-day leave, that will leave them at a 17.5 day quota. Even though the accrual rate is 1 day per month, on the next accrual period, the user will only earn 0.5 days, since they can never exceed the set cap.

Now that you learned what the accrual cap is, you can learn how it can be set in Vacation Tracker here: How Do I Set an Accrual Cap?

For more information on our general Accrual settings, please see the following article: How Do I Set Accruals?