Leave accrual is the rate and method by which employees earn paid time off. Instead of receiving all their vacation days upfront on January 1st, employees accumulate hours or days gradually based on time worked or time employed. Think of it like earning interest on a bank account, except instead of money, they're building a balance of hours they can use for vacation, sick time, or personal needs.
Why Use Accrual Instead of Lump Sum
Reduces financial liability: If you give all 15 vacation days upfront and an employee quits in March, you might have to pay out days they haven't actually earned yet (depending on your state). Accrual means employees only have what they've earned.
Encourages retention: New employees can't take two weeks off in their first month and then quit. They need to stay and work to build their time off balance.
Feels fair: Long-term employees earn more time off than brand new hires, rewarding loyalty and tenure.
Matches cash flow: You're essentially setting aside money gradually rather than committing to large payouts upfront.
Common Accrual Methods
Hours-Based Accrual
Employees earn paid time off based on hours worked. This is the most common method for businesses with shift workers and varying schedules.
Example: A restaurant offers 1 hour of PTO for every 30 hours worked. A line cook working 30 hours per week earns about 1 hour per week, totaling roughly 52 hours (6.5 days) annually.
Calculation: For every pay period, multiply hours worked by the accrual rate.
- Employee works 80 hours in a two-week pay period
- Accrual rate: 1 hour per 30 hours worked
- PTO earned: 80 ÷ 30 = 2.67 hours
Hours-based accrual works well when employees have inconsistent schedules. Your retail sales associate who works 25 hours one week and 35 the next earns PTO proportionate to actual work.
Time-Based Accrual (Length of Service)
Employees earn a fixed amount of PTO each pay period based on their employment status, regardless of hours worked.
Example: Full-time employees at a hotel earn 3.08 hours of PTO per pay period (26 pay periods = 80 hours = 10 days annually). Part-time employees earn 1.54 hours per pay period (26 pay periods = 40 hours = 5 days annually).
Calculation: Divide total annual PTO by number of pay periods.
- Annual PTO entitlement: 80 hours
- Bi-weekly pay periods: 26
- PTO per pay period: 80 ÷ 26 = 3.08 hours
This method is simpler administratively but assumes consistent full-time or part-time status.
Front-Loaded with Proration
Some businesses give employees their full annual PTO allocation on a specific date (hire anniversary, January 1st) but prorate the first year.
Example: A salon gives 10 days of PTO each January 1st. An employee hired July 1st receives 5 days immediately (prorated for half the year), then gets the full 10 days the following January 1st.
This is simpler to administer but creates financial liability since employees have time they haven't technically "earned" yet.
Accrual Rates and Tiers
Many businesses increase accrual rates based on tenure:
Example structure for a grocery store:
- Years 1-2: 1 hour per 40 hours worked (2 weeks annually for full-time)
- Years 3-5: 1 hour per 30 hours worked (2.67 weeks annually)
- Years 6+: 1 hour per 25 hours worked (3.2 weeks annually)
This rewards long-term employees and encourages retention. Your cashier who's been with you for seven years earns more vacation time than the new hire, which feels fair and incentivizes staying.
Accrual Caps
An accrual cap is the maximum amount of PTO an employee can accumulate. Once they hit the cap, they stop earning more until they use some.
Why cap accrual? Without caps, employees could accumulate years of unused PTO, creating massive financial liability. If your business has 20 employees with 300+ hours of unused PTO each, that's $100,000+ in potential payout liability.
Common cap structures:
- Cap at 1.5x annual accrual (someone earning 80 hours annually can bank up to 120 hours)
- Cap at specific hours (all employees cap at 160 hours regardless of accrual rate)
- Rolling cap (no more than 40 hours can roll over from year to year)
Legal considerations: Some states (California, Montana, Nebraska, Massachusetts) restrict or prohibit use-it-or-lose-it policies, so caps must allow reasonable time to use accrued leave.
A spa might set its cap at 120 hours. When an employee reaches that balance, she stops accruing until she takes time off. If she's at 120 hours and earns 3 hours this pay period, she stays at 120. Once she takes a day off (8 hours), her balance drops to 112, and she can start accruing again.
Use-It-or-Lose-It Policies
These policies require employees to use PTO by a certain date or forfeit it. For example, "All PTO must be used by December 31st. Any unused time is forfeited."
Legal issues: Several states prohibit use-it-or-lose-it policies entirely because PTO is considered earned wages. Check your state law before implementing this.
Better alternative: Instead of forfeiture, use caps and carryover limits. "You can carry over up to 40 hours into the next year. Any excess is forfeited." This gives employees a cushion while managing liability.
Negative Balances
Can employees take PTO they haven't earned yet? That's up to your policy.
Allow negative balances: An employee with 8 hours accrued wants to take a 16-hour vacation. You approve it, and she goes to a -8 hour balance. She'll need to work it off before earning more PTO.
Risk: If she quits while at -8 hours, you can't easily recoup that money. Some states prohibit deducting it from final paychecks.
Prohibit negative balances: Employees can only take time off they've already earned. Your restaurant server with 12 hours banked can take 1.5 days off, not 3 days.
Most businesses prohibit negative balances to avoid complications, especially with high-turnover positions.
Accrual During Leave
Do employees continue accruing PTO while on unpaid leave? What about FMLA leave?
Common approach: Employees accrue during paid leave (vacation, sick days) but not during unpaid leave. However, FMLA requires that benefits accrual continue during leave in most cases.
Your hotel employee on two weeks of unpaid personal leave wouldn't accrue PTO for those two weeks. But if she's on FMLA leave, she continues accruing as if she were working.
Accrual for Part-Time and Variable Hour Employees
You have two options:
Proportional accrual: Part-time employees earn PTO at the same rate as full-time but based on hours worked. If your full-time workers earn 1 hour per 40 hours worked, so do part-timers.
Tiered accrual: Full-time employees earn at one rate, part-time staff earn at a reduced rate. Full-time retail workers earn 1 hour per 30 hours worked; part-time workers earn 1 hour per 40 hours worked.
Either approach works legally, but proportional accrual based solely on hours worked is simpler and more defensible.
Tracking Accrual
Manual tracking gets messy fast. Spreadsheets work for five employees but fall apart at 50. You need a system that:
- Automatically calculates accrual each pay period
- Tracks balances in real-time
- Alerts employees approaching caps
- Prevents scheduling when employees lack sufficient PTO balance
Use time-tracking technology like the Breakroom app to maintain accurate records of actual time worked, and you will avoid much messier processes.
Communicating Accrual to Employees
Make accrual transparent:
- Show current balance on pay stubs
- Provide access through self-service portals
- Explain accrual clearly in the employee handbook
- Answer questions during onboarding
Your warehouse worker should be able to check her PTO balance on her phone anytime, not have to ask HR or wait for a pay stub.
The Bottom Line
Leave accrual balances the business need to manage costs and liability with the employee need for predictable time off. The right accrual structure depends on your industry, workforce, and cash flow. Hours-based accrual works best for businesses with variable schedules. Time-based accrual suits more traditional staffing models.
Whatever structure you choose, make it clear, track it accurately, and communicate it consistently. Employees should never wonder how much time off they have or how they earn more.
