What Is PTO Accrual?
PTO accrual is the rate and method by which an employee earns paid time off hours. Rather than receiving their entire annual PTO allotment upfront, employees typically accrue a set number of hours for each pay period or hours worked.
The accrual method you choose affects employee satisfaction, company liability, and compliance with state sick leave laws.
Why Use Accrual Instead of Front-Loading?
Reduces Financial Risk
When you front-load PTO at the beginning of the year, employees who leave after using their time create a debt to the company. Accrual-based systems ensure employees earn their time off gradually.
Complies with State Laws
Many state and local sick leave laws specifically require accrual-based systems. California's paid sick leave law, for example, allows employers to use an accrual method of at least one hour for every 30 hours worked.
Fairer to New Hires
Employees who start mid-year receive a proportional amount rather than a full year's worth they haven't yet earned.
Common Accrual Methods
Per Pay Period
Employees earn a fixed amount each time payroll runs. This works well for salaried employees with consistent pay periods.
Example: To provide 80 hours annually with bi-weekly pay (26 pay periods): 80 hours ÷ 26 = 3.08 hours per pay period
Per Hour Worked
Employees earn PTO based on actual hours worked. This method is common in states with hourly accrual requirements and works well for part-time or variable-hour employees.
Example: To provide 80 hours annually assuming 2,080 hours worked: 80 ÷ 2,080 = 0.038 hours of PTO per hour worked (roughly 1 hour per 26 hours worked)
Per Month of Service
Employees earn PTO based on completed months of employment.
Example: To provide 80 hours annually: 80 hours ÷ 12 months = 6.67 hours per month
Setting Accrual Rates
Your accrual rate depends on how much total PTO you want to provide annually and your accrual method.
Industry Standards
According to the Bureau of Labor Statistics, private sector employees receive an average of 11 days of paid vacation after one year of service. This varies by:
- Industry (more in professional services, less in food service)
- Company size (larger companies typically offer more)
- Employee tenure (increases with years of service)
Calculating Your Rate
Work backwards from your desired annual total:
- Determine annual PTO hours (e.g., 80 hours = 10 days)
- Choose accrual frequency (per pay period, per hour worked, etc.)
- Divide annual hours by frequency
Tenure-Based Rates
Many companies increase accrual rates based on years of service:
- 0-2 years: 0.038 hours per hour worked (80 hours annually)
- 3-5 years: 0.058 hours per hour worked (120 hours annually)
- 6+ years: 0.077 hours per hour worked (160 hours annually)
When Does Accrual Start?
Immediate Accrual
Some companies begin accruing PTO from day one of employment. This is the most employee-friendly approach.
After Probation Period
Others require employees to complete a probationary period (30, 60, or 90 days) before PTO accrual begins.
Waiting Period with Retroactive Credit
Some policies have a waiting period but credit accrual retroactively once the employee completes probation.
Example: 90-day wait period with retroactive credit means an employee who completes probation receives credit for PTO they would have accrued during those first 90 days.
State Law Requirements
Check your state's sick leave laws. Many require immediate accrual with no waiting period for the sick leave portion of PTO.
Accrual During Different Work Statuses
Paid Time Off
Employees typically continue accruing PTO while using PTO. The time off is paid, so they're still employed.
Unpaid Leave
Whether employees accrue during unpaid leave depends on your policy and the type of leave:
- FMLA leave: Employees must continue accruing the same benefits as if they were working
- Other unpaid leave: Company policy determines accrual
Part-Time Employees
Part-time employees should accrue on a pro-rated basis if you provide them PTO. An hourly accrual method automatically handles this.
Tracking PTO Accrual
Manual Tracking
Spreadsheets work for very small teams but become error-prone as you grow. Manual tracking creates risks of:
- Calculation errors
- Missed accruals
- Lost records
- Inconsistent application
Payroll System Tracking
Most payroll systems can track PTO accrual automatically based on rules you set. This reduces errors and provides employees visibility into their balances.
Dedicated Time Off Software
Time off management tools track accrual, balances, requests, and approvals in one place. For shift-based businesses, integration with scheduling helps managers see who's available.
Communicating Accrual to Employees
Employees need to understand:
- How they earn PTO
- Current balance
- When they can start using accrued time
- Any waiting periods or restrictions
Pay Stub Information
Include accrual information on pay stubs:
- Hours accrued this period
- Total balance
- Any caps or limits
Self-Service Access
Give employees online access to check their PTO balance anytime. This reduces HR inquiries and helps employees plan time off.
Common Accrual Mistakes
Incorrect Calculations
Using the wrong formula or forgetting to adjust for part-time status leads to over or underpayment.
Not Tracking Properly
Failing to maintain accurate accrual records creates disputes and compliance problems.
Ignoring State Requirements
Some states mandate specific accrual rates or methods for sick leave. Your PTO accrual must meet these minimums.
Inconsistent Application
Accruing differently for similarly situated employees can create discrimination claims.
Not Updating for Pay Changes
If accrual is based on hours worked or pay periods, ensure your system updates when employees change from full-time to part-time or vice versa.
State-Specific Accrual Requirements
Several states mandate paid sick leave with specific accrual rates:
One hour per 30 hours worked, with a minimum annual accrual of 24 hours.
One hour per 30 hours worked up to 40 hours annually.
Varies by company size: 40-56 hours annually.
Even if you have a generous PTO policy, ensure your accrual method satisfies state sick leave requirements.
Accrual and Unlimited PTO
Unlimited PTO policies eliminate accrual entirely. Employees don't earn or track time off hours. While this sounds generous, research shows employees with unlimited PTO often take less time off than those with accrual-based systems because there's no tangible bank of hours encouraging them to use it.
If you switch from accrual to unlimited PTO, you must typically pay out employees' accrued balances at the time of transition (check state law).
Best Practices
Keep It Simple
Complex accrual formulas confuse employees. Choose a straightforward method that's easy to explain and calculate.
Provide Visibility
Employees should be able to check their accrual balance easily without contacting HR.
Automate When Possible
Let technology handle calculations to reduce errors and administrative burden.
Document Your Policy
Put your accrual method in writing in your employee handbook, including:
- Accrual rate and method
- When accrual begins
- How often accrual is credited
- Treatment during various types of leave
Review Regularly
Audit your accrual tracking quarterly to catch errors early and ensure your policy remains competitive.
PTO accrual is the engine that makes your paid time off policy run. Getting the method and rate right ensures fair treatment of employees while managing company liability. Whether you accrue by pay period, hours worked, or months of service, accuracy and transparency build trust with your team.
