Paid Time Off (PTO) Accrual: Everything You Need to Know

For many employees, paid time off (PTO) is the most significant factor to consider when picking where to work. That is why firms must develop regulations that help them remain competitive. Paid time off, which includes vacation, sick leave, and holidays, is a common employee perk. Based on data from the Bureau of Labor Statistics, 77% of employees receive paid vacation time, 77% receive paid sick leave, and 79% receive paid holidays. When employees do not use their PTO, they are left with accumulated time off. In this article, we'll delve into the realm of PTO accruals and show you all you need to know about it.

What Is Accrued Time Off?

Accrued time off is a sort of PTO policy in which employees receive paid time off depending on the number of working hours they have put in. Employees can earn PTO on an hourly, weekly, biweekly, monthly, or per pay period basis. Accrued time off varies from lump sum PTO in that a firm estimates how much time an employee may take off every year based on the number of hours they work. Unlike other leave programs, PTO does not distinguish between sick days, vacation time, or other reasons for taking time off from work.

Companies frequently reward loyalty by increasing the amount of PTO hours an employee may collect each year. They could also allow senior employees to carry over additional PTO hours into the next year. Here is an example from the Society for Human Resource Management.

Employees with less than two years of experience can earn up to 10 days of PTO (3.07 hours each pay period), while those with more than ten years can earn 25 days of PTO (7.69 hours per pay period).

According to the United States Travel Association, 55% of American workers do not take their allowed paid time off. In 2018, 768 million vacation days were unused in the United States. This is partly due to North American business culture, which views taking too much time off as endangering an individual's chances for professional growth.

Employees who work for firms that enable paid time off to be accrued based on hours worked will have accumulated a set amount of PTO by the end of the year. Depending on business policy, workers can either opt to use this time off during the year or, if they don't, roll it over to the next year or be paid. 

If an employee quits the firm without using their accrued paid time off (PTO), you might need to figure out their PTO for the year and add it to their final salary. The number of hours workers must work in a year to begin receiving their PTO and whether they may roll over their PTO will depend on your company policy.

What Is the Difference Between PTO and PTO Accrual?

The total amount of time off to which an employee is entitled, including vacation, sick leave, and personal time, is referred to as PTO (Paid Time Off). It's the total number of hours or days available for the worker to take vacation time.

The method by which an employee gradually accrues PTO is known as accrual. There are several ways to accomplish this, including:

• Hourly accrual: Workers receive a certain amount of paid time off (PTO) for each hour they work.
• Monthly accrual: Workers are entitled to a monthly cap on paid time off.
• Annual accrual: At the start of each year, employees get a one-time lump sum of paid time off.

Local labor regulations and the company's policy determine which accrual method is employed.

For instance, At the end of the month, an employee with an 80-hour PTO balance and 4 hours of accrued PTO every month will have an 84-hour total PTO balance.

Related: Amazon PTO & Vacation Policy

How do I account for accrued PTO?

The method used to grant PTO to employees determines how much they have accrued. When you receive paid time off in one lump sum at the start of the year, you deduct the amount that you have already used from the total. You deduct 18 hours from your 120 hours of paid time off (PTO) if you take two days and two hours out of your three 40-hour work weeks in January. Calculations for accrued paid time off by pay period vary slightly. As said by Indeed:

1. Find out how many paid time off hours you receive annually: Some companies provide PTO on an hourly basis, allowing workers to take one or two hours off for appointments, medical visits, or school-related activities. Some people measure it in days. You must convert the three weeks of paid time off you get annually into hours. Fifteen days, or 120 hours, make up a week.
2. Assign PTO hours based on pay periods: Pay periods that are most often used include weekly, bimonthly, semi-monthly, and monthly. There are 52 pay periods in a year if you receive weekly payments. Biweekly pays out every 26 weeks. Monthly is twelve pay periods, while semi-monthly is twenty-four. If you are paid weekly and earn 120 hours annually, you would divide 120 by 52 to get around 2.3 hours of paid time off every week. Roughly speaking, semi-monthly is 5, monthly is 10, and biweekly is 4.6.
3. Take the hours worked and multiply it by the PTO for your pay month. Lastly, figuring out your total work hours is necessary to calculate paid time off. Count the number of pay periods you have worked and multiply the amount you accrue each pay period. Five paid time off hours per pay period multiplied by four pay periods is twenty hours if you work two months without taking any time off and receive semi-monthly payments. 2.3 PTO hours multiplied by nine pay periods = 20.7 PTO hours if you get a weekly salary. Remember, there are four pay periods every week for a total of five months.

Examples of PTO

Employers are not required by federal labor rules to provide paid time off to their staff. Thus, there are no restrictions on the total amount of paid time off that staff members are entitled to take each year. Owners of businesses are free to choose these specifics. Companies wishing to implement a new PTO accrual policy have six standard choices to select from:

1. Accrue PTO hours each week.
2. Accrue PTO hours each pay period.
3. Accrue PTO hours each month.
4. Reset PTO accrual by the calendar year.
5. Reset PTO accrual by fiscal year.
6. Reset PTO accruals based on the work anniversary of every employee.

The latter three examples presuppose that the company sets a maximum amount of paid time off that an employee may earn annually. The PTO policy may have an expiration date that determines when an employee may begin earning PTO and using time off again. Businesses reset on different dates; some use January 1st, while others use their fiscal year or anniversary of employment.

Conclusion

Paid time off is a very valuable perk for employees. The building business is struggling to find workers. Employers who provide PTO stay competitive in their efforts to attract top personnel. When creating a PTO policy, it is critical to consider both the requirements of the company and the employee. Make sure the policy is properly communicated and reviewed on a regular basis to ensure it fulfils the company's needs. Following these suggestions can help you create an effective PTO policy.