How to Help Employees Understand PTO Accrual and Battle Burnout
A strong paid time off (PTO) policy is the cornerstone of any well-balanced benefits plan—and a perk most workers prioritize. One policy in particular, PTO accrual, stands out as a formula employers can shape into a personalized plan that employees truly appreciate.
PTO accrual policies vary by company and industry. While “use it or lose it” plans encourage people to take time away from work, others give employees the option to carry time off into the next year or even convert PTO into cash to cover expenses.
Since 4 in 10 US workers don’t use all their time off, offering a PTO payout can help people maximize the benefit in their own way. They can use the extra cash to pay off a loan, cover unexpected repairs, and enhance their nest egg for retirement.
BambooHR makes managing time off a snap. With our time-tracking software, it’s easy to implement a custom PTO policy, approve time-off requests, automatically track leave time, and more. In this article, we’ll discuss what PTO accrual is, how it can turn into a high-value benefit, and more.
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What Is PTO Accrual?
PTO accrual, or earned PTO, is a type of paid leave policy where time off gradually increases relative to how much the employee works or how long they’ve been with the company. Whether it’s separate sick, vacation, and personal days or a more generalized PTO accrual plan, this system relies on diligent recordkeeping to run smoothly. Common PTO rates include:
- Hourly PTO accrual: Employees earn time off based on the number of hours they work.
- Periodic PTO accrual: Time off accumulates during a set period (e.g., on a daily, weekly, bi-weekly, monthly, or quarterly basis).
- Annual PTO accrual: At the start of each calendar year or on their anniversary date, employees receive time off all at once, which increases based on tenure.
Unlimited PTO vs. PTO Accrual
Unlimited PTO takes the hassle out of calculating accruals, allowing employees to take as much or as little time off as they need. Whether PTO requests get approved is still up to managers’ discretion, but there’s no PTO balance to track or risk of the balance going negative. It’s a generous policy that can simplify a lot of processes, but its success in improving the employee experience will depend on the company’s culture and attitude towards time off.
In other words, good internal communication is key to maximizing the benefit of unlimited PTO. There’s no guarantee employees will take enough time off to maintain a healthy work-life balance despite it being unlimited, but it’s worth researching further to figure out if it’s a good fit.
Flexible PTO vs. Traditional PTO
Traditional PTO policies organize time off into categories (e.g., 5 sick days and 10 vacation days). Flexible PTO, or banked PTO, eliminates these labels, allowing employees to use their allotted time off at their discretion.
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How Does PTO Accrual Work?
Paid leave isn’t just handled by HR—accounting managers also track time off for payouts. This is usually required when an employee leaves the company, but some organizations compensate for unused PTO at the end of the year. These departments take two factors into account:
- Hours earned: Using a formula, they calculate the amount of time off each employee has accumulated at any given point.
- Payout amount: Accrued hours translate to dollars based on the employee’s hourly wage rate.
According to the US Chamber of Commerce, here’s how to convert accrued PTO into payment:
- Step 1: Calculate the amount of PTO that rolls forward from the previous month.
- Step 2: Add the number of hours the employee earned during the current month.
- Step 3: Subtract the number of hours the employee used.
- Step 4: Multiply the remainder by the employee’s hourly wage rate.
PTO Accrual Example
Let’s say Miguel is a full-time employee who works 40 hours per week and gets 15 vacation days that reset on January 1st each year. Since his company is open 2,000 hours per year, the formula for his accrual rate is:
120 hours of PTO / 2,000 working hours per year = 0.06
This means he earns 0.06 hours of PTO for each hour spent on the job. Breaking this down a little further, this translates to:
- Daily PTO accrual: 0.48 hours of PTO each day
- Weekly PTO accrual: 2.4 hours of PTO each week
- Biweekly PTO accrual: 4.8 hours of PTO every two weeks
- Monthly PTO accrual: 9.6 hours of PTO each month
This breakdown is helpful when crafting a PTO policy. Employers use it to illustrate how vacation time correlates to time spent on the job for hourly employees and how much time off salaried employees earn per pay period.
PTO Payout Example
Miguel’s company is required to pay their employees for unused PTO as taxable wages. If he earns $35 per hour and has 40 hours of unused PTO by the time he retires, here’s how they would calculate his payout:
$35 per hour wage x 40 hours of unused vacation time = $1,400 gross wages
Using this number, his accounting department can deduct the appropriate taxes and pay Miguel before he rides off into the sunset.
Tips for Setting Accrued PTO Guidelines
As an employer, you have a significant amount of freedom to craft a thoughtful PTO accrual plan that works for your organization and employees. Here are some guidelines to help shape your policy and make managing accrued time off easier:
- Accrual waiting period: At some businesses, new hires must wait a couple of weeks or more to be eligible for PTO. Other businesses allow them to start earning from Day 1.
- PTO balance cap: Some companies set a maximum amount of PTO an employee can earn in a given year, while others let them carry over as much as they wish.
- PTO forfeiture: Businesses in certain states can implement a “use it or lose it” PTO policy as an incentive for people to take time away from work.
- PTO rollover: This rule allows earned PTO to carry over into the next accrual period.
- Tenure milestones: PTO can serve as a reward for company loyalty, gradually increasing the longer people stay.
- PTO cashout: Employees can get paid for unused PTO at the end of each year and/or when they leave the company.
Once your policy is finalized, make sure everyone knows where to find it. Most companies add this to their employee handbook with examples to clearly convey the rules and how special regulations apply.
Also, don’t forget to embed PTO positivity into your company culture. Proactively reducing the guilt commonly associated with taking time away from work fosters a happier, healthier workplace where employees feel comfortable taking advantage of your new policy.
PTO Laws and Regulations
To date, the Fair Labor Standards Act (FLSA) doesn’t require private businesses to pay an employee for the amount of time they don’t work. However, state laws vary. Some states regulate “use it or lose it” PTO policies, while others prohibit them because the law views paid leave as earned wages. Additionally, some states require businesses to pay out accrued vacation time at the employee’s current pay rate (not their starting rate).
Be sure to check in with your state’s labor laws to make sure your organization’s PTO policy complies.
How Much PTO Is Normal?
It’s no secret the US lags behind when it comes to paid leave. Across the ocean, time off is a guaranteed right for the average worker, with many European countries boasting a month or more of paid annual leave. For instance, French workers are entitled to 30 paid days off a year and UK workers get 28 paid days off a year.
According to the Bureau of Labor Statistics (BLS), here’s how many vacation days US workers receive on average:
What Is a "Good" PTO Accrual Rate?
A good PTO accrual rate allows employees to accumulate paid leave in a timely manner, ideally so there’s always time available when they’re in need of a break. If you’re in the beginning stages of this process, investigate what other businesses offer in your industry and figure out what you can reasonably provide without disrupting organizational flow.
Pro tip: It’s also helpful to find out what employees truly want.
A good PTO policy helps boost employee satisfaction, enhance work-life balance, and combat burnout. It can also be used as a recruiting tool that helps your company appeal to potential job candidates and remain competitive in the marketplace. Learning what potential employees look for is essential to creating a plan that meets the needs and expectations of today’s workforce.
Your policy should also be backed by an accurate tracking system. And as your company grows, transitioning from spreadsheets to software can help. Time-tracking software that updates PTO balances automatically and offers built-in calculators for employees to use, helps ensure every calculation is on point, up-to-date, and easy to find at a glance.
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