How to Calculate PTO Accrual: Methods, Types, and Terms

Time off should be simple. You work. You earn days away from work. You take them. But somewhere between the promise of  paid time off (PTO) and the reality of using it, things get complicated.

PTO accrual is the system that allows people to earn their time off gradually over weeks or months, rather than receiving it all at once. It sounds simple until you understand that there are three distinct concepts: accrued time, used time, and available time. Additionally, the complexity quickly increases if your team is spread across several nations or time zones.

Employers must create policies that are equitable, predictable, and compliant with various  labor laws and regulations to properly accrue PTO. For workers, this entails knowing exactly how much time off they have accrued and when they can use it. Nobody wants unexpected shortages and tense Slack messages about denied vacation requests.

The difficult part? Figuring out the accrual technique that best aligns with your team structures. PTO may be handled differently by a 200-person company with remote workers spread across five countries than by a 10-person startup in Austin. This is an important decision because the approach you take shapes people's experiences with time off at your company.

Key PTO accrual terms explained

Before diving into the various accrual methods, let’s get on the same page about how PTO balances function. Every system uses three terms, each with a distinct meaning.

• Accrued PTO. The time you have  accrued through payroll but haven't yet used is called accrued PTO. Consider it as money that has been added to your account.
• Used PTO. Time you’ve already taken off is known as used PTO, which is deducted from your earnings.
• Available PTO. After deducting used time from accrued time, available PTO is what's left. When you submit a request for a vacation, this is the number that counts.

In simple terms, here's how it looks in practice:

• Accrued 40 hours
• Used 8 hours
• Available 32 hours

The math is easy. However, when systems present these figures differently or when accrual rates alter in the middle of the year, confusion (and frustration) ensues. In short, it makes all the difference to know which number you're looking at.

What are the most common PTO accrual methods?

Most businesses handle PTO accrual using one of three methods. There are trade-offs between each approach regarding administrative overhead, fairness, and simplicity. Your team structure, payroll schedule, and how you want your employees to enjoy their vacation time will all influence your decision.

Annual lump sum accrual

This is the one-time-only method. Employees get all of their paid time off on the first day of the year or on the anniversary of their hire date. If you get 120 hours, they are available to you starting on January 1st.

The appeal is how simple it is. There's no math to do each pay period. There's no doubt about how much time is left. Employees can plan vacations months in advance and not worry about whether or not they'll have enough hours saved up by summer.

But there are drawbacks. If someone leaves in the middle of the year after using 80 hours of a 120-hour allotment, you may need to take that time back from their last paycheck. Some countries allow this. Others don't. Check local labor laws before implementing this method.

Best for:  Businesses with generous leave policies that want to keep things simple when employees leave early.

Per pay period accrual

This method gives you PTO on every paycheck. Every time the employee gets paid, a small amount is added to their balance. It seems fair because time off is closely related to time worked.

The formula is easy to understand. To find out how many hours of PTO you get each year, divide the total number of PTO hours by the number of pay periods in your payroll schedule.

Formula:

Total annual PTO hours ÷ Number of pay periods = PTO earned per period 

Example (biweekly payroll):

120 hours ÷ 26 pay periods = 4.62 hours per pay period

The employee gets 4.62 hours of paid time off every two weeks. They have about 60 hours available after six months. The math is straightforward, and the accrual follows a consistent pattern.

Best for: Employers who want to give employees time off gradually based on the work they do. This method lowers the risk of negative balances and makes employees feel like they are getting a fair amount of time off.

Accrual of hours worked

This method links PTO directly to hours worked. Employees get one hour of PTO for every specified number of hours they work. This method is helpful for part-time workers, hourly workers, or teams that have different schedules.

The most common ratio is one hour of paid time off for every 40 hours worked. But you can change this to fit your policy goals.

Formula:

Total hours worked ÷ 40 = PTO hours earned

Example:

1,600 hours worked ÷ 40 = 40 hours of PTO earned

If someone works 30 hours one week and 40 the next, their PTO accrual reflects that variability. It keeps things fair and proportional for all types of jobs.

Best for: Teams that work by the hour, contractors who are becoming employees, or schedules that change from week to week. This method makes sure that time off matches actual time served.

PTO accrual best practices for employers

Getting the accrual method right is only half the battle. Whether your  PTO policy builds trust or causes confusion depends on how you explain it, keep track of it, and keep it up over time.

• Be open about how it works.  Make sure to clearly explain the accrual rate, any limits on balances, and the rules for rolling over balances. Employees should know exactly how much time off they're earning and when they can use it.
• Check the labor laws in your area. Some areas require certain methods of accruing, rules for carryover, or requirements for payouts when someone leaves. Texas laws might not let you do things that are legal in California or Germany.
• Use HR or payroll software to keep track of things automatically. Mistakes and arguments happen when people use manual spreadsheets. Solid systems automatically figure out accruals and let employees see their balances in real time.
• To control liability, set caps or carryover limits. Your balance sheet could show a lot of debt if you have unlimited accruals. Reasonable limits protect the company and make sure that employees actually take their time off.
• Put everything in writing.  Add your PTO policy to employee handbooks, offer letters, and materials for new hires. Written rules keep both sides safe when there are problems.
• Teach managers how accrual works. Most PTO questions go to frontline managers. They can answer questions correctly and approve requests without having to go to HR every time if they know how the system works.
• Look over policies once a year. You might need to change your accrual method as your business grows or enters new markets. Regular reviews make sure that your policy still works for your team structure and meets all compliance needs.

PTO tracking tips for employees

Knowing how your PTO builds up helps you plan time off without any surprises. A few good habits can keep you up to date and prevent problems with your balance at the last minute.

• Understand how and how often your company accrues.  How quickly your balance grows depends on whether you earn PTO once a year, every paycheck, or by the hour. If you're not sure, look in your employee handbook or ask HR.
• Check your balance often.  Most  enterprise payroll systems show you how many hours you've worked, how many you've used, and how many you still have available. Check it before asking for time off so you don't ask for time off that you can't cover.
• Know how changes in your life affect accrual. Taking a sabbatical, going part-time, or taking unpaid leave often stops or slows down the accumulation of PTO. Before making plans, talk to HR about these situations.
• If your company has a cap, keep an eye on it. Some policies stop you from earning more once you reach a certain balance. If you're getting close to the limit, take some time off, or you'll stop getting new hours.
• Plan to have conversations about leave. If you want to take parental leave, an extended vacation, or time off for medical reasons, talk to HR about how it will affect your PTO balance and what other leave options are available.

FAQs: PTO accrual questions answered

Despite clear rules, the same PTO questions come up. Here are the answers to the most common questions.

How many hours of PTO do I earn per week?

It depends on your employer's rules and how often you get paid. If you work 120 hours a year and get paid every week, you can figure out how many hours you work each week by dividing 120 by 52 weeks. The calculation changes depending on how much you get each year and how often you get paid.

Can unused PTO be carried over to the next year?

Some businesses let you carry over a certain amount, while others make you use it or lose it. Look in your employee handbook for the exact rules. In some U.S. states and countries, labor laws take precedence over company policy and mandate the carryover or payment of unused time.

What happens to accrued PTO when I leave a company?

When an employee leaves, many companies pay out unused PTO, but that’s not always the case. It depends on the law and the company's policy. Some places have laws that say employers must pay out, while others leave it up to the employer. Always check your company's policy before giving notice or leaving.

Is PTO accrual required by law?

Not in all places. Some countries require paid time off and certain ways to earn it. Only some states in the U.S. require employees to earn PTO. In most places, it's up to the employer to make its own policy.

Does PTO accrue during leave or holidays?

Typically, yes for paid leave and no for unpaid leave, but policies vary widely. Some companies keep adding to your account while you're on medical or  parental leave , while others stop. Before taking a long break, check with HR to know what to expect.

Get the most from your PTO policy with Pebl

Everyone needs to know how PTO accrual works. If you're hiring across borders, you need a PTO system that treats everyone fairly, stays compliant, and works seamlessly no matter where your team is based. Employees should know how much time they've earned and when they can use it. When both sides understand how it works, PTO becomes what it should be: an  employee benefit that helps people .

Pebl makes it easy for companies to manage global teams and their PTO. We offer  Employer of Record services in more than 185 countries, which means we relieve you of the HR administrative lift, while you focus on operations. We take care of the cross-border details that change from Berlin to Bangalore, like compliance,  payroll , and policies. 

Taking time off should be easy. We make sure it is.  Get in touch to learn more.

Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free. 

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