PTO accrual: How to calculate accrued time off

For many workers, paid time off (PTO) is the most important benefit to consider when deciding where to work. That’s why businesses need to implement policies that help them stay competitive. But that’s just one part of a larger conversation around PTO. Here’s what you need to know about accrued time off—the most common method for earning PTO.

• How does accrued paid time off work?
• Are accrued time off and outstanding time off the same?
• What’s the difference between lump-sum and accrued PTO?
• 6 examples of how to accrue time off
• Factors that can affect PTO accrual rates
• How to calculate accrued time off
• Can you roll over accrued PTO? 
• Do employers have to pay out accrued time off?

How does accrued paid time off work?

Accrued time off is PTO that workers earn over time. It’s different from lump-sum PTO, for instance, wherein a worker receives all their PTO at once. With accrued time off, workers earn PTO hours each week, pay period, or month.

Generally, companies cap the number of PTO hours a worker can accrue in a year. A year may start with the company’s fiscal year, the calendar year, or an employee’s hire date.

Companies often reward loyalty by increasing the number of PTO hours an employee can accrue in a year. They might also allow senior employees to roll over more PTO hours into the next year. Here’s an example from the Society for Human Resource Management:

• An employee with two years or fewer under their belt can accrue up to 10 days of PTO, or 3.07 hours per pay period.
• An employee who’s been with the company for over 10 years can accrue 25 days of PTO, earning 7.69 hours per pay period.

Are accrued time off and outstanding time off the same?

Accrued time off and outstanding time off are separate concepts, though they overlap. To recap, accrued time off is PTO that someone earns over time. For instance, each week, your employee might earn two hours of PTO. In a month, your employee would have eight hours of PTO. For most people, that’s enough PTO to take a day off.

Outstanding time off is time off that a worker has requested that their manager hasn’t approved. It can refer to time off that a worker has taken or will take. Someone might have several hours of outstanding PTO if their manager hasn’t approved their PTO requests.

But accrued time off and outstanding time off often intersect. That’s because the same person who is accruing time off may also have outstanding time off. Remember those eight hours of accrued time off? Say your employee submits a request to take a day off work, but the manager is out of the office. Until the manager approves that time, the employee has both accrued time off and outstanding time off.

What’s the difference between lump-sum and accrued PTO?

Lump-sum PTO, also known as front-loaded PTO, is the most common alternative to accrued time off. Rather than accumulating PTO hours over time, workers with lump-sum PTO receive all their paid time off at once. Here’s an example of that in practice:

• An employee with lump-sum PTO would receive 80 hours of PTO (based on their employer’s plan) at the beginning of the year. They’d have the whole year to use it as they wish.
• An employee with accrued time off might earn 0.65 hours of PTO each week. By the end of 12 months, they’d have 80 hours of PTO—enough for 10 workdays off.

Like accrued PTO, the amount of lump-sum PTO an employee earns each year may depend on how long they’ve been with the company. Tenured employees might receive double the number of PTO days as a newly hired colleague.

6 examples of how to accrue time off

Federal labor laws don’t require employers to give employees paid time off. That means there also aren’t any parameters around how much time off employees should accrue in a year. These are details business owners can decide for themselves. Business owners looking to set up a new PTO accrual policy might choose from six common options:

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 accrual by each employee’s work anniversary.

The latter three examples assume that the business puts a cap on how much PTO an employee can accrue in a year. Depending on the type of PTO policy, there might be a date that an employee can once again start accruing PTO and taking time off. That reset date varies from business to business, as some reset on January 1, while others go by fiscal year or work anniversary.

Factors that can affect PTO accrual rates

The rate at which an employee accrues PTO hours may be affected by several factors, like how many hours they work per period and how long they've worked for a business. 

Part-time employee versus full-time employee

The IRS defines a full-time employee as someone who works for a company, on average, at least 30 hours per week each month. A part-time employee is generally an employee who works less than that. Because part-time employees work fewer hours per week or pay period than a full-time employee, they often accrue PTO at a slower rate. As of March 2021, 79% of private industry employees were offered some form of PTO, according to the U.S. Bureau of Labor Statistics. A similar survey from 2019 showed that 91% of full-time employees had PTO, while only 42% of part-time workers had PTO. This means full-time workers were more than twice as likely as part-time workers to receive PTO from their employers. 

New employee probationary period

Another aspect that might impact an employee’s PTO is the amount of time they have spent in a job. For example, some businesses do not let employees start using their benefits until they have been working in the role for a certain period of time. So, if an employee has been at a company for less than three months, for example, they may not have access to their PTO days yet. 

Employee's tenure or length of service

Similarly, if an employee has been at a company for more than a year, they may be eligible for more time off. Private industry workers had, on average, 11 days of PTO after their first year in a job, the BLS reported in 2022. That number increased to 15 days after five years, and 18 days after 10 years.

How to calculate accrued time off

Calculating accrued time off can be a challenge. That’s why most businesses use a PTO accrual calculator, typically embedded into their time tracking or payroll software. QuickBooks Time, for instance, makes it easy for managers to track employee PTO. They can even configure the app to allow employees to request or approve their time off.

But say an employee only wants to know how many hours of PTO they’ll accrue in a month. Here’s how to figure out the amount of PTO the employee is owed.

1. Depending on how many hours of PTO the employee accrued each week, if the employee accrued PTO hours by pay period, and each pay period is two weeks, they would divide that number in half.
2. Multiply the number of PTO hours accrued by the number of weeks the employee plans on working before taking time off. For example, say the employee earns two hours of PTO each week, and they want to take a vacation in three months (12 weeks). Multiply two and 12 to get 24 hours of PTO.
3. Find out how many hours of PTO equals one workday. For most employees, one workday is eight hours. So 24 hours of PTO would equal three workdays off.

Can you roll over accrued PTO?

Whether an employee is allowed to roll over PTO hours is dependent on the individual organization’s policy and state laws. Some employers might allow workers to roll over a certain number of hours from a previous set time period, while others might have a "use-it-or-lose-it" policy. 

A "use-it-or-lose-it" policy means that if you don't use your PTO during a set time period—often by the end of the calendar year—then you lose the unused accrued PTO hours.

The number of hours an employee is allowed to accrue per set time period is also sometimes capped depending on the employee’s contract or the organization’s policy. 

Here are two common PTO accrual caps that a business might use to determine when, or if, an employee has accrued their maximum PTO hours.

• Annual: Employees are given a limit on how many PTO hours they can earn each year, so they accrue a small amount per week or pay period.
• Unlimited PTO accrual: Employees aren't capped on how many PTO hours are available to them, and they're able to take as many hours of paid time off as they need. 

Additionally, a PTO balance cap is when an employee accrues the maximum number of PTO hours available to them for a set time period and is no longer able to accrue any additional PTO hours. A business might also put a limit on how many days an employee can roll over.

Do employers have to pay out accrued time off?

Currently, no federal or state laws mandate that employers give employees vacation pay. However, should an employer provide PTO, some states require them to pay out any unused PTO when an employee leaves the company. If a company contract or policy promises to pay out PTO, the employer must abide.

Arkansas, California, Colorado, and Illinois require businesses to pay out any earned PTO. Review out your state’s labor laws for updates on similar PTO requirements. 

Some states also allow companies to offer a cash-out option, which gives employees the opportunity to receive a lump sum of money instead of the vacation days.