Productivity
Full Guide for Business Owners

Understanding Accrual PTO: A Comprehensive Guide
Business owners need to know how accrual PTO works because it determines compliance with legal regulations and ensures fair and efficient management of employee leaves.
PTO Accrual Definition
PTO accrual is a gradual increase in an employee’s paid time off. Employees earn PTO incrementally, which can be viewed as a benefit similar to saving money in a bank account. Therefore, PTO accrual accumulates into the number of paid holidays that an employee is legally allowed to take in the course of their stay and working at the workplace. This is a flexible type of leave that can be carried out for vacation, personal reasons, and sickness.
PTO Accrual, PTO Allotment, and Unlimited PTO
PTO earning and allocation is another concept akin to Paid Time Off which describes how an employee earns or is given paid time off. Here’s how they differ.
PTO Accrual
In an accrual system, employees gain their PTO hours in increments as a result of their continuous work in an organization. Different organizations may employ various methods for calculating PTO accrual. Here’s a list of the main accrual methods:
- Monthly Accrual: Each month, employees accrue PTO hours depending on their length of service, employment status, and accrual rate. For example, an employee accrues 10 hours of PTO monthly, adding up to 120 hours of PTO by the end of the year. This method suits organizations with salaried employees and is easy to manage with automated tracking.
- Semimonthly Accrual: Time accrues twice a month (usually, on the 15th and last day). For example, 5 hours semimonthly translates to 120 hours of PTO per year. This method suits organizations with a semimonthly payroll.
- Bi-Weekly Accrual: Employees accrue PTO hours every two weeks. In numbers, 4.62 hours per bi-weekly period will result in 120 hours of PTO yearly. This method is handy for companies with bi-weekly pay periods.
- Hourly Accrual: Employees accrue PTO hours based on daily hours worked, linking to precise tracking. For example, an employee earns 0.05 hours of PTO for every hour worked, totaling 100 hours of PTO for 2,000 hours worked in a year. This method is effective for part-time or hourly employees.
- Annual Accrual: Employees accrue PTO hours yearly, often on their employment anniversary date. For instance, an employee accrues 120 hours of PTO on their employment anniversary date each year. This method is simple to administer and may require pro-rating for partial years.
- Tenure-Based Accrual: The rate at which employees accrue PTO increases with their length of service, rewarding long-term employees with more time off. For example, an employee with 1-2 years of service accrues 10 hours of PTO per month, while an employee with 5+ years of service accrues 15 hours per month.

PTO Allotment
In an allotment system, the employer grants a large amount of PTO hours during the time of hiring or at the start of a calendar year. For instance, an employee is vested five weeks a year, thus you can assign 200 hours (assuming 40-hour work weeks) at the beginning of the year. With allotment, PTO is immediately available.
Here is a simple comparison:
Accrual | Allotment | |
---|---|---|
PTO Earned | Gradually over time | Lump sum at once |
Availability | Increases over time | Available immediately |
Unused PTO | May carry over, depending on the policy | Typically forfeited at end of year |
Unlimited PTO
A separate clear policy system of flexi-time where an employee can go for leave as frequently as possible accompanied by a manager’s permission but doesn’t need to account for hours. Instead of setting the specific accrual method, employees are granted the flexibility to take time off any time they need. It must be done with the manager’s approval. In this scenario, companies focus mainly on results rather than hours. For instance, employees can take a week off for a vacation – the most important is that their work responsibilities are covered and approved by their manager. According to the method, employees may schedule and use their PTO differently, and, therefore, employees should know all about their organization’s rules, especially the accrual-based PTO policy.

Why PTO Policies Are Important
What are the Different Types of Paid Time Off Policies?
PTO Banks: Full-time employees have a bank of hours that can be used for any type of leave (vacation, sick, personal). This simplifies tracking and administration.
Sick Leave and Vacation Separately: Some companies keep sick leave and vacation time separate, with different accrual rates and usage policies for each.
Floating Holidays: Employees are given a set number of floating holidays that can be used at their discretion, in addition to regular PTO.
PTO Record Management
For any type of PTO accrual to be beneficial for businesses and their staff, it is important that the organizations keep PTO records that help keep track of employees’ PTO accruals.
Workforce Planning and Management
How Does PTO Accrual Work?
When accruing PTO, employers and employees must know how it works. Accrued PTO (Paid Time Off) can be defined as a system where employees earn paid time off gradually. It is based on the number of hours worked or pay periods completed.
- Earning PTO: Employees accrue PTO hours at a specified rate.
- Usage: Available PTO may be taken to attend to (for example, vacations, sickness, or personal matters). Each organization’s regulations are different as to how and when one can take PTO.
- Caps: There may be a cap on the maximum number of PTO hours an employee can accrue in a year. Once the cap is reached, the employee stops accruing additional PTO until some of it is used. Unused PTO may or may not be rolled over to the next calendar year, depending on the provisions made in the company.
- Payout: In some cases, unused PTO hours may be paid out to the employee upon termination or at the end of the year, depending on the company’s policy and local laws.
- Carryover: Some companies allow employees to carry over unused PTO hours to the next year, while others have a “use it or lose it” policy. It may be prohibited or allowed that employees can rollover the unused PTO to the next fiscal year, but it must be used before some date.
- Legal Requirements: Even though policymakers may not mandate PTO to be offered by employers, many jurisdictions have standards as to how PTO is earned and utilized.
Benefits for Employers and Employees: This makes it easy to retain employees because they will have more freedom and autonomy over their work schedules.
How to Calculate PTO Rates
Calculating PTO rates can be complex, but it’s essential for both employers and employees to understand. Learn how to accurately calculate PTO rates with our step-by-step guide.

How to Calculate PTO Accruals?
Understanding how to calculate PTO accruals can be daunting.
PTO Accruals Calculations: How To Get Started
- PTO Time Frames: Commonly tracked by the calendar year, company fiscal year, or employee hire date.
- Accrual Amount: Determine the total hours available for accrual throughout the year.
- Accrual Frequency: Decide how often employees earn PTO, such as hourly, daily, weekly, biweekly, or monthly.
Example Calculations
Below, we provide examples to clarify the process.
Hourly Accrual Rate
The accrual rate is calculated per hour worked.
🧮Hourly Accrual Rate = (Total Annual PTO Hours) ÷ (Annual Working Hours)
For example, 80 hours PTO ÷ 2,080 annual work hours = 0.038 hours per hour worked.
Monthly Accrual Rate
For monthly PTO accrual, use the following formula.
🧮Monthly Accrual Rate = (Total Annual PTO Hours) ÷ 12
For example, 120 hours PTO ÷ 12 months = 10 hours per month
Pay Period Accrual Rate Formula
🧮Pay Period Accrual Rate = (Total Annual PTO Hours) ÷ (Number of Pay Periods)
For example, 80 hours PTO ÷ 26 bi-weekly periods = 3.08 hours per pay period
Pro-rated PTO for New Hires
Use the following formula.
🧮Pro-rated PTO = (Remaining Months in Year ÷ 12) × Annual PTO Amount
For example, The employee starts in March (10 months remaining) 120 hours × (10 ÷ 12) = 100 hours PTO for the first year.
PTO Accrual with Maximum Cap
Use the following formula
🧮Available PTO = MIN(Accrued PTO + Existing Balance, Maximum Cap)
For example, if the cap is 200 hours:
Current balance = 180 hours
New accrual = 30 hours
Available PTO = MIN(180 + 30, 200) = 200 hours
Weighted Years of Service Accrual Formula to calculate accrued PTO
🧮Annual PTO = Base PTO + (Years of Service × Additional PTO per Year)
For example, A base PTO of 80 hours plus 8 additional hours per year of service. Employees with 5 years: 80 + (5 × 8) = 120 hours annually (Note that companies may use various increments or scales).
Special Scenarios
Part-Time Employee Accrual
Use the following formula.
🧮Part-Time Accrual = (Full-Time Annual PTO) × (Part-Time Percentage)
For example, 80 hours of annual PTO for a 20-hour workweek – 80 × (20 ÷ 40) = 40 hours of annual PTO.
PTO Accrual During Leave of Absence
Use the following formula.
🧮Leave Period Accrual = (Regular Accrual Rate) × (Eligible Leave Hours)
For example, If only 50% of leave hours are eligible for accrual 0.038 hours/hour × (160 hours × 0.5) = 3.04 hours accrued during leave
Real-World Scenarios
Retail Worker (Hourly)
Annual PTO: 80 hours
Weekly hours: 40
Annual hours: 2,080
Hourly accrual rate: 0.038 hours
After working 25 hours: 0.038 × 25 = 0.95 hours earned
Note that some companies may round PTO accruals to the nearest quarter-hour for simplicity.
Office Employee (Salary)
Annual PTO: 120 hours
Bi-weekly pay periods
Accrual per period: 4.62 hours
After 6 pay periods: 4.62 × 6 = 27.72 hours earned
Part-Time Professional
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