But if you’re setting up a new business, or transitioning your team’s PTO policy from lump-sum to accruals, there are some tricky edge cases that you might not know how to handle.

One case to consider is what happens with accruals while someone is on leave – for example, if team members accrue a set amount of PTO each week, what happens when someone goes on a two-week vacation?

Do they continue to accrue leave as normal, or do accrual stop for the time that they’re on leave?

In this article we’re going to help clear things up. Read on to learn more.

Does PTO Still Accrue While You’re On Leave?

Unfortunately, there’s no universal answer to this question.

For many businesses (particularly US-based businesses), there’s no legal guidelines regarding paid time off. And even those locations with paid time off laws may not have specific guidelines on what happens to PTO accruals while an employee is on leave.

The short answer: it depends

The simplest answer to this question is “it depends.”

Different companies may structure their PTO system in different ways. 

In some cases, the law is clear and tells you how it works.

In Australia, for example, the law says the following:

Annual leave accumulates when an employee is on:

• paid leave such as:
  • paid annual leave
  • paid sick and carer’s leave
  • paid family and domestic violence leave
• community service leave including jury duty
• long service leave.

Annual leave doesn’t accumulate when the employee is on:

• unpaid annual leave
• unpaid sick/carer’s leave
• unpaid parental leave.

If the law doesn’t say anything regarding PTO accruals during periods of leave, then the company is open to decide how they want to handle it.

Different ways to approach it

The most common thing you’ll see is that accruals continue to happen when employees are on regular paid leave, but stop during unpaid leave or long-term leaves of absence.

Let’s look at an example.

• Employees in the company earn 3 hours of PTO per week.
• During regular vacation time, sick leave, or other PTO, they continue to accrue PTO normally.
• If an employee goes on a two-week vacation, they’ll still accrue 6 hours of PTO over those two weeks (even though they didn’t work at all).
• If an employee takes three days off (let’s say Tuesday to Thursday) for sick leave, they’ll still earn 3 hours of PTO from that week.
• PTO accruals don’t happen during unpaid time off, or special long-term absences.
• If an employee takes two weeks off unpaid, they don’t earn any PTO during this time.
• Another employee is on military leave, where they’re on leave for six months, without pay, but with their job, seniority, benefits and compensation retained once they return. During this six month period, accruals stop, and restart again once they return to work.

This is a typical approach, but not necessarily the case for every business.

Another way to do it might be to directly link PTO accruals to time worked – for example, employees earn 1 hour of PTO for every 20 hours worked.

In this case, employees won’t earn any PTO while they are on leave, as they haven’t logged any working hours during this time.

Or, employees may earn 4 days of PTO per quarter. It doesn’t take into account working time at all, and whether the employee works each working day during that quarter, or takes a month off in the middle, they still earn 4 days regardless.

Why it matters

Managing accruals while an employee is on leave is a small thing, but it makes a difference.

Employees may only stand to gain or lose a little here and there. However, it’s important to handle it right, as the difference gets a lot bigger as your team grows.

Plus, there’s always the impact on team members’ morale if they realize they haven’t been accruing as much leave as they expected.

That’s why it’s vital to explain what happens in this situation in your PTO policy, and ensure full transparency with how your paid time off system works.

What Would a Typical PTO Policy Look Like?

So how would you communicate this in your PTO policy?

You would add a subsection somewhere in your policy, which would look something like this:

How PTO Accrues

PTO accrues each [week], including while the employee is on any type of paid leave.

If an employee is on an unpaid leave of absence, accruals are temporarily stopped until they resume working. 

Of course, you would replace the content with whatever applies to your business, if you choose to handle it differently.

More on PTO Accruals

PTO accruals can be a difficult area to navigate, especially for small HR teams, or teams trying to juggle HR alongside other (seemingly more pressing) responsibilities.

That’s why we’ve put together a wealth of information to help you fully understand how PTO accruals work.

You can check out our Complete Guide to PTO Accruals for an in-depth primer, and use our free PTO accrual calculator to cut down the time and complexity of manually figuring out accrual rates and balances.

To go a step further and fully automate your PTO accrual system, check out Flamingo – a leave management app that takes care of the small pieces of administrative busywork to do with PTO, such as filing leave requests and updating employees’ PTO policies.

It’s free to try, so go ahead and give it a go and see how it makes managing PTO and complicated accrual policies so much easier.

The post How Do Accruals Work While On Leave? appeared first on ptoaccrualcalculator.com.

You’re probably not alone. There’s little to no guidance (particularly if you’re based in the US) on what a normal accrual rate is, making it hard to know whether your policy is above or below average.

We’re here to help. Keep reading and we’ll share some data on the average PTO accrual rate, and help you decide the right amount of PTO for your team.

What is PTO Accrual Rate?

PTO accrual rate means how much PTO an employee earns for each accrual period.

To calculate accrual rate, start with your accrual frequency, which is how often PTO accrues (e.g. monthly, weekly, biweekly).

From there, you can take the total amount employees should earn for a full year of working, and divide that amount by the accrual frequency.

For example, if your PTO policy provides a total of 18 days PTO, and employees accrue PTO each month, the accrual rate works out to be 1.5 days per month (18 days divided by 12 months).

The same example, with weekly accrual, would be approximately 0.35 days per week (18 days divided by 52 weeks).

Alternatively, some companies may work it out in hours, which typically equates one day of work to eight hours (so accruing 1.5 days per month would be equal to 12 hours per month).

For more, check out our full guide to PTO accruals here.

Average PTO in the US

Now let’s look at some data to see what we can learn about the average PTO accrual rate.

We’ll want to start with the average amount of PTO American employees get per year.

(note that PTO can refer to many different forms of leave, but for the purposes of this article, we’re using it to mean vacation time).

According to the US Bureau of Labor Statistics (BLS), workers get the following number of vacation days on average, based on how long they’ve worked in the company:

• 11 days (after one year of service time)
• 15 days (after five years of service time)
• 18 days (after ten years of service time)
• 20 days (after 20 years of service time)

Average Accrual Rate

Using the information above, we can assume that the average PTO allowance is likely somewhere between 11-15 days per year (we’ll assume 15 days for now).

This, of course, doesn’t account for all workers in the US, as 23% of workers still do not have access to paid vacation time at all.

However, we can come up with the average accrual rate for US workers who have access to paid vacation.

Assuming 15 days per year on average, that would make the average PTO accrual rate:

• 1.25 days per month
• 0.58 days per two weeks
• 0.29 days per week

In hours (15 days equating to 120 hours per year):

• 10 hours per month
• 4.62 hours per two weeks
• 2.31 hours per week

Average PTO Around the World

So we know what to expect from US businesses. However, the US is one of the worst countries in the world for paid leave laws, with no federal (and few state) laws requiring companies to provide paid time off.

So what about other countries? Is the average accrual rate any different?

Here are the minimum paid leave (meaning PTO, vacation time or annual leave) allowances for each country in the OECD:

The average comes out to 19.10 days per year (median 20 days per year).

Average Accrual Rate (OECD)

If we took the average statutory minimum across these nations, we’d get the following accrual rates:

• Monthly accrual: 1.59 days / 12.73 hours
• Biweekly accrual: 0.73 days / 5.88 hours
• Weekly accrual: 0.37 days / 2.94 hours

These are all a small, yet significant amount above the averages from the US – and remember that these are the statutory minimums; some companies may provide more than this, so the real averages across these nations is likely to be higher.

What Should Your PTO Accrual Rate Be?

Based on the data above, we know that the average PTO accrual rate in the US is 1.25 days/10 hours per month, while the average statutory minimum accrual rate across OECD countries is 1.59 days/12.73 hours per month.

When you’re trying to decide on the ideal accrual rate for your PTO policy, this is a good starting point (along with what, if anything, the law says you have to provide).

But you may not want to automatically settle on the average accrual rate and call it a day.

You want to consider such things as:

• Average across different jobs and roles.
• Average across different industries.
• The benefits, in terms of hiring power, retention, and happiness and wellbeing of your staff, of providing above-average PTO accrual rates.

Do some research around your industry to see if competing companies offer higher PTO accrual rates than the overall average.

Using that information, strongly consider offering higher than normal PTO. Many companies are overly stingy with time off. They see it as an unwanted expense, rather than an investment in the health, happiness and productivity of their team.

It’s Not Just About How Much PTO You Offer

An above-average PTO accrual rate is a great starting point. But it’s not enough to provide employees with a lot of PTO if employees aren’t using all of their allotted PTO.

55% of US employees don’t use all of their PTO. There’s a big problem (particularly in American companies) where it’s too difficult for workers to take their PTO, or they feel discouraged or pressured against it.

PTO is there for a reason, and your staff shouldn’t feel guilty about taking it.

Along with providing a good PTO accrual rate, you need to actively encourage employees to use it.

Tracking PTO with an app like Flamingo is a good start. It simplifies the process for employees asking for time off, and allows you to easily see how much PTO each person has taken.

From there, you can regularly follow up with people who have been too long without a break, and start building a healthy culture where regular vacations are a normal thing.

The post What is the Average PTO Accrual Rate? appeared first on ptoaccrualcalculator.com.

Whether setting up and managing a PTO policy is new to you, or you’re an experienced HR professional wondering about the pros and cons of PTO accrual caps, this article is for you. So keep reading, and let’s dive right in!

What is a PTO Accrual Cap?

A PTO accrual cap is a limit (i.e. a cap) on the maximum amount of PTO (paid time off) someone can earn or bank up.

There are a few small differences to the way PTO accrual caps can work, as we’ll look at in more detail a little later. But a typical way a PTO accrual cap would work is that it would limit a person’s PTO balance to a maximum of, for example, 150 hours. When their balance hits this limit, they stop accruing any more PTO until they use some and their balance drops below the cap again.

Why You Would Want to Limit PTO Accruals

Why do companies set PTO accrual caps?

There are generally two reasons. On one hand, it limits some of the financial impact on the company. On the other, it’s actually an employee-friendly system that helps ensure employees actually use their paid time off.

Let’s learn more about why accrual caps are used (and may actually be a necessary part of your PTO policy) now.

Accrual Caps Limit Financial Liability

Uncapped PTO may (depending on your PTO rollover policy) allow employees to bank up massive amounts of PTO.

That could result in a huge hit if your company policy (or state law) is to pay out any unused PTO when an employee leaves the company.

You could be on the hook for thousands of dollars in payouts, or more – just see this real-life example, where the outgoing President of Florida State College at Jacksonville was paid out $337,000 for a total of 2052 hours of unused vacation time, banked up over the course of 15 years.

Accrual Caps Encourage Employees to Take PTO

The second reason to set an accrual cap is actually in the interest of employees’ wellbeing.

Having a cap on how much PTO you can bank up creates an incentive for employees to actually take their time off, which will benefit their physical and mental health, and help them maintain a positive work-life balance.

A lot of people neglect their vacation time, whether it’s because they’re afraid to ask for time off, or because they want to save it up to get the payout when they eventually move on to another job.

This is not good for them, and it’s not good for the company either. PTO is there for a reason – it allows employees to take a break, switch off from work, and avoid burning out.

It’s in both parties’ best interest for employees to stay happy and healthy. PTO helps them do that, and accrual caps provide a clear incentive for people to take their PTO before it maxes out.

Downsides of Accrual Caps

Let’s look at the other side of accrual caps – are there any disadvantages to PTO accrual caps?

One potential disadvantage is the administrative load. It adds a little more work and complexity to managing PTO accruals (though using a tool to automate PTO management will likely take care of this for you).

Workers may see it as a downside, feeling that it limits their flexibility and earning potential.

As we explained earlier, accrual caps are in the employee’s best interest, but they may perceive it otherwise, as a pause on accruals means they’re losing out on part of their employee benefits.

Different Ways to Structure Accrual Caps

Accrual caps don’t always work the same way. There are a few different ways to put a cap on PTO accruals, as well as several wrinkles to your PTO policy that serve a similar purpose as accrual caps.

Let’s explore these now.

PTO Balance Cap

The most common kind of PTO accrual cap is a balance cap.

This means that there is a max limit for the employee’s PTO balance. Once their available leave hits this number, they stop accruing new leave, until they take part of their PTO and the balance drops back below the limit.

Rollover Cap

Instead of capping the amount of PTO that someone can accrue, this approach limits the amount of leave they can carry over from one year to the next.

For example, the policy might state that employees earn 15 days of PTO per year, but can only carry over 5 days of unused PTO from one year to the next.

It could also be a “use it or lose it” system, where employees get a certain amount of PTO to use each year, which resets when the year ends (and any unused PTO is lost).

Expiry Date

Another option is putting an expiration date on all accrued leave.

So if someone earns 1.5 days of PTO on the 1st of January, they might have 18 months, for example, before that leave expires.

This essentially works the same way as a cap, by limiting the total amount of PTO someone can bank up at one time, as it will inevitably expire if not used.

Minimum PTO

Many companies have had success in increasing PTO usage by encouraging employees to take a minimum number of PTO days per year.

Buffer is one example, with their minimum vacation policy, which pushes employees to take at least three weeks (15 days) of PTO per year, plus holidays.

Though this is not technically an accrual cap, it works towards the same goal, and does a similar thing by preventing employees from indefinitely stacking up PTO without ever taking a vacation.

How to Choose the Right Number For Your Accrual Cap

If you’re going to set an accrual cap, what’s the right amount?

It’s hard to give a clear answer for this, as the right amount might be different from one company to the next.

Look at it in relation to how much PTO someone earns in a year.

The minimum amount you’d want to set your cap would be the total yearly PTO allowance.

So if employees earn 16 days of PTO per year, you could set the cap at 16 days, basically ensuring that people take time off at least once per year.

If you wanted to be a bit more flexible, you could stretch it out to 1.5x or 2x the yearly allowance.

Ultimately, though, you’ll want to pick the number that best fits your company and its culture.

Key Considerations With Accrual Caps & Your PTO Policy

Here are a few more things to think about when setting up an accrual cap for your company.

Legal Considerations

The most important part is to make sure you comply with all relevant laws related to PTO and accruals.

In some states or countries, the law prohibits you from capping an employee’s PTO accrual, or putting an expiration date on PTO.

Some allow a cap, but say that workers are entitled to earn up to a certain amount.

Administrative Load

Consider how much work it will take to manage whatever system you put in place.

Many PTO tracking apps or HRIS systems are set up to work with accrual caps, so it might not make much difference. But you may still have extra work in terms of notifying people about the status of their PTO and letting them know when their PTO will expire.

Communicate to employees when they’re nearing their cap

As mentioned above, you should set up clear communication for employees to let them know about the cap, and where their balance sits in relation to the cap.

It shouldn’t be a rude surprise to someone to find out that, for the last three months they haven’t earned any PTO because their balance is capped.

Whether it’s a cap, or an expiry date, give employees ample notice to allow them to take time off before they reach the limit.

Make sure it’s easy to take PTO

Additionally, make it easy for employees to take their PTO.

Accrual caps are intended to benefit employees, by encouraging them to take time off more regularly.

It can go very wrong if employees don’t feel they have a good opportunity to take any PTO, though, and they’ll inevitably feel slighted when they find out that their accruals have been paused or that their PTO has expired.

Final Word

Accrual caps may seem like a way to limit employees’ benefits, but they’re not.

By capping how much PTO someone can bank up, you’re saying that you want them to take time off more regularly, which is good for them.

Regular breaks help maintain better physical and mental health, avoid burnout, and build a more positive culture around your workplace.

If you’re setting an accrual cap, do it with your employees’ wellbeing in mind. That means not just capping their accrual potential, but clearly communicating the limit, letting employees know if they’re getting close to the limit, and making sure the process for employees to take time off is straightforward.

The post PTO Accrual Caps: All You Need to Know appeared first on ptoaccrualcalculator.com.

It makes sense to do this – it means employees are fairly compensated for the time and work they put in, and avoids tricky edge cases where you need to prorate an employee’s PTO if they start or leave part way through the year.

But PTO accruals themselves can be complicated and time-consuming to keep track of. To prevent your HR team from spending hundreds of hours just keeping your PTO balances up to date, you need an efficient system to manage all this.

There are a few options to consider for tracking PTO accruals. You could do it manually (which is cost-effective, until you consider the labor cost). You could use a PTO tracking app, or you could manage accruals using a full-stack HR software suite.

Keep reading and we’ll run through the pros and cons of each option, and help you decide the best way to track PTO accruals in your business.

Option One: Track Manually

The first option to consider is manually tracking PTO accruals.

To do this, you’ll track each of your team members’ PTO balance in a spreadsheet. For each accrual period (e.g. each month, week, etc) you calculate how much PTO each person accrues, and add it to their PTO balance.

Whenever someone takes part of their PTO, you subtract the PTO taken from their PTO balance.

Pros:

• Doesn’t require you to sign up for any new tools or software (other than a spreadsheet tool, which you’re probably already familiar with).
• Cost-effective for small teams.
• Flexible, easy to customize.

Cons:

• Time and labor cost will get out of hand for larger teams.
• High chance of human error (particularly as team size grows).
• More advanced tasks (e.g. creating custom reports, integrating with other tools) may be difficult.

Recommended Tools: Google Sheets/Excel, PTO Accrual Calculator, email/messaging apps (e.g. Slack, MS Teams, Discord, WhatsApp)

Free resource: how to set up a PTO tracker in Google Sheets (plus a free template)

Summary:

Manually tracking accruals can work for small teams – e.g. those with just a few people. It’s easy enough to jot down numbers in a spreadsheet, and our free accrual calculators save you some complicated math.

As your team grows, though, tracking everything manually will become quite time-intensive, and you’ll want to look for an automated solution. 

Option Two: PTO Tracking Apps

The second option is to use a dedicated app for tracking leave.

The app handles all accruals and updating of your team members’ PTO balances. You just set up a few things, such as the accrual rate, and the app automates each accrual at the specified period.

Employees request PTO through the app, and the app keeps track of when their leave is, and automatically deducts and PTO taken from their balance.

Pros:

• Saves time manually entering PTO and calculating balances.
• Lower chance of error. 
• Generally simple and straightforward to start using.
• Potentially integrates with other parts of your workflow.
• Comes with other useful features, such as reporting, automating PTO requests and approvals.

Cons:

• Typically requires a subscription cost to use.
• May not fully integrate with all your HR workflow.

Recommended Tools: Flamingo

Summary:

For most teams – especially small to medium-size businesses – a PTO tracking app is a much more effective way to manage PTO accruals.

The app does all the calculations for you, automatically keeping PTO balances updated (including deducting the right amount when people redeem their PTO).

An app comes with an added cost, but you’ll generally find that the cost comes out less than the value of the time you would otherwise spend calculating PTO accruals and keeping everything updated by yourself.

For automated PTO tracking, we recommend using our app, Flamingo. Flamingo is free to try, and even has a free plan for small teams. It’s a simple, cost-effective and time-saving upgrade over manually tracking leave in a spreadsheet.

Option Three: Full-Stack HR Software

The final option to consider is a full-stack HR suite (aka an HRIS – Human Resources Information System).

This kind of tool manages your entire HR system, including (but not limited to) PTO accruals.

Along with leave management, you’ll have modules for things like payroll, onboarding, performance management, and more.

Pros:

• Automates PTO accruals (as well as other HR tasks).
• Ensures your PTO system is integrated with the rest of your HR system (such as employee records, payroll).

Cons:

• A lot more expensive than a PTO app.
• More complex setup and onboarding required.
• Team members might find it more difficult to navigate.

Recommended Tools: BambooHR, Workday, Paycom (and many more)

Summary:

For larger teams, who need an app to manage other areas of their HR workflow, a full–stack HR software might be the best option.

This lets you keep track of PTO accruals in the same system you use for payroll, compliance, benefits administration, and other HR tasks.

It comes with a higher cost, though, in terms of both time and money. Small to medium teams might find a tool like this to be overkill.

What’s the Best Way to Track PTO Accruals?

Different businesses can find success with different ways of tracking PTO accruals.

In general, we’d say the following:

• Full-stack HR tools are a good fit for large organizations (i.e. enterprises).
• PTO tracking apps like Flamingo are the best choice for small to medium-sized businesses.
• For very small teams (e.g. bootstrapped startups in their early stages), you might just want to use a simple spreadsheet to track everything – but a tool like Flamingo with a free plan for small teams can work just as well, without any added expense.

For most teams, automated is going to be better than manual. If you’re manually tracking accruals, it’s not only taking up a lot of time and headspace, but you’re inevitably going to make a mistake, which will cause disruptions and more time to be lost.

If you’re concerned about the cost, consider the value of the time you spend calculating accruals. It’s probably costing you more than it would to pay $20-$30 for a tool that automates this work for you.

Final Thoughts

An accrual-based PTO system is the standard way most businesses operate (read about the differences between accruals vs lump-sum PTO here).

But with accruals comes a lot of work, especially if you’re manually updating PTO balances for 10+ employees each month (as well as logging leave requests, and updating employees’ balances when they take time off).

You can save a lot of time, energy and headspace by automating administrative tasks like tracking and calculating accruals.

If you’re going to do it manually, use our free PTO accrual calculator to at least do away with a lot of the complicated math.

The post How to Track PTO Accruals (Manual vs Automated) appeared first on ptoaccrualcalculator.com.

While this is not a decision that will make or break your business, it’s worth understanding the differences and nuances with the two.

This choice may have a financial or operational impact on your business, as well as affecting employee satisfaction and wellbeing.

Keep reading for all you need to know, including our guidance on the best type of vacation policy for your organization.

What is Lump-Sum Vacation?

Lump-sum vacation, also known as front-loaded vacation, is a policy where employees receive their entire annual vacation allowance at the beginning of the year, or at a specific point, such as their anniversary date.

Employees have immediate access to all their vacation days and can use them at their discretion throughout the year.

Pros and Cons of Lump-Sum Vacation

Lump-sum or front-loaded vacation is generally easier to manage, as well as being simpler to understand for employees.

The biggest downside is the potential for abuse, and possibly paying out for more leave than you would with an accrual system.

Let’s take a deeper look at the pros and cons.

Pros:

• Immediate Access: Employees have full access to their vacation days, allowing them to plan longer vacations or multiple short breaks without waiting to accrue days off.
• Simplicity: This policy is straightforward to understand and administer, with no need for complex tracking of accrued vacation days.
• Employee Satisfaction: Immediate access to vacation days can boost employee morale and satisfaction, as they feel trusted and valued by their employer.
• Attractive to Recruits: This policy can be a strong selling point during recruitment, as it shows that the company prioritizes employee well-being.

Cons:

• Financial Liability: If an employee leaves the company mid-year, the organization may need to pay out for unused vacation days, resulting in a financial burden.
• Potential for Abuse: Some employees might take all their vacation days early in the year and then leave the organization, causing operational disruptions.
• Less Flexibility for Employers: Employers might find it challenging to manage workloads if multiple employees decide to take extended vacations simultaneously.

What is Accrued Vacation?

Accrued vacation, or earned vacation, is where employees accumulate vacation days over time.

This accrual may be based on hours worked, or for salaried employees, may be a set amount earned per day, week or month.

Employees can only use the vacation days they have earned up to that point.

Pros and Cons of Accrued Vacation

Accrued vacation can be a bit more effort to manage, but some organizations will prefer having accruals tied to working time, thus protecting against abuse.

Here’s a closer look at the pros and cons of accruals for vacation time.

Pros:

• Reduced Financial Liability: Since employees earn vacation over time, the financial liability in case of mid-year departures is minimized.
• Encourages Retention: Employees earn more time off the longer they work, so it incentivizes people to stick around and bank more time off.
• Operational Stability: Accruals can provide more predictability and stability for workload management, as employees are less likely to take large chunks of time off simultaneously.

Cons:

• Complex Administration: Tracking vacation accruals requires careful record-keeping and can be administratively burdensome.
• Delayed Gratification: Employees have to wait to accumulate sufficient vacation days, which might lead to dissatisfaction, especially among new hires.

Click here to learn how to accrued vacation time.

Comparing Lump-Sum and Accrued Vacation

Let’s take a look at how lump-sum and accrued vacation/PTO impact a few key areas, including the effect on employees and the operational side of your business.

Flexibility and Employee Satisfaction

Lump-sum vacation offers greater flexibility and immediate satisfaction for employees.

With their whole vacation allowance available up front, it’s generally easier to plan their vacations well ahead of time.

Accrued vacation may be less satisfying for employees, as they don’t get the same upfront benefits. It’s more difficult to figure out how many days you’ll have available at a specific time.

However, the total vacation day allowance is still the same, so ultimately employees don’t lose out on benefits through accruals. And if accruals are linked to time worked, there can actually be the opportunity to earn more time off with an accrual system than a flat yearly amount.

Financial and Administrative Impact

Lump-sum vacation provides the opportunity for a larger financial impact when employees leave the job partway through the year.

You may end up with higher leave costs, if for example an employee took their whole yearly allowance in the first few months of the year, before quitting.

Lump-sum saves on administrative costs, with accruals requiring more complexity to calculate and manage.

Impact on Operations and Scheduling

Managing your schedule tends to be easier with accrued vacation. It’s more predictable, where lump-sum vacation can lead to a lot of leave requests coming in for the same time.

Vacations are more likely to be spread throughout the year with accruals, which make operations smoother and cause fewer disruptions.

Impact on Retention and Recruitment

Lump-sum vacation may be a more attractive recruiting tool (though in the end, you’re still promising the same amount of PTO).

It’s more flexible for employees, which may increase employee satisfaction.

Accruals, however, may be more impactful for retention, and lower turnover rate, because they incentivize employees to work longer to earn all their PTO.

Choosing the Right Policy for Your Organization

There’s no one right choice for every business. The best vacation policy for your organization depends on various factors, including your company culture, size, operational needs, and workforce demographics.

Let’s compare lump-sum vs accrued vacation now for a few different types of business.

Small to Medium-Sized Businesses

• Lump-Sum Vacation: May be suitable for companies that value simplicity and have a culture of trust and flexibility. It can also be a strong recruitment tool in competitive markets.
• Accrued Vacation: Can help manage cash flow better and reduce financial risk, which is crucial for smaller businesses with limited resources.

Large Corporations

• Lump-Sum Vacation: Might be challenging to manage across a large workforce but can be implemented if the company has robust financial health and administrative systems.
• Accrued Vacation: Often preferred due to its ability to spread financial liability and manage workforce planning more effectively.

High-Turnover Industries

• Lump-Sum Vacation: May not be ideal due to the risk of employees taking all their vacation days and then leaving.
• Accrued Vacation: Helps mitigate financial risks associated with high turnover and encourages longer employee tenure.

Low-Turnover, High-Skill Industries

• Lump-Sum Vacation: Can be a great perk that attracts top talent and boosts morale in industries where employee retention is less of an issue.
• Accrued Vacation: Still beneficial as it rewards long-term commitment and can be structured to further incentivize performance and tenure.

Want to do accruals, but spending too much time trying to calculate vacation time for your team? Use our free accrual calculators to get ahead.

Implementing and Communicating Vacation Policies

There’s a lot more that goes into implementing a successful and effective vacation policy, than just how you calculate vacation time.

Regardless of the type of policy, clear communication and fair implementation are key, and you’ll want to leave space for your policy to evolve if need be.

Here are some tips:

• Ensure that your vacation policy is clearly documented and easily accessible to all employees.
• Apply the policy consistently across the organization to avoid perceptions of favoritism or unfairness.
• Educate employees on how the policy works, including accrual rates, how to request vacation, and any rollover rules.
• Provide opportunities for employees to give feedback on the policy and be open to making adjustments based on their needs and experiences.
• Regularly review your vacation policy to ensure it continues to meet the needs of both the organization and its employees.
• Automate as much of the admin work in your leave management system as you can, with a vacation tracker app like Flamingo.

Final Thoughts on Lump-Sum vs Accrued Vacation

When choosing between lump-sum vs accrued vacation, consider which option feels like it will fit your organization the best.

If you prefer a more casual approach, with less management required, lump-sum may be best.

Larger businesses more often go with an accrual system, to keep financial liabilities more predictable.

Managing accruals can weight down your HR operations, so make sure to use software to help, such as our free accrual calculators, or a PTO management tool like Flamingo.

Ultimately, finding the right way to manage your vacation policy reflects your organization’s values and commitment to work-life balance, as well as affecting more practical things like productivity and expenses.

By thoughtfully choosing and managing your vacation policy, you can create a positive and productive work environment that attracts and retains top talent.

The post Lump-Sum vs Accrued Vacation appeared first on ptoaccrualcalculator.com.

PTO can work in many different ways, and each company may have their own preferred way to manage it. With that in mind, we’ll try to give a few different examples, to ensure this guide is clear and applicable for just about any organization out there who wants to improve the way they manage PTO and PTO accruals.

Different Kinds of PTO Accrual

PTO accrual (aka accrued vacation, which is the most common type of PTO that accrues over time) doesn’t necessarily work the same for every company. 

In some, vacation time accrues at the start of each year, while others might have a more regular accrual period, or a slightly different way of deciding how much PTO each employee earns.

Let’s take a look at the three most common ways for PTO accrual to work now.

Yearly (Lump Sum PTO)

Lump-sum PTO is typically thought of as an alternative to accrued PTO, but in reality, it’s just another form of accrual.

Instead of accruing each week, month, etc, employees simply earn their vacation days at the start of each year.

Fixed Period Accrual

More commonly, you’ll find organizations where PTO accrues at a fixed period, for example every week or every month.

Accrual by Time Worked

Another way to set up accruals is relative to the amount of time worked.

For example, it could mean the 0.05 days of PTO earned per day worked, or 0.05 hours per hour worked.

This is most commonly used with hourly PTO, and the idea is to accurately compensate employees who work varying schedules (so if they work more than their baseline, they earn more time off as a result).

Calculating PTO

Now that we know about the different paid time off accrual methods, let’s see how to calculate PTO accruals for each of these methods.

Calculating Yearly Accrual

Yearly accrual (which most people know as lump-sum PTO) is easily the most simple way to manage paid time off.

Simply determine how much PTO each employee gets per year, and at the start of the year (either the 1st of January, or another date if your leave year runs differently to the calendar year), the employee gets their balance refreshed with that amount of PTO.

Example:

• John’s PTO policy gives him 15 days of PTO per year.
• The company’s leave year runs from January 1st to December 31st, so on the 1st of January each year his PTO balance is refreshed to 15 days, which he can start using immediately.

Calculating Fixed Period Accrual

For fixed period accrual, start with the total amount of PTO the employee gets per year, and divide by the accrual period to get the accrual rate.

Example:

• Percy gets 15 days of PTO per year, which accrues at the start of each month.
• 15 days divided by 12 periods means he earns PTO at a rate of 1.25 days per month.
• On the first day of each month, his available balance will thus increase by 1.25 days.

Example:

• Linda gets 15 days of PTO per year, which accrues every two weeks.
• Divide 15 days by 26 periods, to get an accrual rate of 0.577 days per period (rounded).
• Each two weeks (this could be the end of the period, or the beginning of the next period), Linda’s PTO balance increases by 0.577 days.

Calculating PTO by Time Worked

For PTO by time worked, you again need to work out the accrual rate. To get this, you might work backwards from a standard amount of PTO the employee earns per year, if they work a regular schedule.

Alternatively, employees’ PTO policy may simply state how much PTO they earn per hour or day worked.

Example:

• Patricia earns the equivalent of 15 days of PTO per year, with a regular schedule of 5 days, 40 hours per week.
• She is paid hourly, and PTO is accrued based on her actual hours worked. As her pay is hourly, so is her PTO.
• First, calculate her total yearly PTO in hours – 15 x 8 = 120.
• We work backwards from the total yearly PTO, dividing the number by 52 (to get how much she earns in a regular week), then by 40 (to get how much she earns per hour) –  resulting in 0.058 hours of PTO per hour worked.
• Each pay period, her PTO accrual is calculated relative to her working hours, and added to her balance.
• One week, she works a normal 40 hours, and earns 2.32 hours of PTO.
• The next week, she works an extra shift, totaling 48 hours, and instead earns 2.784 hours of PTO.

Example:

• Emiliano 0.05 days of PTO per day worked.
• A regular week, he works three days, and thus earns 0.15 days of PTO.
• The following week, he picks up extra work, working five days in total, and earning 0.25 days of PTO.

Example:

• Susanne’s contract grants her 1 day of PTO for every 14 days worked, and her schedule varies from week to week.
• In one four-week period, she works four, six, three and six days per week respectively. 
• As a total of 19 working days, she had earned one day of PTO over this period. Once she has worked another nine days, she will have earned another one day of PTO to use.

Other PTO Considerations

Aside from how to calculate accrued vacation time or PTO, here are some other things to consider regarding how PTO works in your company.

If you’re just setting up your company, or formalizing your PTO policy, put some thought into the following:

When Does Earned PTO Become Available to Use?

Sometimes there’s a difference between when PTO accrues, and when employees can actually use their PTO.

They may earn or accrue vacation days each day or week, but in a lot of companies, the vacation balance is only formally updated each pay period (which could be every month or every two weeks, for example).

To avoid confusion, you may want to line up the accrual period with your company’s pay period. Otherwise, consider separating these two systems, or make it clear to employees when they will actually be able to use their PTO.

Pro tip: if you use Flamingo’s leave management system, you can easily set up it up so employees can use their earned vacation time or PTO immediately.

PTO Rollover & Expirations

Consider whether earned PTO expires, and what happens to PTO at the end of the leave year.

For example, PTO may expire a year after it’s earned. So, for example, if Jerry earns 1.25 days at the end of March, he will have until the end of March the following year to use those days, or they will expire.

PTO rollover is a similar idea, but typically only works for lump-sum/yearly PTO. This means you decide what happens at the end of the year – does the employee’s leave balance reset each year, or can they carry over unused days to the next year?

For example:

• Ollie earns 15 days of PTO per year, made available on January 1st. At the end of the year, any unused days expire and his balance resets to 15 days.
• He uses 12 days this year. On December 31st, his balance sits at 3 days. On January 1st, it resets to 15 days.

In another scenario,

• Moussa earns 15 days of PTO per year, and any unused days carry over to the next year.
• He uses 11 days this year, with 4 days unused. At the start of the next year, he will have a balance of 19 days – the usual entitlement of 15 days, plus the 4 days carried over from the previous year.

Just be aware that the law in some areas forbids forfeiture of earned PTO, or states a minimum period of time before it can expire. Make sure you know the law in your area and what you’re allowed to do in your PTO setup.

Accrual Caps

You may cap how much PTO can be accrued and stockpiled at one time.

For example, PTO may stop accruing once an employees’ balance reaches 25 days.

If they use some of their PTO, their balance will decrease and they will begin accruing PTO again.

What Happens to Unused PTO on Termination?

Consider what happens when an employee leaves their job with unused PTO days in their balance.

For example, if someone quits, their outstanding PTO balance may be paid out along with their final paycheck, or it may simply expire.

Some states explicitly require unused PTO to be paid out upon termination, while others leave it up to the company to decide.

Waiting Periods

Some companies institute a waiting period or probationary period (usually 90 days) before employees can earn or use PTO.

This means the employee may need to wait 90 days after their first day of employment before accruals begin.

Alternatively, PTO may begin to accrue immediately, but a 90 day waiting period is required until the employee can take time off from their PTO balance.

Different Types of PTO

Finally, consider what kinds of PTO you want to apply accruals to.

PTO is a category that includes many different types of leave, including:

• Vacation
• Sick time
• Personal days
• Parental leave
• Compassionate leave

Accruals are commonly used for vacation (aka annual leave or holiday time), but you may want to use accruals for other leave types as well, in which case it might make sense to change a few details of your accrual policy, including accrual rates, frequency, and caps and rollovers.

Tools to Help Calculate and Manage PTO Accrual

Once you know the formula to calculate PTO accruals, it’s not exactly rocket science, but it is fiddly and time-consuming.

One study found that calculating and updating employees’ PTO balances manually costs an average of $19.19 each time, at an average time expenditure of 25 minutes per task.

That means if you had 53 employees, you would spend a total of 22 hours and over $1,000 per month just calculating and updating PTO.

That’s why it’s a great idea to automate this, with a tool like Flamingo. 

By using an app to calculate PTO, update employees’ balances automatically, and handle all the minutiae of your leave policy (such as rollovers, expiration settings and reporting), you can save thousands of dollars per month, while freeing up headspace to focus on more important things than figuring out how much PTO each person should have.

The post How to Calculate PTO Accrual appeared first on ptoaccrualcalculator.com.

This guide is perfect for HR professionals, department heads/managers, or small business owners learning how to run the HR side of their business. Read on to learn more.

What is PTO Accrual?

PTO accrual is when employees’ PTO balances gradually increase over time, relative to the time they spend working.

Accruals are a common way for businesses to manage PTO. Alternatives include lump-sum PTO and unlimited PTO, which we’ll explain in-depth a little later. 

How Does PTO Accrual Work?

With accrued PTO, each employee’s balance will (typically) begin at zero.

Over time, they will earn (“accrue”) more PTO as they complete more service time or log more working hours with the company.

For example, staff might earn 1.5 days of PTO for every month worked. 

With this example, if one team member started working on January 1st, starting with a PTO balance of 0, and worked a continuous schedule through to July (completing 6 months of work), at the start of July they would have a PTO balance of 9 days, accruing 1.5 days of leave for each of their 6 months at work.

In another example, let us say that staff earn 0.05 hours of PTO per hour worked.

A team member who worked a 40 hour week would then earn 2 hours of PTO for that week. After 4 full working weeks, they would have accrued 8 hours of PTO.

But if the team member was to work a 48 hour week, they would earn 2.4 hours of PTO. If they worked 2 weeks of 40 hours and 2 weeks of 48 hours, at the end of 4 weeks they will have accrued 8.8 hours of PTO.

How to Calculate PTO Accrual

To calculate PTO accrual, you need to determine two things: the PTO accrual rate, and accrual frequency.

PTO accrual rate means how much PTO the team member earns at a time, and accrual frequency is how often PTO will be accrued.

For example, in our earlier example where staff earn 1.5 days of PTO per month, the accrual rate is 1.5 days, and the accrual frequency is monthly.

To calculate this, decide how much PTO to offer per year (assuming a full year worked), and decide what your accrual frequency will be (typically based on hours, days, weeks or months worked).

For example:

• Yearly PTO allowance = 15 days.
• Accrual frequency = monthly.

Now you can divide the total yearly allowance by the frequency to come up with the accrual rate.

• Yearly allowance (15) / frequency (12 – number of months in a year)
• Accrual rate = 1.25 days accrued per month

Now you can calculate how many days of PTO an employee should have based on how long they’ve worked.

• If someone works for 2 months, they’ll have 2.5 days of PTO (1.25 x 2).
• After working for 6 months, they will have 7.5 days of PTO (1.25 x 6).
• After working for 10 months, they will have 12.5 days of PTO (1.25 x 10).

How to Calculate PTO Accruals for Hourly Employees

PTO accrual works very similarly if your employees are paid hourly, instead of a regular salary.

Begin by breaking your PTO accrual rate down to an hourly figure

• With the example above, employees would accrue roughly 0.058 hours of PTO each hour worked – let’s round it to 0.06 PTO hours per hour worked).

Calculate the employee’s hours worked, and multiply the number by their accrual rate.

• For someone who worked a 40 hour week, they will have 2.4 hours of PTO accrued over that time (0.06 x 40).

If the person works more or less in a week, they will accrue PTO hours relative to their actual time worked.

• Let’s say they worked overtime, and logged 47 hours in one week. This week, they will earn 2.82 hours of PTO.
• Another week, business is slow and they log fewer hours, only working 32 hours. As a result, they will have 1.92 PTO hours accrued that week.

How to Calculate PTO Accruals for Part-Time Employees

The PTO accrual calculation works more or less the same for part-time employees and full-time employees.

You just need to alter their accrual rate to match their working schedule.

• For example, full-time employees who work 40 hours per week get 15 days per year and earn 1.25 days per month.
• A part-time employee who works 20 hours per week would get half – 7.5 days per year or 0.625 days per month.

For most part-time employees, especially if the employee works an irregular schedule, it may be best to do PTO accrual by hours or days, instead of week/month, to ensure their PTO matches accurately with their working time.

Accrued PTO vs Lump-Sum

The most common “alternative” to accrued PTO is lump-sum PTO.

This is where, instead of earning PTO gradually over the year, employees get their entire yearly PTO allowance in one go.

For example, instead of accruing 1.25 days per month, to equal 15 days for the year, team members will get all 15 days available to use at the start of the leave year.

We put “alternative” in quotation marks because lump-sum is still essentially a form of accrued PTO.

The accrual frequency is really all that changes – instead of accruing PTO by hour, day, week or month, employees earn PTO by year.

Learn more about Accrued PTO vs Lump-Sum PTO here.

PTO Accrual vs Unlimited PTO

Another alternative to accrued PTO is unlimited PTO.

With this type of PTO policy, PTO isn’t stacked up over time, or capped at a certain amount per year. Team members are instead free to take PTO when and as they like.

This should be within reason, of course. Team members aren’t free to take 6 months of the year on PTO. But there is no hard limit, and no running PTO balance as there would be with accrued or lump-sum PTO.

Is Accrued PTO the Best Option for Your Team?

Deciding between accrued paid time off and lump-sum (or unlimited PTO) can be a tough decision.

There are pros and cons to going with an accrual system for PTO.

On the plus side:

• It acts as an incentive for employees; they’ll see PTO as a payoff for the work they put in.
• It’s easier to manage for new employees, as there’s no need to prorate yearly PTO balances.
• You may avoid situations where many people are trying to use PTO at the same time before it expires.

Cons include:

• Less flexibility for employees; it may be harder to plan ahead for their vacations, as they may not know how much PTO they will have available.
• Overall it requires more work to manage and keep PTO balances up to date.
• It gets more complicated if you choose to put an expiry date or cap on PTO accrual.
• The cash flow liability can be less predictable than with lump-sum PTO policies.

There’s no definitive answer as to which method is best. You’ll want to examine the pros and cons and decide for yourself which method you think is the ideal approach for your team’s PTO policy.

FAQs & Tips for Managing PTO Accruals

If you choose to do PTO accruals in your business, here are some tips to follow and things to think about when setting up your PTO accrual policy.

How Much PTO is Enough?

First, how much PTO should your employees get?

Again there’s no “right” or “wrong” answer to this. The ideal amount is however much maximizes productivity, retention and ability to attract new talent – and it’s nearly impossible to come up with a solid answer to this.

You can use what other companies are doing as a benchmark; the average private industry worker in the US gets from 9 to 23 days of PTO per year, rising based on service time.

US workers in all sizes of business, with less than 5 years’ experience, average 10 days of PTO per year.

You should realistically aim for more than this, as the US standard for PTO is horrifically low compared to the rest of the world.

Accrual Frequency & Date

Again, there’s no right or wrong answer for when to accrue PTO, – in terms of the frequency, and the actual date on which PTO accrues (e.g. does it accrue at the start of each month or the end?)

But the most common practice is to line this up with your pay period.

So if employees are paid each month, you’ll add accrued PTO to their balance each month as well.

Accrual rate could still be per day or week, but the PTO will become available to employees at the same time as their pay packet.

If employees are paid hourly, though, accrual rate should always be calculated based on hours worked.

Accrual Caps

Some companies will put a cap on the total amount of paid time off that can be accrued and held at one time.

For example, accruals may be capped at 30 days. This would mean that, as long as the employee has 30 days in their balance, they will not accrue any more paid time off.

But if they were to use some of their PTO, accruals will begin again.

So let’s say the person took 5 days off. Now their balance is at 25 days – and they’ll be able to earn more, until they hit the cap of 30 days again.

A PTO balance cap or accrual can be a good way to limit the financial impact of PTO, as well as an incentive to make sure employees actually use their time off. However, consider the following:

• Check if it’s legal to put a cap on PTO accruals in your company’s location.
• Make sure employees know the rules, and know that accruals will be capped at a certain amount.
• Make sure employees can see their PTO balance and know when it’s coming up to the limit.
• You should give ample opportunity for people to use their paid time off and avoid reaching the cap.

Does Earned PTO Expire?

Another decision you’ll need to make when setting up your accrual policy is if (and when) PTO will expire.

For example, you may make it so that accrued PTO expires after a year.

Let’s see what this would mean in practice.

• We’ll say that employees accrue 1.25 days’ paid time off per month, expiring after a year.
• An employee starts accruing PTO on January 1st. 
• They don’t use any PTO for an entire year. After 12 months, they have 15 days of PTO banked up. At this time, their first accrual (1.25 days, from January 1st the previous year) is set to expire.
• Their PTO balance will thus be reduced by 1.25 days (though they will also accrue another block of PTO, which will keep it at 15 days assuming they don’t take any days off).

Common practice is that earned PTO does not expire. It’s difficult to manage, as you need to ensure that only that block of PTO expires, and maintain the rest of the person’s PTO that was earned more recently.

If you want to limit PTO accruals, it’s more common to use an accrual cap.

This, too, you need to consult with legal professionals to ensure you’re not breaking any laws, as labor laws in some locations don’t allow you to take away an employee’s earned benefits.

PTO Payout

Any unused accrued PTO may be paid out when an employee leaves their job.

You’ll need to check the law in your company’s location as to whether or not this is required. Some states and counties require unused PTO to be paid out upon termination, some leave it up to the company.

In some areas, using accruals means you must pay out unused PTO, as it’s considered an earned benefit, while providing PTO upfront in a lump-sum is not.

Be sure to check what’s required of you, though. For a list of each US state and their rules on paying out PTO, check out this article.

Automation & Software

Dealing with accruals gets pretty complex, especially as your headcount grows, and you need to make sure each employee’s PTO balance gets updated with the correct amount of leave each accrual period.

That’s why it’s important that you use some kind of automation or software to manage your accrual system. You’ll save a ton of time and effort, and avoid the inevitable human error that will happen eventually.

We recommend that you use Flamingo to manage this. Flamingo is an app designed to manage your entire PTO process, and automatically calculates and updates accruals for your team based on the accrual rate/frequency you choose.

It’s free to try, so give it a go and see how it makes managing accruals easier.

Final Thoughts

This article has, hopefully, explained everything you need to know about accruals for paid time off, how they work, and whether an accrual system is right for your team.

Whether you do accruals, lump-sum, unlimited PTO or some other kind of PTO policy, the most important thing is that you provide your team members with an ample paid time off allowance.

Access to PTO makes your team happier, healthier, and ultimately more productive, even if it means you’re paying them to spend less time in the office.

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