How Do Accruals Work While On Leave?
PTO accruals seem simple on the surface: it just means that employees steadily earn paid time off (often vacation, but sometimes other forms of PTO, such as sick leave, as well) over time, rather than getting their entire yearly allowance available at the start of each year.
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.