# How to Calculate PTO Accrual

In this article, we’re going to give you a complete guide to calculating PTO and updating PTO balances for your team members based on accruals.

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 useFlamingo’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.