PTO Accrual Caps: All You Need to Know
In this article we’re going to explain all there is to know about PTO accrual caps, including how they work, why companies use accrual caps, and different ways you can go about adding a cap to your PTO accruals.
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.