Calculating paid time off (PTO) accrual banks and rates isn’t a simple task. However, it's extremely important for every manager to thoroughly understand the process when tracking this benefit. When performed manually, plotting PTO can be confusing and users may be prone to errors if the process isn't followed precisely. There are numerous accrual methods for a company to choose from, and they’re not all created equally. Tracking PTO, vacation, personal, holiday, and sick days requires a lot of math and time to accomplish by hand. This article will discuss the variety of accrual methods, bank balances, and how to calculate them correctly to save time and improve attendance.

Each business varies, and this is why it’s essential to create a company PTO policy to guide you in calculating accrual rates and banked hours for your employees.

What is PTO?

As mentioned earlier, PTO stands for paid time off. When referring to vacation, personal, and sick days, the term PTO is used by businesses as an overarching phrase to define employees' time off. Based on a company’s policy, employees can accrue PTO or receive an allotted amount per year. PTO can renew at the beginning of each year or on an employee’s work anniversary. 

What is PTO Accrual?

Accrued time off is the time an employee has earned. These banked hours are available for employees to utilize toward sick leave, vacation, personal days, and medical appointments. For example, an employee may earn one hour of paid time off for every 40 hours worked. 

According to the U.S. Bureau of Labor Statistics, 76% of employees in private industries received paid vacation days, 73% of employees in private industries received paid sick leave, and 77% received paid holidays.

Commonly Used Accrual Rules

• Accrue ‘X’ hours per regular hours worked.
• Accrue ‘X’ percent of regular hours worked.
• Accrue ‘X’ hours per pay period.
• Weekly
• Biweekly
• Semimonthly
• Monthly

Calculating PTO Accrual Rates

To correctly calculate PTO, your policy will determine how many hours your employees can potentially accrue each year. The maximum time off an employee accrues is ultimately up to the employer and the policy in place. If you currently have a PTO policy in place, please refer to it for accrual amounts. If you do not have a PTO policy, this article will help you understand how to calculate a PTO accrual rate for your policy.

In the past, many employers used a traditional, allotment-based leave program. An example commonly used may have included two weeks of vacation time, five additional days for sick leave, a single personal day, and six paid holidays. These paid holidays usually represented New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. 

Due to complexity, many organizations moved away from this program and started implementing accrual-based time off policies. While PTO is a great way for companies to reduce costs and offer employees flexibility when taking time off, calculating time accrued can be difficult.

Accrue ‘X’ Hours per Regular Hours Worked

This PTO rule will accrue hours based on the number of regular hours an employee works and excludes overtime, holiday, and PTO hours in the accrual. For example, if an employee works 32 hours and uses eight hours of PTO, the eight hours of PTO would not accrue additional PTO. 

How to Calculate an Accrual Rate per Regular Hours Worked

This example represents an employee working 40 hours per week, and the employee will accrue 40 hours of PTO per year, per the company policy, and be given 48 holiday hours. This example uses a typical year for calculations. Depending on how weekends fall and leap year, there are 260-262 workdays per year, so your accrual rates could vary slightly. We suggest trying our free PTO tool to precisely determine your accrual rates for the year. 

Working Example

Assumptions:

• Employees work 40 hours per week.
• You want employees to have the potential to earn 40 hours of PTO per year.
• You offer six paid holidays per year.

Accrue ‘X’ Percent of Regular Hours Worked

This PTO rule allows employees to accrue a percentage of the total regular hours worked. For example, your policy may give employees 40 hours of PTO per year, and you need to determine what the percentage would be. If you already know the percentage, you may enter it into a time tracking system, like OnTheClock, and the system will automatically calculate and maintain the PTO bank. However, if you are unsure of the percentage, the formula below works the same as above. Like the above example, years can vary slightly in the number of workdays, and you may use the free tool at the bottom of this page for precise calculations.

How to Easily Calculate an Accrual Rate Based on the Percentage of Regular Hours Worked

Start by following the same guidelines as above. 

Working Example

Assumptions:

• Employees work 37 hours per week.
• You want employees to have the potential to earn 40 hours of PTO per year.
• You offer six paid holidays per year.

Accrue ‘X’ Hours Per Pay Period

This PTO rule will accrue a portion of hours for each new pay period. Accruing PTO for each pay period allows employees to receive hours in their PTO banks.

How to Calculate an Accrual Rate Per Pay Period

Calculating vacation, holiday, sick, personal, and other time off per pay period works with how you have your pay periods configured. Common pay period types can include weekly, semimonthly, biweekly, and monthly. You will take the number of hours you want the employee to receive for PTO from your policy and divide it by the number of pay periods your company has in one year.

Learn more about how to set up pay periods to work with pay dates.

Working Example

Assumptions:

• You want employees to have the potential to earn 40 hours of PTO per year.

How to Calculate Employees' Banked PTO Hours

Now that you know how to calculate PTO accrual rates, this section will provide information on calculating and understanding what an employee’s banked hours are. 

Understanding Employee PTO Banks

A PTO bank provides an accurate representation of the number of unused hours an employee has earned. These hours are available to use by the employee when they need to use PTO. This is beneficial when deciding to approve or deny PTO when an employee makes a request.

Calculate an Employee's PTO Bank

For precise calculations, we recommend using the PTO accrual rate tool below.

Accrue ‘X’ Hours per Regular Hour Worked, or Accrue ‘X’ Percent of Regular Hours Worked

If you are accruing ‘X’ hours per regular hour worked, or ‘X’ percent of regular hours worked, you will find the banked PTO hours with the following example. Note that if you are looking for a hypothetical bank an employee will have at a particular time, you should consider the tool in the link below. The example below is best used with actual hours worked from the time cards. For accurate PTO accrual rates, include all pay periods in the employee’s current accrual period. An accrual period typically starts on an employee's hiring date or at the beginning of the year.

Calculating Based on an Accrual Rate Per Hour

Assumptions:

• Employee has worked 160 hours in the current accrual cycle.
• The PTO policy states an accrual rate of 0.0625 hours per hour worked.
• Employee has used two hours of PTO in the current accrual cycle.
• The average work day is eight hours.

Calculating Based on an Accrual Percentage

Assumptions:

• Employee has worked 160 hours in the current accrual cycle.
• The PTO policy states the accrual rate is 5% earned per hour.
• Employees have used two hours of PTO in the current accrual cycle.
• The average work day is eight hours.

Accrue ‘X’ Hours Per Pay Period

Assumptions:

• Pay period is biweekly.
• Accrual cycle started on 1/1/21.
• Last pay period end date was 3/26/21.
• No PTO has been used in the current accrual cycle.
• The PTO policy states an accrual rate of 1.5385 hours earned per pay period.
• The average work day is eight hours.

Free PTO Calculating Tool

In addition to a fully functioning time tracking system, OnTheClock offers a free PTO tool for your convenience. Our tool calculates accrual rates based on the data you add for each step to align with your PTO policy.

Confirm the yellow cells in the tool are correct by following these steps:

Step 1: Enter PTO for the year.

Step 2: Enter the hours the employee works per week.

Step 3: Enter the number of workdays per week.

Step 4: Enter the start and end date of the PTO year.

Step 5: Enter the holidays you want to remove from the calculation.

Once you have your accrual rate, you may use the "Total Accrued PTO Bank" tab inside the free PTO tool to discover how many hours employees have in their banks. The yellow cells in the tool are the areas you will edit to fit your policy.

Step 1: Enter the average number of hours worked per day.

Step 2: Enter the PTO hours already used.

Step 3: Enter the total hours worked from the time cards.

Step 4: Confirm your accrual rate is correct. (You may enter a new one in the field).

Step 5: If you are using Example 3, make sure the start and end dates for the year are correct.

Time Tracking that Automatically Calculates PTO

As you can see from the aforementioned examples, calculating accrual amounts for employee PTO can be a bit cumbersome. To improve efficiency and streamline this process, it’s wise to invest in a comprehensive PTO calculation system. Modern employee time tracking software includes automatic PTO calculation, tracking, and awareness, making it easy to determine who has taken time off and receive, approve, or deny requests for future time off. Time tracking software is easy to implement into your business and makes tracking PTO a breeze. This means no more handwritten math equations that will take hours of your time to complete. 

OnTheClock’s time tracking system will perform these calculations for you, granting you extra time to invest in the growth of your business.