PTO Accruals: How to Calculate PTO & Vacation Time

PTO (paid time off) accrual is complicated, costly, and error-prone. According to Ernst & Young’s study, Estimating Labor and Non-Labor Costs Associated with Common Human Resources (HR) Functions/Tasks, it takes 25 minutes and costs $19.19 to calculate and update a single employee’s PTO balance. The study also found a 16% error rate, and that each error takes 22 minutes to fix––adding $18.94 in costs per error.

In a time when HR teams are being asked to do more with less, time off management is an area that offers major potential cost savings. Software like PTO Genius saves 25 to 47 minutes and $19.19 to $38.13 per employee by automating all of the processes that go into calculating accruals, updating balances, and reporting on time off data.

PTO Accrual: What it Is and How it Works

Accrual-based paid time off (PTO) is earned as an employee works. Employees earn the right to PTO based on the hours they work in a given period of time. Or, they accrue PTO based on a period of time that they remain employed.

Most companies that use accrual-based PTO use hourly PTO accrual for hourly employees, and bi-weekly or semimonthly accrual for salaried employees (aligning with their payroll schedule). Factors that impact PTO accrual include state laws, company policies, and union contracts.

PTO accrual is based on rate, period, and hours worked. 

• Accrual rate is how much PTO an employee earns per accrual period
• Accrual period is how often employees are granted the PTO that they’ve earned during that time frame (i.e., how often you add to their PTO balances)
• Hours worked refers to how many hours an employee actually works during an accrual period. 

Some examples of PTO Accrual:

• Carla earns 3 hours of PTO with every bi-weekly pay period 
  • Accrual rate: 3 hours
  • Accrual period: Bi-weekly (26 times per year)
• Roseline accrues 0.0533 hours of PTO per hour of work
  • Accrual rate: 0.0533 hours
  • Accrual period: Hourly
• Edward accrues 2 days of PTO per month
  • Accrual rate: 2 days
  • Accrual period: Monthly

Unfortunately, due to a limitation with most HRIS and payroll platforms, employees are only “granted” the PTO that they’ve accrued when payroll actually runs. This means people often find themselves in the position of not being able to use time off they’ve earned when they actually need it.

PTO Genius solves this problem with our next-gen time off manager. Employees are granted their time off exactly when they accrue it, if a company enables it. This fixes an important disparity that causes real hardship for employees and creates major headaches for HR teams.

PTO Waiting Periods

Many companies institute waiting periods for new hires: employees only begin to accrue PTO at 30, 60, or 90 days after their start date. Companies do this to avoid having to pay out PTO if an employee quits early on, or to avoid a new employee taking vacation while they’re still onboarding and learning the job.

However, some states have laws against this. States with mandatory paid sick leave often prohibit waiting periods for paid sick leave accrued under the law. Vacation time is usually not affected, but make sure you read up on your state’s sick leave laws before you implement a waiting period for sick leave.

How to Calculate PTO and Vacation Accrual

To calculate PTO and vacation accruals, start with frequency: how often are employees granted the PTO that they have earned? The most common PTO accrual frequencies are bi-weekly and semimonthly (synced to a typical payroll schedule). However, some companies use an hourly, daily, or monthly period.

Accrual rates are based on the maximum number of PTO hours that an employee can earn per year, and the number of hours or days they work in an average workweek, month, or year. Full-time salaried employees are usually assumed to work 2,080 hours/365 days/52 weeks/12 months for the purpose of PTO accrual. Accruals for hourly employees are calculated based on their contracted hours, then verified against the hours they actually work.

How to Calculate Hourly PTO Accrual

Hourly PTO accrual means that employees earn an amount of paid time off for every hour they work. The hourly PTO accrual rate forms the basis of PTO calculations for hourly employees.

To calculate hourly PTO accrual, use this formula: [Annual Max PTO Allowance in Hours] ÷ [Hours Worked Per Year] = Hourly PTO Accrual Rate

For example, an employee who works 30 hours per week for 50 weeks per year, and who can accrue up to 80 hours (10 days) of paid vacation per year, would accrue 0.0533 vacation hours per hour of work.

• [80 hours of max paid vacation per year] ÷ [50 weeks x 30 hours per week] = 80 ÷ 1,500 = 0.0533 hours of paid vacation accrued per hour of work

Here’s a more detailed explanation of how to calculate hourly PTO accrual:

1. Convert the employee’s maximum annual PTO allowance into hours
   • 2 weeks PTO = 10 days = 80 hours
   • 3 weeks PTO = 15 days = 120 hours
   • 4 weeks PTO = 20 days = 160 hours
2. Divide this number by 2,080 (salaried employees) or the number of hours the employee works in a year (hourly employees: hours per week multiplied by weeks worked)
3. The resulting number is how many hours of PTO the employee accrues per hour that they work

Many people who accrue PTO on an hourly basis are hourly employees (non-salaried) who work more or less than 40 hours per week. In these cases, HR usually determines hourly PTO accrual rates based on an average workweek (in hours) for that particular type of employee or job role. Then, they use timesheets, punch-cards, or other records to verify whether the employee actually worked those hours.

How to Calculate Daily PTO Accrual

Daily PTO accrual means that employees earn paid time off in increments for each day that they work. A daily accrual period makes sense for employees that work a fixed amount of hours per day, or who work full days on part-time or irregular schedules. 

To calculate daily PTO accrual in hours, use this formula: [Annual Max PTO Allowance in Hours] ÷ [Days Worked Per Year] = Daily PTO Accrual Rate in Hours

For example, an employee who works 5 days per week for 50 weeks per year, and who can accrue up to 80 hours (10 days) of paid vacation per year, would accrue roughly 0.32 vacation hours per day of work.

• [80 max vacation hours per year] ÷ [250 workdays per year] = 0.32 hours of paid vacation accrued per workday

In more detail, calculating daily PTO accrual works like this:

1. Convert the employee’s maximum annual PTO allowance into days
   • 2 weeks PTO = 10 days = 80 hours
   • 3 weeks PTO = 15 days = 120 hours
   • 4 weeks PTO = 20 days = 160 hours
2. Divide by the number of days the employee works per year (365 for salaried employees)
3. The result is how many hours of paid time off an employee earns for every day that they work
   • To convert this into the number of days an employee must work to earn a full day of PTO, divide 1 by the daily accrual rate in hours

How to Calculate Weekly PTO Accrual

Weekly accrual means that employees earn paid time off in increments for every week they work. A weekly accrual period works best for hourly, part-time, or contract employees who work in weekly increments. 

To calculate weekly PTO accrual in hours, use this formula: [Annual Max PTO Allowance in Hours] ÷ [Workweeks Per Year] = Weekly PTO Accrual Rate in Hours

For example, an hourly employee who works 50 weeks per year, and who can accrue up to 80 hours (10 days) of paid vacation per year, would accrue 1.6 hours of vacation per workweek.

• [80 max vacation hours per year] ÷ [50 work weeks per year] = 1.6 vacation hours accrued per workweek

The full process for calculating weekly PTO accrual is:

1. Convert the employee’s annual PTO allowance into days or hours
   • 2 weeks PTO = 10 days = 80 hours
   • 3 weeks PTO = 15 days = 120 hours
   • 4 weeks PTO = 20 days = 160 hours
2. Divide this number by the number of weeks the employee works in a year
3. The result is the number of days or hours of PTO that the employee earns per week that they work

How to Calculate Biweekly and Semimonthly PTO Accrual

Semimonthly PTO accrual grants paid time off twice per month, while biweekly accrual grants PTO every two weeks. There are 26 biweekly and 24 semimonthly periods per year. Biweekly and semimonthly PTO accrual are the most popular choices, because they align with a typical payroll schedule. 

To calculate biweekly PTO accrual in hours, use this formula: [Annual Max PTO Allowance in Hours] ÷ [26 Biweekly Periods Per Year] = Biweekly PTO Accrual Rate

To calculate semimonthly PTO accrual in hours, use this formula: [Annual Max PTO Allowance in Hours] ÷ [24 Semimonthly Periods Per Year] = Semimonthly PTO Accrual Rate

For example, an employee who can accrue up to 80 hours (10 days) of paid vacation per year would accrue 3.08 hours of vacation biweekly, or 3.33 hours of vacation semimonthly.

• [80 hours max vacation per year] ÷ 26 biweekly periods per year = 3.08 hours of paid vacation earned biweekly
• [80 hours max vacation per year] ÷ 24 semimonthly periods per year = 3.33 hours of paid vacation earned semimonthly

Here is the full process for calculating bi-weekly and semimonthly PTO accruals:

• Convert the employee’s max annual PTO allowance into days or hours
  • 2 weeks PTO = 10 days = 80 hours
  • 3 weeks PTO = 15 days = 120 hours
  • 4 weeks PTO = 20 days = 160 hours
• Divide this number by 24 (semimonthly) or 26 (biweekly)
• The result is the number of days or hours of PTO that the employee earns on a biweekly or semimonthly basis

How to Calculate Monthly PTO Accrual

Monthly PTO accruals are earned once per month, often on the last day of the month. A monthly PTO accrual period works best when your payroll is run monthly.

The formula to calculate monthly PTO accruals is simple: [Total Annual PTO Allowance] ÷ [12 Months per Year] = Monthly PTO Accrual Rate

For example, an employee who can earn up to 80 hours (10 days) of paid vacation time per year would accrue 6.67 vacation hours per month.

• [80 paid vacation hours per year] ÷ [12 months per year] = 6.67 vacation hours accrued per month

How to Calculate PTO for Salary Employees

To calculate PTO and vacation accruals for salaried employees, assume 2,080 working hours, 52 workweeks, and 365 workdays. This is because salaried employees are usually treated as if they work year-round, for the purposes of calculating time off.

For similar reasons, most companies use their payroll schedule as their PTO accrual frequency for salaried employees. Even if you front-load PTO, you may have to track accruals for compliance with PTO payout and paid sick leave laws.

How to calculate PTO accruals for salary employees (manually):

1. Take the employee’s maximum annual PTO allowance in days or hours
   • 2 weeks PTO = 10 days = 80 hours
   • 3 weeks PTO = 15 days = 120 hours
   • 4 weeks PTO = 20 days = 160 hours
2. Divide this number by 24 (semimonthly payroll), 26 (bi-weekly payroll), or 12 (monthly payroll)
3. The result is how many hours or days of PTO that the employee earns with each payroll cycle
4. Each payroll, verify this calculation, then go into your HRIS and/or payroll system to update the employee's PTO balances by hand (average 4 data entries per employee)

How to calculate PTO accruals for salary employees (in PTO Genius):

1. Upload copies of your PTO policies
2. Our integrations concierge inputs everything into the system
3. That’s it! Our platform does all of the math for you and updates each employee’s vacation, sick leave, and other balances, totally automatically

How to Calculate PTO for Hourly Employees

Calculating PTO and vacation accruals for hourly employees is more complex than for salary employees. That’s because PTO accrues (is earned) for hourly employees based on the hours they actually work (versus salary employees who are assumed to work a particular number of hours per year). Therefore, it’s easy to calculate their accrual rate, but more complicated to calculate an employee’s actual accruals.

The first step to calculate PTO accruals for an hourly employee is to determine the period and rate at which PTO accrues. From there, employers typically verify the hours that an employee worked, multiply out their earned PTO, and update the employee’s available PTO balance.

Hourly employees usually accrue PTO with every hour worked, but companies often update their PTO balances with each payroll cycle. This disparity can create real headaches and hardship for employees who need to use their PTO for an emergency, but who haven’t officially earned it because the HRIS is behind. Thankfully, PTO Genius has solved this problem. Our time off management platform automatically updates employees’ PTO balances in real-time, if a company chooses to enable it.

How to calculate PTO accruals for hourly employees (manually):

1. Calculate the employee’s hourly PTO accrual rate: divide their max annual PTO allowance in hours by the number of hours they’re supposed to work per year.
2. Multiply by the number of hours the employee works per pay period
3. The result is the number of PTO hours that the employee earns per pay period.
4. Next, verify the hours that the employee actually worked in the pay period
5. Multiply the hours the employee actually worked by their hourly PTO accrual rate
6. The final number is how many PTO hours the employee accrued this period

How to calculate PTO accruals for hourly employees (with PTO Genius)

1. Upload copies of your PTO policies
2. Our integrations concierge inputs everything into the system
3. That’s it! Our platform does all of the math for you and updates each employee’s vacation, sick leave, and other balances, totally automatically

What Happens to Unused Accrued PTO

What happens to PTO or vacation time that you earn but don’t use? This depends on your state’s laws and your company’s policies. 

Many companies with traditional, bank, or lump-sum PTO policies also say that employees forfeit any PTO they haven’t used by the end of the year (or another date). However, three U.S. states prohibit these so-called “use-it-or-lose-it” policies. Also, they can be a source of resentment among people who feel like you’re taking away something they’ve earned. 

This is why some companies use PTO rollovers with expiration. For example, unused vacation might carry over from one year to the next, but then expire at the end of February. This gives employees a chance to make use of their earned PTO, but limits the financial liability that the company carries. However, rollovers with expiration can still create resentment amongst employees who feel like they're being cheated out of something they've earned.

A more popular and flexible option is PTO conversion. Conversion enables employees to convert their extra vacation into cash, retirement contributions, student loan payments, college savings, and more. PTO conversion is basically an evolved form of PTO payout that adapts to employees’ financial wellness needs.

Cashing Out Unused Vacation & PTO

Employees can usually cash out unused vacation time and other PTO at the end of the year, or when they leave their company. 20 U.S. states require companies to pay out an employee’s unused vacation or sick time at separation. Three states have banned use-it-or-lose-it policies, which means that unused vacation or sick leave (or both) must roll over to the next year, or be paid out at year’s end.

When to cash out PTO:

• Quitting
• Termination
• Retirement
• Year's end
• Year-round

The Cost of Calculating PTO Accruals

The process to calculate PTO accruals is highly complex, and doesn’t scale. An Ernst & Young study on the costs associated with common HR functions and tasks found that it takes 4 data entries and costs $19.19 to calculate one employee’s PTO by hand. 

The study also found a 16% average error rate for the task of calculating PTO balances and updating employees when done manually. Every error takes 22 minutes to fix, costing $18.94 more in labor.

All told, it takes 25 to 47 minutes and costs $19.19 to $38.13 to calculate the PTO balances for a single employee. Now multiply that by hundreds, thousands, or tens of thousands of employees.

Costs of Manual PTO Accruals

How to Automate PTO and Vacation Accruals

It’s no wonder that companies use technology to automate these processes. Platforms like PTO Genius significantly reduce this cost and save you tens of hours of work.

Another advantage to using software to automate PTO accruals is reliability: The Sarbanes-Oxley (SOX) Act requires companies to report accurate, timely financial information. Because PTO liabilities are based on PTO accruals, it’s critically important that you can trust your PTO balances.

If you’re doing 4,000 data entries by hand every time you run payroll, the data shows that you’re going to make 640 errors. Each error will change your company’s knowledge of its floating PTO liabilities, materially impacting your company’s financial statements. 

Systems like PTO Genius don’t make those mistakes. Automatic accruals through our platform are reliable, trustworthy, and instant––saving you 25 to 47 minutes and $19.19 to $38.13 per employee every time you need to calculate accruals.