How to Calculate PTO (Paid Time Off) Accruals and Bank Balances

paid time off accruals and bank balances

Calculating PTO accrual banks and rates isn’t a simple task, but very important for every manager professional to understand when tracking this benefit. When performed manually, it can be confusing and prone to errors if not accurately calculated. 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 involves 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.

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

What is PTO?

PTO is the abbreviation for paid time off. When referring to vacation days, personal days, and sick days, this term is used by businesses for employees to use the time off as needed. 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 when the employee’s work anniversary starts. 

What is PTO Accrual?

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

According to the 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
    • Bi-weekly
    • Semi-monthly
    • 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 hours of time off that an employee accrues is ultimately up to the employer and the policy in place. If you currently have a PTO policy in place, then 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 cost 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 paid time off hours in the accrual. For example, if an employee works 32 hours and uses 8 hours of PTO, the eight hours of paid time off would not accrue additional paid time off. 

How to Calculate Accrual Rate Per Regular Hours Worked

This example represents an employee working 40 hours per week, and the employee will accrue 40 hours of paid time off per year, per the PTO 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 to 262 workdays per year, so your accrual rates could vary slightly. You may use our free PTO tool to determine accrual rates for the year more precisely. 

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 give 6 paid holidays per year.

Step1

Find the total hours possible to be worked for the year.

40 hours worked per week x 52 weeks = 2,080 yearly hours

Step2

The employee will receive 40 PTO hours for the year and 6 paid holidays (48 hours), so you will need to subtract those hours from the total in step 1 if you don’t want those hours to count towards further accruals.

2,080 yearly hours - 40 PTO hours - 48 holiday hours = 1,992 work hours

Step3

Take the number of hours they can earn in PTO and divide by your total working hours in the year.

40 PTO hours / 1,992 work hours = 0.0201 hours accrued per work hour

Answer

The amount of 0.0201 hours is what the employee will accrue for every hour worked.

Accrue ‘X’ Percent of Regular Hours Worked

This PTO rule allows employees to accrue a percentage of the total regular hours worked. For example, you may have a policy that gives employees 40 hours of paid time off per year, and you need to determine what the percentage would be. If you already know the percentage, you may enter it into a system like OnTheClock, and the system would calculate and maintain the PTO bank automatically. However, if you are unsure of what the percentage is, the formula shown 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 Calculate Accrual Rate Based on 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 give 6 paid holidays per year.

Step1

Find the total hours possible to be worked for the year.

37 hours worked per week x 52 weeks in a year = 1,924 yearly hours

Step2

The employee will receive 40 PTO hours for the year and six paid holidays (48 hours), so you will need to subtract those hours from the total in step 1.

1,924 yearly hours - 40 PTO hours - 48 holiday hours = 1,836 work hours

Step3

Take the number of hours they will receive in PTO and divide by the year's total working hours.

40 PTO hours / 1,836 work hours = 0.0218

Step4

Lastly, multiply 0.0218 by 100 to discover the accrual percentage.

Answer

0.0218 x 100 = 2.18% hours per regular hour worked.

Accrue ‘X’ Hours Per Pay Period

This PTO rule will accrue a portion of hours each new pay period. Accruing paid time off for each pay period allows an employee to receive hours in their PTO bank.

How to Calculate 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, semi-monthly, bi-weekly, 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.
Weekly Pay Period

40 PTO hours / 52 weeks in 1 year = 0.7692 hours accrued per pay period

Bi-Weekly Pay Period
(every two weeks)

40 PTO hours / 26 bi-weekly pay periods = 1.5385 hours accrued per pay period

Semi-Monthly Pay Period
(twice monthly)

40 PTO hours / 24 semi-monthly pay periods = 1.6667 hours accrued per pay period

Monthly Pay Period
(once every month)

40 PTO hours / 12 (number of months in a year) = 3.3333 hours accrued per pay period

How to Calculate Employees' Banked PTO Hours

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

Understanding Employee PTO Banks

A paid time off 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.

Employee’s PTO Bank Calculation Example

For precise calculations, we recommend using the PTO accrual rates tool from 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 may use the tool in the link below. The example below is best used with actual hours worked from the time cards. For accurate paid time off accrual rates, include all pay periods in the employee’s current accrual period. An accrual period typically starts on an employee hiring date or the beginning of the year.

Calculating Based on an Accrual Rate Per Hour

Assumptions:

  • Employee has worked 160 hours in the current accrual cycle.
  • PTO Policy states an accrual rate of .0625 hours per hour worked.
  • Employee has used 2 hours of PTO in the current accrual cycle.
  • Average work day is 8 hours.

Step1

Multiply total hours worked X accrual rate of 0.0625 per hour and subtract any PTO used during that period of time.

(160 hours worked X .0625 per hour worked accrual rate) - 2 hours of PTO used = 8 hours in the bank.

Step2

To find how many days that is, divide the answer by the average hours worked in a day.

8 hours in the bank / 8 hours in an average workday = 1 day of PTO in the bank

Answer

1 day (or 8 hours) of PTO in the bank

Calculating Based on an Accrual Percentage

Assumptions:

  • Employee has worked 160 hours in the current accrual cycle.
  • PTO Policy states a 5% earned per hour accrual rate.
  • Employees have used 2 hours of PTO in the current accrual cycle.
  • Average work day is 8 hours.

Step1

Multiply total hours worked X accrual rate percentage and subtract any PTO used during that period of time.

(160 hours worked X .05 accrual percentage rate) - 2 hours of PTO used = 6 hours in the bank.

Step2

To find how many days that is, divide the answer by the average hours worked in a day.

6 hours in the bank / 8 hours in an average workday = .75 days of PTO in the bank

Answer

.75 days (or 6 hours) of PTO in the bank

Accrue ‘X’ Hours Per Pay Period

Assumptions:

  • Pay period is bi-weekly.
  • 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.
  • PTO Policy states and accrual rate of 1.5385 hours earned per pay period.
  • Average work day is 8 hours.

Step1

Determine the number of pay periods in the current accrual cycle by either using the tool in the link or counting the number on a calendar. According to the tool and the calendar this tells us we have 6 pay periods.

Total pay periods = 6

Step2

Multiply the number of pay periods by the accrual rate to get the current PTO bank. If PTO has been used in this period, subtract those hours from the total you find.

6 pay periods X 1.5385 accrual rate = 9.2310 PTO hours in the bank

Step3

To find how many days that is, divide the answer by the average hours worked in a day.

9.2310 PTO hours in the bank / 8 hours in an average workday = 1.1539 days in the bank

Answer

1.1539 days (or 9.2308 hours) of PTO in the bank

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 paid time off for the year.

Step 2: Enter 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 find hours employees have in their bank. The yellow cells in the tool are the areas you will edit to fit your policy.

Step 1: Enter average 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 date of the year is correct.

Time Tracking That Automatically Calculates PTO

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

OnTheClock’s time tracking system will perform these calculations for you, providing you with extra time to invest in growing your business. 

Accurately Track PTO Accrual Rates & Bank Balances

Perfect for all companies and industries.

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