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 and improve attendance.

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.

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 Easily 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.

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.

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.

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.

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.

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 comprehensive PTO calculation system. Modern employee time tracking software includes automatic PTO calculation, tracking, and awareness of 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.