Vacation accrual is the incremental accumulation of paid time off that an employee earns while working at your company. The specifics of this (i.e., how much PTO time someone accrues based on how much they’ve worked) will change based on your vacation accrual policy — that is, how your company calculates accruals.

Below, we look at different ways of calculating accruals, explain how to handle rollovers, and answer some commonly asked questions.

What is vacation accrual?

Vacation accrual is the accumulation of paid time off (PTO) that an employee earns as they work at a company. As the employee works, they get vacation time incrementally added to their PTO balance. The amount of vacation time they earn for time worked is set by the employer.

What is a vacation accrual policy?

A vacation accrual policy is a set of guidelines that an employer creates describing how employees earn PTO. These guidelines often include factors such as:

  • Accrual rates
  • Maximum accrual allowed
  • Whether there is carryover for unused vacation time into successive years
  • If tenure (length of service) factors into accrual rates
  • How the employer pays out unused vacation time if an employee leaves
  • How these guidelines apply to hourly and salaried employees

The vacation accrual policy also informs whether employees earn PTO per pay period or number of hours worked — or if it’s annually applied.

Two common formulas for calculating vacation accruals

How an employee accrues PTO will depend on if they’re an hourly or salaried employee. Here are two common formulas for calculating each:

Formula for hourly employees

The formula for calculating vacation accrual for an hourly employee is:

Hours worked / How Many Hours Needed to Earn an Hour of PTO

For example, if an employee must work 40 hours to earn one hour of PTO, and they’ve worked 320 hours, you’d divide 320 by 40 and see that they’ve earned 8 hours of vacation pay.

Formula for salaried employees

Calculating vacation accrual is slightly different for salaried employees since these employees are counting their time worked in days as opposed to hours. Because of this, salaried workers typically earn vacation accrual for every certain number of days worked. But the principles are largely the same.

For this formula, we swap out hours for days.

Days worked / How many days needed to earned a day of PTO

Let’s say the policy is that an employee earns one day of PTO for every 20 days worked. Now let’s say an employee has worked 100 days. We’d divide 100 by 20 and come up with 5 days of accrued vacation time.

Challenges with manually calculating vacation accruals

The example formulas above are easier than what you’ll encounter in real-life practice. For example:

  • Most hourly employees aren’t going to work exactly eight hours every day, so there will be variation.
  • There will be different formulas for part-time employees than there are for full-time employees.
  • If you track time on a weekly, bi-weekly, or monthly basis, it’ll change your formulas.
  • When employees take PTO, you don’t want to count the PTO hours they’ve taken into your calculations.

What’s the difference between accrual and allotment?

Accrual and allotment are two approaches for distributing PTO to employees, but both deal with the total hours of vacation time an employee has.

With accrual, employees earn PTO incrementally (typically with hours worked, per paycheck, or annually).

With allotment, employees are given a fixed amount of PTO. For example, they may be given 80 hours of PTO (equal to 10 vacation days) at the beginning of the year to use throughout the calendar year. Once their lump sum is given, they don’t earn more PTO with more time worked.

How to automatically calculate vacation accruals

Buddy Punch is a time and PTO tracking tool that records the hours employees work, automatically calculates vacation accruals for you, adds taken PTO to timesheets, and removes used PTO from employees’ PTO balances.

Buddy Punch allows managers to customize vacation accruals with a range of options. They can choose the accrual rates on an employee-by-employee basis, specify the accrual frequency for each employee, and select the type of time off each employee accrues.

Set accrual rules on an employee-by-employee basis

In some cases, companies want to set accrual rules on an employee-by-employee basis. For example, you may award more tenured employees more PTO than new employees. To do this in Buddy Punch, you’ll create a new accrual rule for vacation leave, then select which employees the rule will apply to.

PTO Accrual Rules: Set up accrual rules on how PTO is earned

Customize accrual frequencies

In Buddy Punch, you can choose how often employees earn PTO:

  • Based on number of hours worked: Employees accrue PTO based on the number of hours they work.
  • Per pay period: Employees accrue a specific amount of PTO hours each pay period.
  • Annually: A specified number of PTO hours are added to employee balances each year (such as on a work anniversary).

Customizing PTO types

You can create as many PTO types as you need to track what types of things employees are taking time off for. For example, you could have separate policies for vacation time, personal time, sick leave, holiday pay, and paternal leave, Buddy Punch leaves open the type of PTO an employee accrues.

When you add a new PTO type, you can set it as paid or unpaid, and you can also set it so only a subset of employees have access to a certain time off type.

You can also create rules around accruals, such as:

  • Negative balances: Managers can set whether their employees are allowed to have negative PTO balances. If employees cannot, then they will not be able to request time off if it would cause them to go into a negative balance.
  • Maximum hours: Set the maximum amount of hours an employee can accrue.
  • Carryover or reset: This lets you specify if PTO balances should be reset at the end of the year or carried over into next year. You can also specify the number of hours that are allowed to be carried over.

Manage time off requests

Managing time off requests is a key part of managing vacation accruals. When someone takes a holiday, you want their PTO balance updated.

Since vacation accrual is maintained in Buddy Punch, employees don’t need to leave Buddy Punch to request PTO. They can request time off and view their PTO balances in Buddy Punch.

Managers can set it up so they receive email notifications letting them know that a PTO request has been submitted. They can also set up automatic approvals for specific employees or dates, saving them time from manually approving requests. Additionally, they’re able to create blackout days for those busy times of year where employees cannot request time off.

Managers have lots of tools for handling PTO requests. They can approve or deny requests, and they can use the time off calendar to get a quick glance at who has days off:

Viewing PTO in calendar format

This calendar automatically updates once PTO requests are approved. Based on your settings, the employees can also look at the time off calendar and see who has time off during the week or month.

Because all PTO is managed in Buddy Punch, we have time off reports where managers can view how much PTO an employee has, their total accrual, how much PTO they have left, and how much they’ve used.

PTO summary dashboard

If this sounds like something you need at your company, you can start your free trial today.

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About the Author

Eric has more than 20 years of experience owning, operating, and managing businesses — everything from in-person, multi-location shops to fully remote SaaS companies. He uses what he's learned along the way to create helpful guides for other business leaders.