Vacation Accruals: How They Work & How to Accurately Calculate PTO

Vacation Accruals: How They Work and How to Accurately Calculate PTO

Vacation accrual is the incremental accumulation of time off (usually paid time off or PTO) 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, how to handle roll overs, and answer some commonly asked questions.

But we also take a step back and look at what a business needs to accurately track vacation accruals for their employees. When you’re trying to calculate vacation accrual, you must have an accurate employee time tracking system in place. Without this step in place, you’re not going to get accurate accruals.

Buddy Punch is accurate and customizable time tracking software that your business can use to (a) track hours worked and (b) automatically calculate accrued vacation hours by employees based on those hours worked.

First, this post looks at common formulas for calculating vacation accruals and other key aspects of vacation accruals. Then we take an in-depth look at how businesses can use Buddy Punch to handle this (and other) aspects of time tracking for them.

Everything You Need to Know about Vacation Accrual

Timesheet illustration

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.

2 Common Formulas for Tracking Vacation Accrual

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 / 40 and see that they’ve earned 8 hours of vacation pay.

Formula for Salaried Employees

Calculating vacation accrual is slightly different for full-time salaried employees, given that 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

So let’s say the policy is that an employee earns 1 day (8 hours) of PTO for every 20 days worked. Now as an example, let’s say an employee has worked 100 days, so we’d divide 100 / 20 and come up with 5 days as the accrued vacation time.

But these example formulas are easier than you’ll encounter in real-life practice.

For example:

  • Most hourly employees aren’t going to work exactly an 8 hour shift, so there’ll be some variation.
  • There are part-time employees and full-time employees, so there will be different formulas between them.
  • If you track time on a weekly, bi-weekly, or monthly basis, it’ll change your formulas.
  • When employees start taking PTO, you don’t want to count the PTO hours they’ve taken when figuring out how many vacation hours they’ve accrued.

Click here for more information on calculating vacation for hour employees.

What Is a Vacation Accrual Policy?

A vacation accrual policy are the guidelines that an employer creates as to how employees earn PTO over a period of time. These guidelines often include factors such as accrual rates, maximum accrual allowed, whether there is carry over 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, and how these guidelines apply to hourly and salaried employees.

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

What Is 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 add PTO with more time worked.

Now that we’ve covered the formulas for calculating vacation accrual, let’s get into how to implement employee vacation. Specifically, we’ll discuss how Buddy Punch can automate all of this for you.

How to Automatically Calculate Vacation Accrual 

Buddy Punch Dashboard on Mobile, Laptop and Tablet

Keep Accurate Time Records

In order to have vacation accrual, you first must have accurate time tracking in place. That’s what Buddy Punch does. With Buddy Punch, employees punch in and out through a web browser or our mobile app (available both through the App Store and the Google Play Store). From there, it’s recorded in our software, where managers and human resources can view employees’ punch records 24/7 and make edits if necessary. And key — from there, Buddy Punch will automatically track vacation accrual for your full-time or part-time employees based on your company policy.

When there are issues with time records, it can usually be boiled down to (1) intentional time theft or (2) accidental time theft (like forgetting to clock out for a break). Both of these can adversely affect vacation accrual by leading to inflated or inaccurately tracked timesheets.

Buddy Punch has features that help with both.

First, we have features in place to ensure accurate reporting and prevent malicious and intentional time theft, such as:

  • IP address locking: To ensure employees are only punching in/out from a specific location, which is great for remote workers that need to be in a home office, and are not accessing files from insecure locations.
  • Geofencing: Use GPS coordinates to create a “fence” around the job site that only allows employees to punch in/out in a specific location. This reduces cheating so they can’t punch in when they’re not at the job site (or out at the parking lot). It can be used with IP address locking (for hybrid workers working from home and the office).
  • Facial Recognition: Activating this feature requires the individual punching in/out to take a picture using a webcam or from the app to ensure that it’s them, and not a friend or another coworker trying to cheat the system.

You can see a full list of our accountability features here.

These advanced time tracking features can help all types of businesses keep accurate records — whether you run a one-location retail store, a construction crew with multiple job sites, or even if you manage remote employees (like work-from-home employees and traveling employees).

Then, we also have features that let you customize how time tracking works at your business, and prevent accidental time reporting.

Our punch limiting setting ensures employees can only punch in/out at the start and end of their shift. So employees can’t punch in too far from when their shift ends or begins. This ensures accurate time keeping and reduces overtime.

Add a new punch limiting rule

We all know there are absent-minded employees that forget to punch out. That’s why we have automatic punch out, which will automatically punch an employee out after a certain amount of time (set by their manager) after their shift has ended.

Schedule settings

And, if you need to edit an employee’s timecard, you can do that in the app:

Lastly, our automatic breaks feature lets managers set up a predetermined time for breaks, and set the amount of time for breaks. This removes the possibility of employees forgetting to clock out/in for breaks.

Automatic Break Rule: Name, Triggers, Employees

Now that you have accurate time keeping, you’ll need to be able to set up rules based on how these employees accrue vacation time. With Buddy Punch, these rules are optional and customizable.

Customize Vacation Accrual Rules

When examining vacation accrual systems, you’ll want one that is customizable for your needs. Buddy Punch allows managers to customize vacation accrual with a range of options. They can choose the accrual rates on an employee-by-employee basis, choose the accrual frequency for each employee, and the type of time off each employee accrues.

Set Accrual Rules on Employee-by-Employee Basis

In some cases, companies want to set accrual rules on an employee-by-employee basis. Perhaps more tenured employees accrue PTO more rapidly than newer employees.

To do this in Buddy Punch, you’ll create a new accrual rule for vacation leave and you can set it for all employees, or select which employees will receive the new rule.

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

Customize Accrual Frequency

You can choose how often employees receive their vacation accrual. We have three options:

  • Number of Hours Worked: Employees receive their accrual 1 to 5 days (up to the manager) after the pay period closes.
  • Per Pay Period: Employees receive the accrual at the end of each pay period.
  • Yearly: Employees accrue a specified amount each year (such as on a work anniversary).

Customizing the Type of PTO

Buddy Punch leaves open the type of PTO an employee accrues. The options are:

  • Vacation leave
  • Personal Time
  • Sick Leave
  • Holiday

These four aren’t set in stone. Managers can delete any of these, and add new ones. When they add a new type, they can make it paid or unpaid. They can also set it so only a subset of employees have access to a certain time off type. This is useful if you want to add work-from-home days, or additional personal days are needed for certain employees.

You can also create rules around accrual, 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.
  • Carry Over/Reset: This lets you specify if PTO balances should be reset, carried over from the end of the year into next year, or the amount of hours allowed to be carried over past a specified date (such as January 1).

Now that you have the rules for employees accruing PTO, it’s time for them to request time off. And fortunately, they won’t have to go far.

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 balance 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 black out days, for those busy times of year where employees cannot request time off (such as the weekend before Christmas).

Managers have lots of tools for handling PTO requests. They can approve or deny requests in one page:

Managing time off 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. We recommend turning this setting on for employees, so they view potential scheduling conflicts before they submit their PTO request.

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

For more information on our PTO features, check out our product page.

Other Key Time Tracking Features of Buddy Punch

We’ve gone through some features that are pertinent for accurate time tracking and vacation accrual, here are a couple of other key features that will help you manage your team.

Create Your Team’s Schedule

Our scheduling feature makes it easy for managers to create their team’s schedule, and publish them so employees can view their schedule in Buddy Punch via a web browser or app.

When building out the schedule, managers can use our drag and drop functionality to build it quickly. They can also copy the shifts to other days of the week, and, when viewing the calendar, they can filter by employee or location. When they’re ready to publish the schedule, the manager can notify employees via email or push notification.

For more on our scheduling feature, check out our blog post on creating a work schedule.

Run Payroll

Buddy Punch integrates with a number of payroll providers, including QuickBooks, Paychex, Gusto, Workday, and many more. To use with your existing payroll provider, you can integrate Buddy Punch with your provider or export the data to a CSV. This lets you track accurate time records, your employee’s pay rates, and pay them through your payroll provider.

You can also use Buddy Punch payroll. With our built-in payroll system, you won’t need to leave the app to manage your payroll. You can review your employees work hours, sync their time with a few clicks, and submit payroll. Employees are paid via direct deposit or printable checks. When tax season comes, employees receive their W-2’s, and contractors their 1099s in the Buddy Punch app.

For more on integrating payroll and using Buddy Punch payroll, check out our blog post on payroll integrations.

Recap of Buddy Punch’s Time Tracking and Vacation Accrual Software

Buddy Punch is time tracking software that handles everything from your team’s schedule to payroll.

With Buddy Punch, you can:

  • Keep accurate time records. Reduce cheating with tools like geofencing, facial recognition, and IP address locking. Use punch limiting to make sure employees are working during their scheduled times, and automatic punch out for those employees that forget to punch out. Automatic breaks reduce errors as employees don’t have to remember to clock in and out.
  • Customize vacation accrual rules. Set accrual rules on an employee-by-employee basis, set the frequency for which employees accrue PTO, and customize the type of PTO they’ll accrue.
  • Manage time off requests. Employees view their PTO balance, and request time off. Managers can approve or deny these requests in a few clicks, receive email notifications letting them know a request has been made, and set blackout days for busy times when employees cannot take paid time off.
  • Create and publish schedules. Managers can create their teams schedule in minutes with tools like drag-and-drop and copying shifts to other days of the week. Employees can be notified of their shift via email and/or push notifications, and view their schedule through an email or with our app.
  • Run payroll. You can manage your payroll out of Buddy Punch, or integrate with one of the more common payroll providers such as Quickbooks, Gusto, or Paychex.

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

Similar Posts