Small businesses that offer paid time off (PTO) must manage vacation accruals accurately—keeping track of how much PTO each employee has earned and when it was used—to avoid labor law violations. A vacation accrual policy are the guidelines that an employer creates as to how employees earn PTO over a period of time. Calculating accrued vacation is essential for both employees and employers. It ensures that everyone is aware of their vacation time entitlements and helps prevent misunderstandings or disputes. An interesting fact about how to calculate accrued vacation is that different countries and companies have varying methods for calculating it.

These offers do not represent all offers that may be available to you. PTO Genius is a time off platform that helps Human Resources and Finance teams save time and money while encouraging more time off, reducing burnout, and ensuring compliance. Get our latest articles, research, and insights on time off and how to calculate accrued vacation human resources topics, delivered right to your email inbox. The PTO Genius platform helps your employees disconnect from work and reconnect with the people and things that they love. As a prior multiple-location business owner, Eric knows all about time collection, scheduling, and everything in-between.

The employee earns one hour of vacation time for every 30 hours worked. You terminate the employee after they work 1,500 hours during a calendar year. If you are cashing out the employee’s paid time off, multiply the remaining accrued time off by the employee’s hourly rate. Make sure to withhold taxes from accrued paid time off before paying your employee. Accrued vacation pay is the amount of vacation pay that a company’s employees have earned, but the company has not yet paid. Jennifer Soper has more than 20 years of writing and content experience, working with small businesses and Fortune 100 companies.

1. 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).
2. Using a spreadsheet to track vacation pay may seem simple and affordable, but you risk human error and high administrative costs.
3. Examples of great online tools to help you manage vacation accruals are Gusto, actiPLANS, Excel Forum and Sling.
4. That’s because in some states, sick leave must be paid out upon termination, while PTO doesn’t have to be.

There may be situations where a sabbatical leave is granted so that an employee can perform public service or research that benefits the employer in some manner. In this situation, the compensation paid to the employee is not related to prior services rendered, and so should not be accrued in advance. In the more likely event that a sabbatical is based on prior services rendered, the employer should accrue the cost of the sabbatical during the required service period. Get up and running with free payroll setup, and enjoy free expert support. See how PTO Genius saves you time and money while preventing burnout and compliance issues.

Other Considerations When Calculating PTO & Vacation Accruals

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. 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. Like any data tool, a PTO vacation accrual calculator is only as good as the data you key into it.

How to Calculate PTO for Hourly Employees

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. 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 does PTO work for hourly employees?

Below is an example of the number of PTO days you might give your employees based on a tiered PTO program and their tenure with your company. Credit Vacation Payable because vacation accrual is considered a liability. When adding in vacation accrual, you will debit your Vacation Expense account and credit your Vacation Payable account. The accounts you debit and credit depend on if the vacation is accrued or used by the employee. Check your business’s liabilities for vacation accrual with the Financial Accounting Standards Board (FASB). Depending on the FASB’s criteria, vacation accrual might not be necessary.

How to Use Online Accrual Calculators

In a traditional PTO system, you do owe workers for any unused PTO time that they’ve banked during their tenure. When an employee leaves, they’re usually entitled to a payout of the days of PTO they accumulated. 76% of American workers feel that it’s very important their company provides PTO. States with mandatory paid sick leave often prohibit waiting periods for paid sick leave accrued under the law.