PTO accrual
PTO accrual is how an employee earns paid time off over the year, turning time worked or time employed into a balance of usable hours.
- LAW
- Employer policy and state law
- BOUNDARY
- The policy year, where carryover caps apply
- FORMULA
- Annual allowance ÷ pay periods per year
- WATCH FOR
- Forfeiting accrued time where state law prohibits it
The Fair Labor Standards ActFLSA. The Fair Labor Standards Act (FLSA) is the federal law setting minimum-wage, overtime, recordkeeping, and youth employment standards for covered employment.Click to open the term does not require paid time offPaid time off (PTO). Paid time off (PTO) is a single bank of paid hours an employee draws from for vacation, illness, or personal reasons.Click to open the term. Outside some federal contracts, your accrual policy and state law set the rules. The policy names the accrual rate, the accrual period, eligibility, and the service date it counts from. It also sets any maximum balance and how much unused time carries into the next year. State paid sick leaveSick leave. Sick leave is paid or unpaid time away from work for an employee’s own illness, injury, medical appointment, or care of a family member.Click to open the term laws set their own accrual and carryover minimums. A PTO policy has to meet them when it stands in for sick leave.
What are the common PTO accrual methods?
Three designs are compared below, and tenure tiers can sit on any of them. State paid sick leave laws favor hourly accrual, because it scales cleanly for part-time and variable-hour employees. New Jersey sets 1 hour per 30 hours worked, and Washington at least 1 hour per 40. Front-loading is simpler to explain, but it hands an employee time not yet earned.
| METHOD | HOW THE BALANCE GROWS |
|---|---|
| Per pay period | A fixed slice each payday: 15 days a year, paid biweekly, is about 4.62 hours |
| Hourly | A ratio of hours actually worked, commonly 1 hour per 30 or 40 |
| Front-loaded | The full annual balance at the start of the plan year or on the employment anniversary |
| Tenure tiers | A higher rate at three, five, or ten years of service |
How do an accrual cap and carryover limit a balance?
An accrual cap, also called an accrual limit, is the most PTO an employee can hold: accrual stops at the cap and resumes after time off. PTO carryover is unused paid time off that moves into the next policy year instead of being forfeited or paid out. An employee holding 60 hours under a 40-hour cap starts the new year at 40. State sick leave laws can require carryover, which limits use-it-or-lose-it rules for that leave. With employees in more than one state, you generally state the rule per state.
| CONTROL | WHAT IT DOES |
|---|---|
| Accrual cap | Stops accrual at the ceiling; accrual resumes after time off |
| Carryover cap | Limits unused hours crossing into the next policy year |
| Use-it-or-lose-it | A carryover cap of zero; the rest is forfeited |
| State sick leave carryover | Washington must carry over balances of 40 hours or less; New Jersey carries up to 40, unless paid out |
Work it out: one policy year
Choose how time accrues, then enter the allowance, pay frequency, balances, and caps. The card runs the year pay period by pay period, holds accrual at the cap, and splits the year-end balance into what carries over and what is forfeited.
One policy year: 80 hours a year, paid biweekly, with a 40-hour carryover cap
One employee’s PTO for one policy year under your own policy: accrual per pay period, per hour worked, or granted up front, time used spread evenly across the year, an accrual cap that pauses accrual, and a carryover cap at year end. The FLSA does not require paid time off. It leaves out tenure tiers, which as-of date a balance is shown on, state paid sick leave minimums, and state rules that bar forfeiting earned time. Other cases and state law can change the result.
Why does a PTO balance need an as-of date?
One employee can show three balances on the same day. They are as of the last completed payroll, as of today with accrual since, and net of approved requests not yet taken. State which one self-service shows, because employees read a discrepancy as an error. Time accrues on a schedule, an approved absence draws it down, and payroll pays the hours in their period. A policy change needs an effective date, a rule for pending requests, and a route to report a wrong number.
Is a use-it-or-lose-it PTO policy legal?
A use-it-or-lose-it policy, also called a forfeiture policy, cancels unused PTO when the policy year ends. Under the FLSA, PTO is a matter of agreement, but state law can bar forfeiture. Colorado treats PTO usable for any purpose as vacation pay, and its Supreme Court held in 2021 that earned vacation cannot be forfeited. A year-end forfeiture or carryover cap there is void unless you bring balances down by year-end, by requiring time off or paying the excess. Colorado allows an accrual cap of a year’s worth or more.
Frequently asked
- U.S. Department of Labor, Vacation Leave
- New Jersey Department of Labor and Workforce Development, Earned Sick Leave
- Washington State Department of Labor & Industries, Paid Sick Leave
- Colorado Division of Labor Standards and Statistics, INFO #3E: Payment of Earned Vacation upon Separation of Employment
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.