Paid time off sounds simple until somebody asks how many days they've got left, and you realize you've been keeping track on a sticky note. A clear accrual method solves most of it. Here's how to pick one and do the math.
Federal law doesn't require paid vacation or sick leave for most private employers. Many states and cities do require paid sick leave, though, and we'll get to that below.
The four common methods
Lump sum at the start of the year
Everyone gets their full amount on January 1 or on their anniversary date.
Good: Very simple. No math through the year.
Bad: Someone can take all of it in January and quit in February. If you've got high turnover, it can get expensive.
Monthly accrual
People earn one twelfth of the yearly amount each month. Fifteen days a year works out to 1.25 days a month, or 10 hours.
Good: Easy to explain, and easy to prorate for new hires.
Bad: A person who starts in November has very little by the holidays.
Per pay period
The same idea, but it's tied to each paycheck. For 120 hours a year on a biweekly payroll, that's 4.62 hours a pay period.
Good: It shows up right on the pay stub.
Bad: Decimal places can look strange, and it needs a system to track it.
Per hour worked
For every hour someone works, they earn a small piece of an hour off. This is the fairest for part-timers.
Good: Part-timers earn in proportion, automatically. Many sick leave laws are written this way.
Bad: Hardest to do by hand.
The math
Hours earned per year = PTO days × hours in a PTO day
Rate per hour worked = hours earned per year ÷ hours worked per year
A full-time employee who works 2,080 hours a year and gets 15 eight-hour days earns 120 hours. That's 120 ÷ 2,080 = 0.0577 hours per hour worked, or about 1 hour of PTO for every 17.3 hours worked.
Someone part-time at 1,040 hours a year, at the same rate, earns 60 hours. You don't need a separate policy. It comes out right on its own.
Here's what 15 days a year looks like for a full-time employee:
| Pay schedule | Periods per year | Hours per period |
|---|---|---|
| Weekly | 52 | 2.31 |
| Every two weeks | 26 | 4.62 |
| Twice a month | 24 | 5.00 |
| Monthly | 12 | 10.00 |
Run your own numbers in our PTO accrual calculator.
Decisions to make before you announce it
Who's eligible? Everyone, or only full-timers? After what waiting period?
What's it called? Separate vacation and sick buckets, or one PTO bank? One bank is simpler. Be careful, though: in some states, combining them means the whole bank has to follow the sick leave law or pay-out rules.
Is there a cap? "Use it or lose it" isn't allowed everywhere. California, for example, generally treats earned vacation as wages that can't be taken away, though a reasonable accrual cap is allowed. A cap on how much people can bank is often a safer choice.
What about carryover? How much rolls over at year end, if any?
Can they go negative? Someone's sister is getting married, and they've only earned half the days. Decide in advance how much of a negative balance you'll allow.
What happens when they leave? In some states, unused vacation must be paid out when someone leaves. In others, it depends on your written policy. Find out before you write it.
How much notice? Ask for a certain amount for planned time off, and be clear about how you decide between people asking for the same week. First come, first served is simple and hard to argue with.
Paid sick leave is a separate question
A number of states and cities require paid sick leave, and they usually set a minimum accrual rate, such as 1 hour for every 30 hours worked. Check against your PTO rate. Our example of 1 hour per 17.3 hours passes that test easily, but a lower rate might not.
These laws also tend to have rules on notice, on what counts as a valid reason, and on whether you can ask for a doctor's note. Those rules apply even if you've combined it into general PTO. Your state labor department is the place to look.
Mistakes we see most often
Tracking in days when people work different lengths of shifts. Eight-hour days and five-hour days don't mix. Track in hours.
No written policy. When your policy lives in your head, every decision looks like favoritism.
Adjusting balances without a note. Six months later, nobody knows why someone's number changed. Keep a record of each change.
Forgetting PTO in overtime math. Paid time off generally doesn't count as hours worked for federal overtime. Forty hours of pay with 8 of PTO and 32 worked isn't overtime, unless your own policy says otherwise.
Not telling people their balance. If they can see it themselves, you get fewer questions and fewer arguments.
Doing this in PinkLinq
Create a policy, mark it paid or unpaid and choose unlimited, yearly or monthly accrual. Set how many hours carry over, and how far a balance may go below zero. Each balance works like a bank statement, with a line for every accrual, adjustment and day taken. Employees see it in the app, along with what's pending. Approved paid time off goes into their hours for payroll.
We don't currently have accrual per hour worked. If your local sick leave law needs it, you can set a monthly amount that meets or beats the rule, or check with us about what's coming.
This is general information, not legal advice. Leave laws vary by state and city.