How to Calculate Vacation Accruals (+ Free PTO Calculator)

Small businesses that offer paid time off (PTO) must manage vacation accruals accurately—keeping track of how many PTO days each employee has earned and when it was used—to avoid labor law violations. Our PTO accrual calculator lets you determine the appropriate accrual rate to use per pay period based on your business workdays, hours in a workweek, and annual vacation days.

There are three methods to calculate PTO:

Calculator: the simplest way to calculate vacation accrual, but could lead to accuracy issues as the formula rounds to the nearest decimal.
Equations: the most accurate way to calculate PTO, but also the most difficult and could lead to calculation errors.
Software: the best way to have PTO accrual calculated for you; however, it comes at a cost.

Follow our step-by-step instructions on how to calculate vacation accruals below. For visual learners, watch our video how-to instead:

Step 1: Decide How Much PTO to Provide Employees Annually

According to an article by SHRM, the average number of PTO days granted ranges from 13 to 26 and depends on tenure. This may or may not include sick leave, depending on the laws in your state. While this is a good starting point, I suggest you also include the following factors in your consideration:

Your competitor’s offerings
Your geographic location
Your company’s size and financial resources

These factors can greatly impact your business in terms of attracting and retaining top talent. I’ve seen companies lose strong candidates simply because their PTO package wasn’t competitive. To find your sweet spot, you need a package that’s attractive enough to win talent (competitive analysis) appropriate for your market (location), and sustainable for your business (size/location).

Below is an example of a competitive PTO package for a small business that has under 50 employees:

This structure keeps costs manageable while offering enough benefits to attract talent. Meanwhile, monthly accrual spreads financial impact across the year rather than lump-sum liability.

Step 2: Determine Your Standard Hours Worked per Week for Full-time Employees

While a 40-hour workweek is pretty standard, not every company has employees who work 40 hours per week. Some companies consider employees who work as few as 25 hours per week to be full-time and grant them PTO and vacation. If you use our calculator above, you can input your business’s actual workweek hours to get a more accurate accrual rate before you process your payroll.

Some companies are adopting the new four-day workweek, wherein employees are only required to complete four eight-hour days. This is the equivalent of 32 hours worked per week. If you are going with this type of work schedule, you can adjust the number of PTO days available per year. For example, a two-week vacation allotment would equate to eight days of PTO under this work schedule.

It’s important to be clear with the number of days you are allowing for PTO—if you offer 10 PTO days and your employees only work four days per week, then they would get two weeks and two days of PTO. I recommend having a flexible work schedule policy if your employees work less than 40 hours per week.

Step 3: Calculate Total Annual Work Hours

You then have to determine how many weeks per year your business operates so that you can calculate how many work hours per year employees are eligible to accrue PTO annually. This “hours per year” number is used as the denominator when calculating your PTO accrual rate.

Most businesses use 2,080 hours as the standard—that’s just 52 weeks × 40 hours. Let’s use an example to give you a clearer perspective of how the calculation works.

ABC Company has a standard 40-hour workweek and is open 52 weeks a year.

Here’s the math: 40 hours × 52 weeks = 2,080 hours per year

If ABC company grants employees two weeks of vacation and PTO each year, that would equal 80 hours per year. That will be the numerator.

In that case: 80 hours PTO ÷ 2,080 hours per year = 0.038 hourly PTO accrual rate

This means that if an employee works on average 40 hours a week, or eight hours a day, the accrual rate would be:

Each hour worked = 0.038 hours of PTO
Each 8-hour day = 0.307 hours of PTO
Each 40-hour week = 1.538 hours of PTO

Your specific numbers might be different based on your PTO policy and how you handle rounding (I used three decimal places here).

Subtract Paid Holidays

If your business provides paid holiday time off, you may want to subtract those days from the total so as not to allow employees to accrue paid time off on days they already are getting paid for as holidays.

For example, if you give employees 15 paid holidays a year and consider each day to be worth eight hours, you’ll want to subtract those hours from the total work hours available each year.

Here’s the math: 2,080 work hours per year − (15 days × 8 hours a day = 120 hours)

= 1,960 available work hours per year

In this case, your numerator (PTO hours given) would be 80, while your denominator would be 1,960, resulting in a more accurate PTO accrual rate of 0.04 hours of PTO per hour worked.

Step 4: Identify Your Business’ Start Date for Accruals

Our calculator assumes a 365-day year beginning in January. However, not all businesses start the year at the same point in time. While most small businesses use a calendar year, some use a fiscal year, whereas others use the employee’s hire date. While you don’t need this information for our basic calculator above, you do need it if you want to determine how much PTO or vacation time an employee has earned or taken during a year.

Annual Accrual vs Lump Sum

Most small businesses calculate PTO on a calendar year basis. In fact, if you grant PTO as a lump sum at the start of the year, you wouldn’t need to manage accruals at all.

Annual accrual: Employees begin accruing their paid time off on the same date each year. As their time accrues, they can use their PTO and subtract it from their accrued balance. With this model, if they have not accrued the time, they cannot take the days off.
Lump sum: Employees would receive their lump sum balance to use throughout the year. You would then merely subtract hours for each day they take off until their PTO or vacation time is used up.

The three most common time frame options for granting and tracking PTO are:

A calendar year starts on January 1 and ends on December 31. However, not all businesses use the same calculations for a given year. For example, some businesses are open 52 weeks a year, while others may close during the holiday season and work only 50 weeks a year.

Therefore, in addition to determining what constitutes a vacation accrual year for your business, you’ll need to figure out how many weeks, days, or work hours are available to work in that time frame, using the examples provided in the third step above.

Some businesses set up their accounting year based on a fiscal start and end date used for accounting and tax purposes. For example, they may start their fiscal year on the first of September and end it on August 31.

Other businesses grant employees a fixed amount of paid time off that starts on their hire date, or it may not start until they’ve been with the company for a specified amount of time, such as 30 or 90 days. In any case, each employee’s accruals would start on the date they were hired, and you’d need to manage how much each has earned and used based on their work anniversary date each year.

Step 5: Use the Correct Accrual Rate per Cycle

To ensure you calculate employee PTO balances correctly, you have to apply the right accrual rate to the actual payroll processing cycle you use to pay employees. In fact, in some states, the accrual rate information regarding how much PTO and sick leave employees have earned must be printed on each pay stub.

For help with pay stubs, read our free pay stub generator article. It includes regulations and our state payroll guide for legal compliance.

Click through the tabs below to learn more about weekly biweekly, semimonthly, and monthly pay cycles.

In the examples above, we used a weekly pay cycle and a standard five-day, 40-hour workweek. That accrual rate would be 1.54 hours of PTO earned (accrued) for each week worked.

80 hours PTO ÷ 2,080 hours per year = 0.038 hourly PTO accrual rate × 40 hour week

= 1.54 hours of PTO earned for each hour worked

This is the best rate to use when calculating PTO accruals for employees whose work hours vary. For instance, they may work 25 hours this week, 40 hours the next, and 32 hours the following week. It doesn’t matter what their actual work hours are each week, as the accrual rate will accurately determine how much PTO they’ve earned that pay period.

Calculating accruals for a biweekly pay cycle is just as easy as it is for a weekly pay cycle—it’s just the pay period lasts two weeks instead of one. The hourly accrual rate is the best to use for accuracy, but some businesses prefer to use a simpler calculation based on the fact that biweekly pay results in 26 payroll cycles per year. Using a biweekly accrual rate makes the most sense when your employees are salaried and get paid the same each pay period.

80 hours of PTO per year ÷ 26 pay periods

= 3.08 hours of PTO earned every two weeks (biweekly period)

Semimonthly pay is provided two times a month, meaning that you’ll have 24 pay periods a year. That makes your PTO accrual just as easy—but it may not be accurate if, for example, an employee takes off unpaid leave, reduces to a part-time schedule, or is out for an extended period (such as for parental leave).

80 hours of PTO per year ÷ 24 pay periods

= 3.33 hours of PTO earned twice per month (semimonthly pay period)

A monthly payroll cycle isn’t allowed in all states and is commonly reserved for upper-level management. However, if you manage your accruals monthly, the calculation is pretty basic.

80 hours of PTO per year ÷ 12 pay periods

= 6.67 hours of PTO earned every month (monthly period)

Best Practices for Managing PTO Accruals

To ensure that managing PTO accruals goes smoothly, correctly, and compliantly, follow these simple best practices.

Implement real-time tracking: Integrate your time-tracking system with payroll processing. This means employees can see their PTO accrue each pay period and balances update when time off is taken. Use software that allows employees to check their balance anytime—this prevents constant HR inquiries and helps staff plan ahead. If you’re using a manual system, update balances at least bi-weekly and send regular balance updates to employees.
Establish maximum accrual limit: Set a cap to manage liability and encourage regular time off. For example, if employees get 15 days annually, cap accrual at 22 to 30 days total. When employees approach the cap (say, within 80%), automatically notify them. Consider implementing a “use it or lose it” policy where excess time expires, but check state laws first—some prohibit this practice.
Create documentation systems: Design a system that captures the complete PTO lifecycle. Record accrual rates and formulas, approval chains, and usage patterns. Essential records include time-stamped requests, manager approvals, current balances, usage history, and carryover tracking. Keep these records for at least three years, and make sure they’re easily accessible for audits or disputes.
Develop request process framework: Build a standardized request workflow, like having requests submitted at least two weeks in advance for planned time off, 48-hour notice for single days when possible, and clear emergency protocols. Establish blackout periods for crucial business times. For competing requests, I suggest using a combination of seniority and first-come-first-served, with a rotating holiday schedule to ensure fairness.
Manage negative balances: Structure a policy that allows negative balances up to 40 hours, requiring manager approval and a signed agreement to repay if employment ends. Track these closely and suspend additional advances if the negative balance isn’t being reduced. Consider allowing negative balances only after 90 days of employment.
Conduct regular audits: Schedule quarterly audits of PTO records. Check for the accuracy of accrual calculations, proper deduction of time taken, correct carryover application, and compliance with caps. Compare PTO records against timesheets and payroll records. Document any corrections and maintain an audit trail.
Ensure legal compliance: Review your state’s specific requirements for PTO. Key areas include the mandatory payout of accrued time at termination, minimum increment requirements for PTO use, sick leave laws that affect PTO policies, and notice requirements for policy changes. Consider having your policy reviewed annually by legal counsel to ensure ongoing compliance.

Other Considerations When Calculating PTO & Vacation Accruals

Often, salaried employees are granted a fixed rate of paid time off based on their average workweek—it can be a number of hours or days a year, such as 40 hours a year or five days off for vacation.

State Laws

Calculating PTO accruals and employee balances requires you to make sure that you consult federal and state labor laws. It also requires a few decisions, such as whether to include sick leave as part of PTO or not.

It’s best practice to track your sick leave accruals and balances separately from PTO available for vacation and other personal reasons. That’s because, in some states, sick leave must be paid out upon termination of an employee, while PTO doesn’t have to be.

Carry Over

While last year’s PTO balance doesn’t affect this year’s accrual rate, it does affect the starting balance at the beginning of the year (calendar, fiscal, or anniversary), and the total balance of PTO your employee has available. More than three-fourths of companies offering PTO allow employees to roll over some amount.

Did You Know? In states like California, if you offer PTO, you must allow employees to roll it over, or pay it out upon termination. There’s no “use it or lose it” option allowed. For more information on paying employees in California, check out our guide.

Part-time Employees vs Full-time Employees

Since hourly employees don’t work fixed or standard hours, you may want to determine their accrual rate per hour worked, rather than providing them a fixed number of hours per year, as an example. Or, you may want to set your accrual rate to match what full-time employees receive, which will end up being less, as they work fewer hours.

Negative Balances

Another consideration when managing PTO accruals is determining whether you’ll allow your employees to have a negative PTO balance. That can happen, for example, if you offer two weeks of PTO a year and an employee wants to use it all in February. You’d need to track the PTO used before it’s been earned, resulting in a negative PTO balance for that worker.

These considerations are important to document in your PTO policy, as well as in your employee handbook, to avoid confusion and potential litigation from workers who may feel their PTO isn’t being managed fairly.

If you don’t want to calculate accrued PTO and you want less management of used and remaining paid time off, consider an unlimited PTO policy. This type of policy puts no limit on the amount of PTO your employees can take in any given year.

How a PTO Vacation Accrual Calculator Works

Like any data tool, a PTO vacation accrual calculator is only as good as the data you key into it. That’s why we encourage you to consider all the variables described in the steps above, in addition to how much time you offer as PTO to your employees. Also, consider whether full-time and part-time employees are eligible—and when. Once you determine your PTO accrual rate, you will need to plug that rate into your payroll software or provide it to your payroll service provider.

In fact, the PTO accrual rate serves only one small part in determining how much employees will be able to use. Also included in an employee’s PTO balance is the amount they’ve used, the amount they have (or can roll over), and any amounts you might grant to new hires as a condition of their employment agreement. Here are some examples:

Negotiated PTO: Perhaps your new hire negotiated an extra week of vacation to accept the job offer. You may need to accrue three weeks of PTO for that employee as opposed to the two weeks everyone else gets.
Returning employee: Let’s say a great employee moved out of state and then moved back seven months later. You may want to reinstate their unused PTO.
Employee on leave: When an employee takes parental leave for four months, some companies will allow that employee to retain their employment benefits during the time away from work. This may include PTO accruals as well as health insurance.

Alternatives to Using a Vacation Accrual Calculator

Instead of manually calculating PTO balances, you may want to consider software that does it for you. Whether you choose time and attendance software that provides an accruals feature or a full-service HR/Payroll software, there are many affordable options.

Here are a few software we recommend that can help you manage your PTO accruals.

PTO Accrual Frequently Asked Questions (FAQs)

It depends on how many hours an employee works in a week, how much PTO is offered to them, and if you offer paid holidays. Based on a full-time 40-hour work week, an employee who receives 10 PTO days per year will accrue 1.54 hours of PTO per week of employment. To reach a full day of PTO will require five weeks. Based on this calculation, it will take about five to six months to accrue a full week (five days) of available PTO.

Accrued PTO is a formula that determines how much PTO is earned over a given period of time. Granted PTO is a set amount of PTO time that is given all at once (e.g., 10 days of PTO granted on January 1 each year).

A paid time off calculator is simply to help you determine the accrual rate and amount of PTO for your employees. The calculator assists in making sure the amounts are correct, as human error could cause your employees to lose some of the PTO time owed.

Technically, yes—if your PTO policy allows it. However, if you allow this, set clear limits and require written agreements about repayment upon termination. Consider limiting borrowed PTO to what would be earned in the next 30 to 60 days. Remember that some states restrict deducting negative PTO from final paychecks, so check your local laws before implementing this policy.