Accruals (Leave)

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What is paid time off accrual?


Paid time off accrual is the method that a company uses to distribute paid time off. Paid time off (PTO) is a benefit that is offered by many organizations. It is a benefit that provides employees with a specific number of days they can use for whatever purpose. 

Paid time off can be used for personal matters, doctor’s appointments, vacations, or days when you fall sick. The number of PTO that employees have depends on the company and its PTO policy. A tip to job seekers: know the details of your company’s PTO policy to avoid any confusion once you are onboard. 


What to do with paid time off (PTO)? 


It is up to employees if they will use PTO or not. Some employees maximize PTO and use them until the last day. For others, taking time off may not be a priority. What do you do with unused time? It depends on the employer. Companies often offer employees the option to cash out on the unused time. In short, the PTO that you do not use is converted to cash at the end of the year. A certain amount of unused PTO may also be carried over to the following year, adding extra PTO on top of next year’s PTO. Companies can do a blend of both options. When employees resign from a company, employers may cash out their unused accruals. The amount will be given together with the final pay. Any PTO that was not earned or accrued does not to be cashed out. 


Is there a difference between annual leave and accrued leave?


Yes, there is a difference between the two. Annual leave is given to an employee at the beginning of the year. The number of days of an employee’s annual leave is stipulated in the employment contract. Employees can use the annual leave right away, provided that they have it scheduled and approved. On the other hand, accrued leave is earned and accrued by an employee as the year unfolds or progresses. 

Let’s provide an example: Lily has been with her company for 2 years. She is entitled to an annual leave of 4 weeks which is effective at the start of the year. Lily can decide to use all 4 weeks anytime or bit by bit throughout the year. Meanwhile, her sister Jane works for another company that offers accrued leave. Based on their policy, Jane earns 1 week of leave every 3 months that she works for the company. Overall, Jane also has 4 weeks of vacation leave. However, Jane has to wait by the end of the year to have gained all 4 weeks. 


How is annual leave accrual computed?


Calculating annual leave accrual involves different rates. The specific rate that you will use depends on the organization. No matter which accrual rate you will use, the first step in calculating the annual leave accrual is by first finding out how many hours of PTO or accrued leave each employee is offered annually. 

After that, you can decide the type of accrual rate: yearly, monthly, bi-monthly, daily, or by hours worked. 

Let’s look at each one.


Will employees accrue PTO while they are on leave?


The answer to this question depends on the employer. Employers will decide if they will let employees accrue PTO while on PTO or if it will pause while the employee is on PTO. Again, it is best to check your company policy to verify this. 

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