What Are Accrued Hours and How Are They Calculated?
Learn about accrued hours: what they are, how they're calculated and earned, and how to effectively manage this employee benefit.
Accrued hours represent the paid time off that an employee earns or accumulates over their period of employment. This benefit grows gradually, providing employees with a bank of hours they can use for various approved absences. The accumulation of these hours is a standard component of employment benefits, allowing individuals to take compensated time away from work. It serves as a valuable aspect of an employee’s compensation package.
Types of Accrued Hours
Employers typically offer various categories of accrued hours, each designed for specific purposes. Vacation time provides employees with paid time off for leisure, travel, or personal relaxation. This type of leave supports work-life balance. Sick leave, conversely, is designated for absences due to personal illness, medical appointments, or to care for sick family members. Its purpose is to ensure employees can address health-related needs without losing income.
A common approach adopted by many employers is Paid Time Off (PTO), which combines vacation, sick leave, and sometimes personal days into a single bank of hours. This unified system offers employees greater flexibility, allowing them to use their accrued time for any reason they choose, without needing to specify if it’s for illness or leisure. While these categories are common, the specific policies and their applications can differ significantly among employers based on their internal guidelines and industry practices.
How Accrual Works
Accrued hours are earned through several common methods. One prevalent method is accrual per pay period, where a set number of hours is added to an employee’s balance each time payroll is processed. For instance, an employee might earn 4 hours of PTO with each bi-weekly paycheck.
Another method bases accrual on the number of hours an employee actually works. Under this system, an employee might earn 1 hour of PTO for every 40 hours worked, directly linking earned time off to their active work hours. This approach is particularly common for hourly employees. Some employers, alternatively, grant an annual lump sum of hours at the beginning of a year or on an employee’s anniversary date, making the full annual allowance immediately available.
Employers often implement accrual caps, which are maximum limits on the total number of hours an employee can accumulate or carry over from one period to the next. Once this cap is reached, employees typically stop accruing additional hours until they use some of their banked time. Many employers include waiting periods before new employees can begin accruing or using their earned hours. These waiting periods can range from 30 days to six months.
Managing Accrued Hours
Managing accrued hours involves understanding the processes for using time off and the policies governing its resolution upon employment separation. Employees generally request time off by submitting a formal request, which often requires manager approval and adherence to specified notice periods. Tracking accrued balances is typically straightforward, with employees able to view their available hours through company payroll portals or on their pay stubs.
Payout policies for accrued hours vary significantly, especially when an employee leaves a company. Many jurisdictions consider accrued vacation or general PTO as earned wages, meaning employers are often required to pay out the unused balance upon an employee’s termination. However, this requirement is not universal, and some areas allow company policy to dictate whether such payouts occur.
In contrast, accrued sick leave is generally not paid out upon an employee’s separation from employment. The common practice is that sick leave balances are forfeited. Employees should review their employer’s specific policies and any applicable local labor laws regarding payout terms.