Template: How To Build an Accrual PTO Policy

One primary consideration all organizations must think about is how they wish to structure their PTO policy. While there are several different methods for achieving this, accrual policies are an option that could offer much-needed benefits for employers. Read on for why an accrual PTO policy might be a good option for your organization and what steps you can take to create your own.

Refresher: What Are the Different Types of PTO?

Unlimited PTO plans are structured so that employees can decide when to take paid time off. These plans grant no set number of days, and the employer provides little-to-no parameters. As long as employees receive manager approval and can accomplish their tasks without causing negative repercussions for the team, they can decide how to use PTO.

Annual allotment, or lump sum, refers to a strategy whereby employees are given a set number of PTO days per year. As the name suggests, the days are given all at once in one lump sum, and they may expire at the end of the year or roll over to the following year. The expiration or rollover date will typically be the first of the year or the employee's hire date. 

Some employers may utilize a lump sum approach to supplement a compensation package. Once employees reach a milestone, companies will often boost the total number of PTO days available to the employee. 

The accrual method works a bit differently than the annual allotment. Rather than receiving a lump sum of days that can be either rolled over or used within the year, employees will accrue PTO days typically on a quarterly or monthly basis. There is no rollover policy as the days are based on accrual instead of an annual system. It is normal for organizations to limit the total number of days an employee can have available to them at any given time to avoid excess use of PTO days. 

Why Should Organizations Consider an Accrual PTO Policy?

With an accrual PTO policy, you can ensure that your employees are using PTO regularly and not hoarding their days. Evidence has shown that employees are more rejuvenated and productive when they take vacation days. According to an article published by Psychology Today, "Brain imaging studies show that doing nothing, being idle, daydreaming, and relaxing create alpha waves in the brain that are key to creative insights and innovative breakthroughs." 

It’s important to note that accrued PTO days do not roll over from year to year and typically have a ceiling built in. An accrued PTO policy also helps to prevent employees from taking vacation at the start of their tenure with the company. In addition, there is usually a “positive limit” of accrual dates, after which no more days can be accrued until some are taken. This encourages employees to go ahead and utilize days and can help prevent them from using all of their yearly PTO before leaving an organization.

How To Create a PTO Policy

When creating an accrual PTO policy, make sure to clarify any paid holidays in which PTO cannot be accrued. 

In addition, be sure to include the rate at which PTO will accrue in your organization. You may choose to increase an employee's accrual rate based on their years with the company. 

Follow this up with a section devoted to any further information employees may need to know, such as:

• Any waiting period for accruing PTO days

• How much PTO they can use consecutively at any given time

• Any caps or limits to how much PTO can be earned and used annually

• If the organization will be paying out PTO upon departure from the organization

• Whether weekend holidays will be observed on a different day and what that day might be

• If PTO accrues monthly, weekly, bi-weekly, etc.

Template: PTO Policy

Team, 

I am contacting you today to update you on [Company]’s current PTO policy. 

The following organization-wide holidays will be paid at the Team Member's regular hourly rate for all non-exempt Team Members: [all paid holidays]. [Company] will be closed for business on these days.

PTO days beyond organization-wide holidays will vary based on years with [Company]:

0-1 year: [days]

1-5 years: [days]

6+ years: [days]

A few other notes:

1. New Team Members cannot take any PTO in their first [number of months] at [company].
2. All PTO requests are subject to the [title]’s approval and company needs.
3. PTO accrues [time period]. A Team Member's outstanding PTO balance cannot be greater than [number] more than what they can accrue in a given year, and it cannot dip below [number].
4. PTO must be used before a Team Member leaves [company]. No payouts will be made on outstanding PTO balances.
5. If an organization-wide holiday falls on a weekend, that day will be recognized on the preceding Friday or following Monday.

[Company] expects some employees may have questions about the PTO policy. HR produced a set of anticipated FAQs—available here [link]—that should address your concerns. 

If you have any additional questions about the PTO policy, please contact [contact information]. 

As always, thank you for your commitment to our team, 

[Name]

Additional Resources

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