Definition of Leave Accrual

Accrued leave reflects how many hours of paid leave an employee earns according to the benefits and policies you, as their employer, define in your personnel policies.

What is leave accrual?

The ability to earn paid time off is one of the best benefits employers can use to entice new recruits and retain existing employees. Whether your company uses an all-inclusive paid time off (PTO) bank or has separate vacation and sick leave accrual policies, this is one benefit that motivates your employees to either stay with you or move to a different company.

Many companies determine how much leave an employee can earn per pay period or month based on their overall leave policy. These leave accrual policies might be based on:

• Tenure
• Position within the company
• Industry standards

This means there isn’t one given approach to how a company structures its leave policies.

How is leave accrual calculated?

There are both paid and unpaid leave amounts that can be accrued:

Paid: When an employee is eligible for a total PTO bank of 16 days, is paid twice per month, and works 8 hours daily, their PTO accrual would be about 5.33 hours each pay period. This is a straightforward calculation of 16 days of leave times 8 working hours per day (16*8) = 128 eligible work hours per year divided by 24 pay periods per year. As that time adds up and isn’t used, the employee’s leave bank accumulates to a usable level.

Unpaid: Some companies offer unpaid sabbaticals or additional unpaid leave outside the amounts required by various federal laws, such as the Family Medical and Leave Act (FMLA). The accrual practice would be similar to how paid leave builds. Once an employee has met the minimum amount of time to meet accrual eligibility, leave would accumulate each pay period. If the company offers senior members a 30-day unpaid sabbatical every-other year, the accrual calculation would be a bit more complicated. It would look something like this for someone who is paid twice per month: (173.33 (a month’s-worth of hours at 8 hours each day) / 4,160 (two year’s-worth of working hours)) x 86.67 (one semi-monthly pay period).

Why is leave accrual important to your business?

A company that can clearly communicate its policies and how those policies benefit its employees is a company that will recruit and retain key talent.

We all know that when we hire employees, we hire them to perform a specific job or function. Even so, it is critical to acknowledge that to avoid staff burnout and keep people from coming into the office when they are ill (and contagious), paid time off is essential to running a healthy business.

This also means that employees need to be able to take advantage of that leave they’re accruing. Managers need to allow employees time off without repercussion or guilt.

What is the history of paid leave?

The push for formalized paid leave started in the United States in the early 1900s with legislation proposed by President Taft. He suggested employees receive 2-3 months of paid time off to ensure they were fresh and able to safely complete their duties.

Although that legislation was defeated, many companies started offering office workers minimal amounts of paid vacation time in the 1910s and 20s. In the 1930s, unions fought to get paid time off for laborers.

There have since been additional attempts to legislate paid time off at the federal level. Still, unlike the EU (European Union), there isn’t a federal law mandating that employers give employees a specific amount of paid time off.

There are some companies that front-load an employee’s paid time off. This means that when employees start employment with the company, they receive their entire year’s allotment of paid time off instead of earning it as their career continues over time. This approach has pros and cons, and policies can be developed to keep employees from taking all their paid time off and then leaving the company.

Other similar terms to leave accrual that can assist you

• Family Medical and Leave Act: Regulation overseen by the DoL requiring employers to offer up to 12 weeks of unpaid, job-protected leave to eligible employees following the birth, adoption, or foster placement of an employee’s child or a serious family illness. The regulation also defines the minimum number of hours an employee must actively work for an employer over a 12-month period before being eligible for the Act’s protections.
• PTO: An all-inclusive benefit of an amount of time off the employer offers the employee to cover fully paid sick, personal, and vacation leave.

Summary of the definition of leave accrual

Leave accrual reflects how your company defines the method used for determining how much paid time off an employee can earn and when they’re eligible for the benefit.

Offering your employees paid time off gives you a tool that demonstrates that you value your employees and their well-being. When you add the accrual method to your time off policies, you also maintain a way to manage that time off and retain your valuable talent.

Similar glossary definitions you must know

• Bereavement leave: Bereavement leave is a special type of work leave given to employees after a close family member dies. This leave gives workers time away from work to make arrangements, attend wakes, funerals, or other memorial ceremonies, and process their grief in private.
• Benefits administration: The administration of the company’s employee benefits programs involves designing the overall program, developing the strategy for implementing the benefits, managing the annual process of benefits enrollment and ongoing Consolidated Omnibus Budget Reconciliation Act (COBRA) administration, maintaining ongoing benefits, terminating benefits for former employees, and implementing new employee benefits.
• Time and attendance recordkeeping: The documentation, and retention of those documents, of the hours and days employees worked. It is specific to nonexempt employees to ensure they are paid appropriately.

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