HR GLOSSARY · Leave & time

Leave accrual

Also known as: PTO accrual, vacation accrual, leave accrual rate, accrued leave

Leave accrual is the way paid leave is earned over time: an employee builds up a set amount of leave days or hours for each month or pay period worked, instead of receiving the whole annual entitlement on day one. The accrual rate, the carry-over rule and any cap decide how much an employee can take at a given moment.

Policies describe leave as a yearly number, such as 24 days. A system has to answer a harder question: how many days does this person have today? Accrual is the rule that answers it. Some companies grant the full year up front on the first day of the leave year. Others accrue a little each month, so a person who joined in July has earned about half the year by December. Accrual also settles the edge cases that otherwise become arguments: what happens to unused days at the end of the year, whether a new hire can take leave in the first months, and what is paid out when someone leaves.

Common accrual methods

  • Up-front grant: the full annual entitlement is available at the start of the leave year
  • Monthly accrual: one twelfth of the annual entitlement is added for each month worked
  • Per pay period: a fixed number of hours is added with each pay run, common for hourly staff
  • Per hours worked: leave builds up at a set rate for every hour worked, which suits part-time and variable-hours staff
  • Seniority-based: the rate steps up after a set length of service

Worked example

Annual entitlement: 24 days, accrued monthly. Monthly accrual is 24 / 12 = 2 days. An employee who has worked 5 full months has accrued 10 days. If they have taken 3 days, the available balance is 7 days. For a part-time employee at 60% of full-time hours, the same entitlement scales to 24 × 0.6 = 14.4 days a year, or 1.2 days a month.

Rules to set in the policy

  • Whether leave can be taken before it is accrued (a negative balance), and by how much
  • Carry-over: how many unused days move into the next year and how long they stay valid
  • A cap on the balance, so that the liability does not grow without limit
  • Rounding: to the nearest quarter, half or full day
  • What happens to the balance at termination, paid out or deducted as local law requires

Frequently asked questions

What is leave accrual?
Leave accrual is how paid leave builds up over time. Instead of receiving the full annual entitlement at once, the employee earns a set amount for each month, pay period or hour worked.
How do you calculate leave accrual?
Divide the annual entitlement by the number of accrual periods. For 24 days accrued monthly that is 2 days a month. For part-time staff, multiply the entitlement by their share of full-time hours first, then divide.
What is the difference between accrual and an up-front grant?
With an up-front grant the whole year is available from the first day, which is simple but leaves a balance to recover if someone leaves early. With accrual the balance grows through the year, which tracks what the employee has earned but needs a system to keep count.
Does accrued leave carry over to the next year?
That depends on local law and the company policy. Some countries protect unused statutory leave, others allow the employer to set a carry-over limit or an expiry date. State the rule in the policy so that everyone knows it before the year ends.
Is accrued leave a cost to the company?
Unused accrued leave can be a liability, because the company may have to pay it out or give the time later. How it is recorded depends on local accounting rules, so ask your accountant.

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