PTO Accrual: How to Set Up a Paid Time Off Policy (With Examples)

Short answer: PTO accrual means employees earn paid time off gradually as they work, instead of getting it all at once. To calculate a PTO accrual rate, divide the annual PTO you want to give by the number of pay periods or hours worked in a year. For example, 80 hours a year for a full-time employee works out to about 3.08 hours per biweekly pay period, or about 0.0385 hours per hour worked. Federal law does not require paid vacation. State and local paid sick leave laws, along with state rules on vacation payout, are what shape most PTO policies.

Is paid time off required by law?

Federal law does not require paid vacation. The U.S. Department of Labor states that the Fair Labor Standards Act (FLSA) “does not require payment for time not worked,” and that vacation benefits are “matters of agreement between an employer and an employee.” See the DOL’s vacation leave page. Some federal contractors have separate obligations under the Service Contract Act.

Paid sick leave is a different story. The DOL notes that there is no federal law guaranteeing paid sick leave for most private employers, but a growing number of states, cities, and counties require it. As of December 2024, the DOL counted 18 states plus the District of Columbia with paid sick leave laws. The list keeps changing:

• California raised its minimum to the greater of 40 hours or five days per year starting in 2024. The basic accrual rate is at least one hour for every 30 hours worked (California DIR paid sick leave FAQ).
• Alaska’s voter-approved law took effect July 1, 2025, with accrual of 1 hour per 30 hours worked, according to the Alaska Department of Labor.
• Nebraska’s ballot-measure law took effect October 1, 2025, and lawmakers later amended it.
• Missouri voters approved paid sick leave in 2024, but the state legislature later repealed it.

These laws differ on accrual rates, caps, coverage, and permitted uses, and city or county ordinances can be stricter than state law. If you use a combined PTO bank to satisfy a sick leave law, that bank generally has to meet every requirement of the law, including accrual, permitted uses, carryover, and reinstatement on rehire.

Accrual vs. front-loading vs. unlimited PTO

Accrual

Employees earn PTO a little at a time, per hour worked or per pay period. It ties time off to time worked and matches how most sick leave laws are written. The tradeoff is tracking balances every pay period.

Front-loading

The full year’s PTO is granted on day one of the benefit year. It is simple, but an employee may use it all early and then leave. Some sick leave laws allow front-loading as an alternative to accrual. California does, but it has specific rules for new hires and requires the full amount to be available at the start of each year.

Unlimited PTO

There is no set balance, and time off is approved case by case. It raises its own questions, such as whether it satisfies a sick leave law and how payout rules apply, so get legal advice before rolling it out.

How to calculate PTO accrual: the three main formulas

First decide how many hours of PTO an employee should earn in a year. Then pick a formula.

1. Per pay period

Accrual per period = annual PTO hours / number of pay periods per year

Pay periods per year: weekly = 52, biweekly = 26, semimonthly = 24, monthly = 12.

2. Per hour worked

Accrual per hour = annual PTO hours / expected annual hours worked

A full-time schedule is usually 40 hours x 52 weeks = 2,080 hours. Many sick leave laws use this method. “1 hour per 30 hours worked” works out to 1 / 30 = 0.0333 hours per hour.

3. Annual (lump sum or anniversary)

The full annual amount is credited once a year, on January 1 or on each employee’s anniversary. This is a form of front-loading.

PTO accrual rate examples

Common annual amounts converted into accrual rates (hours, rounded):

Worked example: full-time, biweekly

You give full-time employees 80 hours of PTO a year and pay every two weeks. 80 / 26 = 3.0769, so the employee earns about 3.08 hours per pay period. Rounding to 3.08 every period adds up to 80.08 hours over 26 periods, so decide whether you will round or carry the exact decimal.

Worked example: per hour worked

Same 80-hour target, accrued per hour worked: 80 / 2,080 = 0.03846, or about 0.0385 hours per hour worked. An employee who works 86 hours in a two-week period, including overtime, earns 86 x 0.0385 = about 3.31 hours, if your policy counts overtime hours.

One detail to watch: if PTO hours themselves do not earn PTO, a full-timer who takes all 80 hours off works only 2,000 hours and earns about 2,000 x 0.0385 = 77 hours. If you want everyone to land on 80, either count paid leave hours toward accrual or use the per-pay-period method.

Worked example: 1 hour per 30 hours worked

A full-time employee working 2,080 hours earns 2,080 / 30 = about 69.3 hours a year at this rate.

Caps, carryover, and tenure tiers

• Accrual cap: a maximum balance, after which no more PTO is earned until the employee uses some. A common choice is 1.5 to 2 times the annual amount, for example a cap of 120 hours for an 80-hour policy. California’s DIR allows capping accrued sick leave at 10 days or 80 hours, whichever is more.
• Carryover: how much unused PTO rolls into the next year. Sick leave laws often require some carryover. In California, “use it or lose it” vacation policies are illegal; the DLSE vacation FAQ says vacation vests as it is earned and cannot be forfeited. A reasonable cap is allowed there.
• Tenure tiers: many employers raise accrual with service, for example 80 hours in years 1 to 2, 120 hours in years 3 to 5, and 160 hours after that.
• Waiting periods: you can delay when PTO may be used, such as after 90 days. Sick leave laws often set their own maximum waiting period, so check before you pick one.

PTO payout at termination: it depends on the state

Payout rules for unused PTO vary widely. For example:

• California requires payment of all earned, unused vacation at the employee’s final rate of pay, and treats combined PTO the same as vacation. Paid sick leave, by contrast, does not have to be paid out unless your policy says so.
• Massachusetts treats earned vacation as wages that belong in the final paycheck (Mass.gov vacation leave overview).
• Many other states let the employer’s written policy control payout, which is why clear policy language matters.

Rehire rules matter too. California, for example, generally requires accrued, unused sick leave to be restored if a former employee is rehired within 12 months. Confirm current rules for each state where you have employees.

Part-time employees

You have two common options:

1. Per hour worked: part-timers earn at the same hourly rate as full-timers. At 0.0385 hours per hour, someone working 25 hours a week (1,300 hours a year) earns about 50 hours of PTO a year (1,300 x 80 / 2,080 = 50).
2. Prorated per pay period: 50 annual hours / 26 periods = about 1.92 hours per biweekly period. This suits steady schedules.

If a sick leave law applies, part-time and temporary employees are often covered. Do not exclude them from sick leave unless you have confirmed the law allows it.

Tracking PTO balances and requests

If PTO accrues per hour worked, accrual is only as accurate as your hours data. A digital time clock with GPS mobile clock-in or NFC tap-to-clock-in gives you a clean record of hours for each employee.

Requests matter as much as balances. When employees request time off from the EZTime mobile app, managers can review and respond to requests in one place instead of chasing paper slips and texts. Approved time off can then be reflected when building schedules in scheduling software, and shift swaps can fill the gaps.

At the end of each period, include PTO hours taken and balances in your payroll review. Our hourly payroll timekeeping workflow walks through that review step by step, and payroll-ready exports make the handoff easier. Either way, verify that the accrual math matches your policy and applicable law.

How to write your PTO policy

A clear written policy prevents most PTO disputes. Include:

• Eligibility (full-time, part-time, seasonal) and whether PTO is one combined bank or separate vacation and sick leave.
• The accrual method and rate, with an example, and which hours count (overtime, paid leave).
• Waiting periods, minimum increments, caps, carryover, and the benefit year.
• How to request time off, required notice, and protected sick leave uses.
• What happens at termination and rehire.

PTO accrual setup checklist

1. List every state and city where you have employees, and look up current paid sick leave and vacation payout rules for each.
2. Choose accrual, front-loading, or unlimited PTO, and decide whether to combine vacation and sick time.
3. Set the annual PTO amount for each employee group and tenure tier.
4. Calculate the accrual rate per pay period or per hour worked, and decide how to round.
5. Set caps and carryover limits that comply with applicable law.
6. Write the policy, have it reviewed by an employment attorney, and get employee acknowledgments.
7. Set up accurate time tracking and a single process for time-off requests.
8. Reconcile PTO balances with payroll every period.
9. Review the policy at least once a year.

If you want one place for hours worked, time-off requests, and schedules, you can review EZTime pricing, which starts at $2 per employee per month, or start a 14-day free trial.

Frequently asked questions

What is a typical PTO accrual rate?

There is no legal standard for vacation. A common starting point for full-time employees is 80 to 120 hours a year, which is about 3.08 to 4.62 hours per biweekly pay period. Paid sick leave laws often set a floor, such as 1 hour per 30 hours worked.

Can I have a “use it or lose it” PTO policy?

It depends on the state. California prohibits forfeiting earned vacation or PTO, but it allows reasonable caps. Other states are more flexible. Sick leave laws often require carryover, so check the rules that apply to you.

Do I have to pay out unused PTO when an employee leaves?

Some states, including California and Massachusetts, require earned vacation to be paid out. In many others, your written policy controls. Sick leave is often treated differently from vacation, so review each state’s rules.

Do part-time employees earn PTO?

For vacation, that is usually your choice. For paid sick leave, part-time employees are often covered by state and local laws.

Does overtime count toward PTO accrual?

Your policy decides for vacation PTO. Some sick leave laws count all hours worked, including overtime, and some limit the hours counted for exempt employees. If your PTO bank also covers sick leave, follow the rule that applies.

Related US labor guides

• Time clock rounding rules
• California meal and rest break rules
• FLSA overtime rules explained
• Predictive scheduling (Fair Workweek) laws
• Free weekly timesheet template (Excel)

This article is general information, not legal advice. Paid sick leave, vacation, and final pay laws vary by state and locality and change frequently. Consult your state labor department or an employment attorney before adopting or changing a PTO policy.

Related guides

• How to write an employee attendance policy