What is the Company Policy for Accrued Time Off?

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December is the time of year when questions often come up about Paid Time Off accrual. Paid Time Off, often referred to as PTO, is a benefit commonly offered by employers and could include vacation days, holidays, and sick days. The employees can choose when these benefits are used, and the unused PTO accrues for future use.

Does Accrued PTO Expire?

Mark Rowley, Owner
RandR Payroll Services

Usually, the accrual of PTO comes up at the end of the year or when an employee is leaving the company. It is important that your business has a policy about the accrual of PTO. For example, the accrued days might expire at the end of the year. Or, the employees might be limited to a certain amount of time that can be rolled to the next calendar year.

Establishing a PTO policy in your employee handbook ensures that everyone receives the right benefits. Additionally, this practice helps with fairness in the workplace since the same policy is in place and enforced for all employees. When this policy is created, make sure that it matches the state laws. Some states don’t allow a use-it-or-lose-it PTO policy, which means that unused PTO needs to be paid to the employee.

Calculating Accrued Time Off

When accrued PTO is cashed in, then the right calculations need to be used to ensure the accuracy of the paycheck. The amount of PTO used should be multiplied by the employee’s hourly rate. Then, the appropriate taxes should be withheld before the employee is paid. For example, if an employee is using 20 hours of accrued PTO and they earn $15 per hour, then the calculation would be: 20 hours x $15 per hour = $300 total before taxes.

Many payroll software systems include calculations for PTO accrual and use. The best solution is to tap into the experience offered by a professional payroll team. These payroll services ensure the accuracy of the payroll processing and help to reduce the in-house administrative burden on your employees. For more information about the various payroll services that are offered, call R&R Payroll & Bookkeeping Services at (951) 296-0412.