Offering paid time off is a great way to keep your team happy, engaged, and healthy. Time off policies can take a number of forms, including vacation, paid leave, sick pay, and paid holidays. The article will walk you through how to set up and manage paid time off policies and accruals in OnPay.
- Accrual policies for hourly vs. salaried employees
- How to create a time off accrual policy
- Accrual policy examples
To learn how to assign employees to an existing policy, see this article.
Accrual policies for hourly vs. salaried employees
Accruals are used to calculate, accrue, and track the amount of paid time off (PTO), vacation, or sick time an employee has. Policies can accrue time Per Hour, Per Pay Period, or Annually.
For hourly employees you can set up accruals to accurately accrue in several different ways:
- They can accrue based on the number of hours worked
- Hours can accrue by pay period
- Policies can accrue at a certain point of time (such as the beginning of the year, or on the employee’s work anniversary date)
For salaried employees:
- Time can accrue by the pay period
- Policies can also accrue at a certain point of time
How to create a time off accrual policy
From the main dashboard, navigate to Company > Accrual Policies from the menu to the left.
Click the blue + Add button in the top right corner.
A dialogue box will appear, prompting you to enter:
- A name for your policy
- How the time off should accrue (Per hour worked, Per pay period, or Annual on anniversary date). See more information and guidance on accrual types below.
- How the time off should expire (Hours do not expire, Hours expire on anniversary, or Hours expire on Jan 1st)
- Policy type:
- Vacation: Generally intended to be used for time off when the employee is not sick. This policy type is commonly coupled with a sick policy.
- Sick: Generally used when an employee is out due to illness, or someone in their immediate care is sick. Some employers require a doctor’s note for more than 1-2 sick days in a row.
- Paid Time Off (PTO): Generally a combination of sick and vacation time. Most companies offering PTO require employees to use it when they are out, regardless of the reason.
- Policy setup: Parameters for how you want the time off to accrue for this policy. See more information and examples of policy setup below.
Once you have set the criteria for the time off policy, click the blue Create button to save.
Accrual policy examples
Per pay period
Per pay period accruals are the most common type of accruals. It means the employee will earn a fraction of their annual allotted vacation with each payroll processed.
Many states require employers to pay out vacation time when an employee quits. This type of policy keeps the company protected from having to pay out an entire year's worth of PTO to an employee who only worked for a few months.
Most companies allow an employee to use the time before they have earned it. This is common practice is referred to as a"negative balance policy". Please keep in mind OnPay will allow employees to carry a negative balance. If your company does not allow negative balances you will need to manage this when the employee requests more time off than accrued.
Example 1: Your company wants to provide a PTO policy to your employees that states each year they will receive 80 hours of PTO. They will accrue the time off on a per pay run basis, and your company runs payroll biweekly (26 times per year). You want to allow employees to carry over hours from year-to-year, but you never want them to have more than 80 hours of PTO available. Also, you only want employees to start earning PTO hours after they have worked for the company for at least 3 months. Here is what this policy should look like:
- The example above shows the employee's hours do not expire. The employee is limited to a balance of 80 hours at any given time.
- If you prefer a "use it or lose it" policy, then you would set hours to expire on either the anniversary date or on January 1st (most common, sets a unified expiration date for employees).
Example 2: Your company wants to provide a PTO policy to your employees where workers with a longer length of service with the company receive more hours per year. In their first 3 years with the company, they will receive 80 hours of PTO per year. Then, the number of PTO hours they receive per year will increase to 120 hours at 3 years and 160 hours at 5 years. You want the time to be accrued on a per pay run basis, and your company runs payroll bi-weekly (26 times per year). You allow employees to carry over hours from year-to-year but never want them to have more hours available than they are allowed to accrue in that year. Employees begin accruing hours immediately upon starting. Here is what this policy would look like:
Per hour worked (hourly accrual)
Accruing time off by hours worked is a special accrual rate which does not guarantee an employee a certain number of time off hours to accrue per year. This type of accrual is best for part-time employees who work variable schedules or to satisfy sick leave laws.
Most companies allow an employee to use the time before they have earned it. This is common practice is referred to as a "negative balance policy". Please keep in mind OnPay will allow employees to carry a negative balance. If your company does not allow negative balances you will need to manage this when the employee requests more time off than accrued.
Example 1: Your company is required to provide 1 hour of sick time to your employees for every 30 hours they work. To determine the accrual rate, divide 1 hour by the required 30 hours: the employee will earn .0334 hours for each hour they work. The state requires that the hours carry over year to year, but can be capped at 40 hours accrued. Here is what this policy should look like:
Example 2: Your company provides 80 hours of vacation to employees who work a regular, full-time schedule. Part-time employees earn at the same rate based on the hours they work. To determine the hourly accrual rate you would take the total regular full-time hours possible in the year and subtract paid time off hours like Holidays and Vacation. Then divide the number of vacation hours per year by the yearly hours worked.
40 hours (Hours in 1 workweek) x 52 weeks = 2,080 hours are the Total regular full-time hours
2080 hours – 48 hours (Paid Holidays) = 2,032 hours
2,032 hours – 80 hours (10 paid vacation days off = 80 hours) = 1,952 hours per year
Now to get the accrual rate, divide the number of allocated vacation hours by the total hours per year as calculated above.
80 hours (Vacation Hours to earn) ÷ 1,952 yearly hours worked = .0409 hours
Annual on anniversary date
With an annual paid time off policy, the employee is awarded all of their time off on a specific date each year. Often employers who use this type of policy set the date to either Jan 1st or the employee's anniversary with the company. An employee's work anniversary date is set in the employee's profile (see step 5) and can be customized as needed.
Example 1: Your company provides a Vacation policy to your employees that states each year for their first 2 years they will receive 80 hours of Vacation. After the first 2 years, they will receive 120 hours of Vacation per year. At 5 years, they increase to receive 160 hours of Vacation per year for the rest of the time they are with the company. According to the policy, they will accrue this time annually on their work anniversary. You allow employees to carry over up to 40 hours from year-to-year. Employees begin accruing hours immediately upon starting. Here is what this policy would look like: