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. In OnPay, you can create time off policies that track accrued leave balances for employees, and we'll facilitate the request and approval process in-app.
We'll walk you through how to set up and manage paid time off policies and accruals in OnPay. Once created, you can assign them to employees.
What we'll cover
- Accrual policies for hourly vs. salaried employees
- Getting started
- Policy name and type
- Policy Setup
- Accrual policy examples
Accrual policies for hourly vs. salaried employees
Accrual policies are used to calculate, accrue, and track the amount of paid time off (PTO), vacation, or sick time an employee has. Time is “accrued” based on both time worked and tenure, and is measured either by hour, by pay period, or by year. Your choices will vary depending on the employee type, as detailed below:
For hourly employees
- Per Hour
- Per Pay Period
- Annually (like the beginning of the year, or on work anniversary dates)
For salaried employees
- Per Pay Period
- Annually (like the beginning of the year, or on work anniversary dates)
Getting started
Go to Company, then Accrual Policies.
Here, you can view and edit any existing accrual policies. To add a new policy, click Add.
The Policy Setup template is divided into two parts:
- Policy name and type (orange)
- Policy setup (blue)
Policy name and type
Give this policy a unique name that sets it apart from other accruals. The name should make it very clear how and when this policy will apply. For this example, we'll make a sick time policy that accrues annually, but we'll explore many more examples later in this article.
Determine the timeframe by which accrued time is earned. Your choices are “Per hour worked,” “Per pay period,” or “Annual on anniversary date” (hire date).
Choose when these hours will expire, if ever. Your choices are “Hours do not expire”, “Hours expire on anniversary”, or “Hours expire on Jan 1st”.
Select the accrual type.
Policy Setup
The Policy Setup is in three periods. This means hours accrued by workers can increase with their tenure in up to three stages. To create a probationary period, where no time is accrued until this introductory period is over, enter "0" per hour, then the number of months in the probationary period. If you don't want accruals to increase, enter the same information in each period. Unused hours will rollover to the next period. We'll explore more examples later.
Note: Setting the "Cap" is not the same as setting a "rollover limit".
Want to limit rollover of unused accruals?
Some businesses limit the amount of unused time off that an employee can continue to hold going into a new year. This is to ensure that employees are taking the time they need to live a balanced and full life, as well as to protect the business from employees taking or cashing out large sums of paid time off all at once. We'll show you how to limit rollover in How to assign time off accrual policies to employees→
First two periods
For the first two periods, enter:
- How many hours can be accrued each year
- For how many months time is accrued at this rate
- The limit, or cap for these hours.
Third period
You don’t need to indicate the number of months in the third period. This period lasts for the remainder of the worker's employment.
Click Create when you're ready to finalize this accrual. Clicking Not Now will close this window, but will not save your progress.
Now that you have the basics, let’s explore a few scenarios, and show you how to set up different time off accruals to fit your needs.
Accrual policy examples
Setting up time off accrual policies for the first time can be daunting. We'll explain further how these policies can differ, and use some real-world scenarios to explore different ways to set them up.
Click to explore each policy example.
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
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:
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:
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