What Are Accruals?
In the HR world, accruals refer to time off, sick leave and vacation time that ‘accrues’ as an employee works for the organization. For example, a company may offer four days of paid leave per quarter. When the employee has worked six months, they have accrued eight days of paid leave and continue to build up a bank of time.
Paid Time Off (PTO) is time employees take off during normal working hours for which they are paid. Employees either earn PTO as they work their regular schedules or receive a set number of hours at the beginning of the year. Businesses generally measure the time in hours.
Note: Accruals can also refer to unpaid leave that accrues according to FMLA or state family leave laws.
How Is PTO Different Than Traditional Paid Leave?
Traditional paid leave is categorized as sick days, personal days, and vacation. In contrast, PTO refers to leave that is uncategorized and employees can use as they choose. Some employers have a combination of PTO and sick time.
What is a PTO Policy?
The foundation for accruals tracking is a carefully designed PTO policy. When creating a paid leave policy, there are many considerations:
- How will leave be awarded? Accrual, allotment or unlimited?
- Will you front load a set number of days at the beginning of the year, or will they accrue based on time worked?
- How many employees can be off at a given time?
- Does the number change throughout the year?
- Will there be blackout periods when nobody can take time off?
- How will employees request time off?
- How will you handle overlapping requests?
- How far in advance do employees need to submit requests?
- Will unused PTO roll over into the new year?
- What state or local laws affect your PTO administration?
- How will your policy affect your financials/balance sheet?
Why is it important to track all of your employee’s accruals correctly?
Vacation time that is accrued (or even front loaded for that matter) is a key benefit. Earned vacation time is also considered compensation.
Imagine that your employer does not have a system in place to properly track your accruals. You then decide that you want to take a two week vacation to check off your bucket list trip of fly fishing in Alaska. You believe, based on your own tracking of accruals, that you have two weeks of paid vacation in the bank. You proceed to put in your vacation request and find out you only have 5 days of vacation in your bank.
You talk to HR and they tell you to look at your paycheck stub because your available vacation time is on the stub. You never look at that line item on your stub so you did not relaize that a discrepancy existed. Now you have to reconcocile your vacation accruals to show that you have accrued the two weeks of paid vacation time.
Unfortunately, the framework of this story comes from a real life example. The company opted to track vacation accruals on a spreadsheet. The bookkeeper assigned to this task fell behind, then was out on leave, and all of the company accruals fell behind and become inaccurate.
So the importance of accurately tracking accruals is –
- Employees that end up with incorrect accruals will start to doubt the company they work for.
- The company has to spend time and money to review all of the accruals and make sure they are updated and correct.
- The manual process of tracking accruals is inefficient, lends itself to human error and is a direct cost on the P&L. The person in charge of tracking accruals manually can focus on other more productive tasks once you automate your accrual tracking process.
Automating your accrual tracking creates efficiency, reduces liability, gives employee the confidence their records are accurate, and positively impacts the P&L by removing the manual labor associated with manual accrual management.
What Are the Different Types of Time Off Policies?
Let’s look at the most common types of leave structures used by U.S. employers:
- Traditional Leave—categories may include:
- Sick Time/FMLA
- Federal or State Holidays
- Floating Holidays
- Jury Duty
- Emergency Leave
- Bereavement Leave
- PTO (Paid Time Off) Banks—Employees can use the time as they choose
- Unlimited PTO—Employees can take as many days as they want
- PTO Purchase Plan—allows workers to buy and sell vacation days
- The ‘currency’ is their regular salary–this type of policy is often included in a cafeteria (or flex) program
- Employees can use pre-tax earnings to purchase benefits of their choice, which may include health insurance, life insurance, supplemental insurance, and flex spending accounts
Automated PTO System Simplify Leave Management
The method for tracking PTO is as important as the actual policy. Many small businesses don’t have an automated tracking method. Some use spreadsheets or Google Calendar. Employees submit requests verbally and it’s up to the manager to keep track of them, determine how they impact schedules and approve or deny.
Manual PTO tracking takes a lot of time and persistence to keep track of employee requests, treat everyone fairly, and ensure business operations aren’t impacted when employees take time off.
In contrast, inexpensive automated PTO tracking software makes it easy to manage leave. The most powerful systems sync with Timekeeping, Payroll and Employee Scheduling.
What Are the Benefits of Automated PTO Tracking?
- Ensures equitable PTO for all employees
- Provides a standardized way for employees to request time off
- Helps managers keep track of employee vacations
- Syncs with timecards and scheduling to avoid shift coverage gaps
- Gives employees access to their PTO balance without calling HR
When researching PTO systems, make sure they can accommodate your policy. If you have anything more involved than a basic policy, you’ll need a provider that offers custom scripting and there are few in the small business space.
Another advantage of an automated PTO system is ease of analytics. Employees and administrators can run reports (for any time period) and see accruals by date and which hours have been deducted from the employees’ balances. This helps business owners administer leave policies and evaluate their effectiveness. Utilizing an automated system for PTO management gives you data that can be used to make forward looking decisions.
Automating certain HR administrative functions is not just smart business, it also improves the P&L. Download our free e-book on How to Manage Employee Paid Time Off.
If you have questions about our cloud based HRIS solutions, please feel free to email us at [email protected]!