Vacation accrual: Overview, definition, and example
What is vacation accrual?
Vacation accrual is the process of employees gradually earning paid time off (PTO) based on the time they work. Instead of receiving their full vacation allowance upfront, employees accumulate vacation days over time—usually based on hours worked, months of service, or company policy.
For example, an employee might earn one vacation day per month worked, meaning they accrue 12 days of paid vacation per year. This system ensures that employees earn time off in proportion to their tenure with the company.
Why is vacation accrual important?
Vacation accrual is important because it provides a structured way for employees to earn and use their paid time off. It helps businesses manage PTO liabilities by spreading out the cost over time, rather than granting all vacation days upfront.
For employees, vacation accrual ensures they have time to rest and recharge, supporting work-life balance. For employers, it reduces the risk of employees taking all their vacation time early and leaving the company before earning it. In some jurisdictions, accrued vacation time may also be considered earned wages, meaning it must be paid out when an employee leaves.
Understanding vacation accrual through an example
Imagine a company offers employees 15 vacation days per year but requires them to accrue the days over time. An employee who starts in January may earn 1.25 vacation days per month (15 days ÷ 12 months). By June, they will have accrued 7.5 vacation days, meaning they can only take that amount unless the employer allows borrowing against future accruals.
In another case, a company might use an hourly accrual system. If an employee accrues 0.05 vacation hours for every hour worked, and they work 40 hours per week, they would earn 2 hours of vacation per week, adding up to about 2.6 weeks of PTO per year.
An example of a vacation accrual clause
Here’s how a vacation accrual clause might appear in an employment contract:
“Employees will accrue vacation time at a rate of [X] days per month worked, up to a maximum of [Y] days per year. Accrued but unused vacation may [or may not] be carried over to the following year, subject to company policy.”
Conclusion
Vacation accrual allows employees to earn paid time off over time, ensuring a fair and structured approach to leave. It benefits both employees and employers by providing predictable vacation benefits and managing PTO liabilities effectively.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.