Leave time accrual explained.
Calculating leave time for employees manually can be very difficult because there are many factors involved. What is the leave policy of your company? How are the leave hours applied to the employees? When are the hours applied? Is tenure a factor? How many different leave types are there? How do you handle unpaid leave? These are just a few of the questions you have to ask. But first things first, let’s start with a definition of leave time accruals.
What is leave time accrual?
Leave time accrual is the amount of leave time that an employee earned per a company’s employee benefits policy, but which has not yet been used or paid. This is a liability for the employer. In simpler terms, it is time off that you earn as a benefit for working at your company. You normally are not allowed to take paid leave until you have earned it. In cases of emergency, employers do allow unpaid leave, but it must be approved or it is considered an unapproved absence on their records.
How does your company categorize leave time?
Leave time categorizes in various types vacation, sick, PTO, unpaid leave, family medical leave, or even jury duty, just to name a few. Earning leave time is often based on hours, days, months and/or years worked. The accrual is often different for each type. To further complicate matters, the leave time for each category is also based on the employee, their position, and their tenure. Are you beginning to see why manual calculations of leave time accruals are so difficult?
Know your company policies when it comes to leave time accrual
Even though there is no set “norm” of leave time accruals from company to company, leave time is normally specifically spelled out for most companies. Let’s take a simple example of annual, monthly, and hourly leave time accruals and break it down.
Annual – This is one of the simplest ways for a company to accrue time. An employee earns XX hours of leave time per year. The accrued time is employees’ first year anniversary.
Monthly – This, too, is pretty simple. For every month you work you earn XX hours of leave. So you would divide the leave hours by 12. For example, if you get 1 week of vacation per year, you would receive 3.333 hours per month of available leave time.
Hourly – This is the most difficult method because you must establish more parameters. In addition to the hours of leave time you are going to accrue per year, you must also know the number of hours expected to work for that year. In a typical year, you have 52 weeks at 40 hours per week. That would be 2,080 hours. But you also must take into account the hours you will not use to accrue time and deduct them from 2,080. Holidays and vacations usually are not a part of the calculation. So for those who are to earn 40 hours of leave time you would take 2,080-40=2,040. Let’s now say that you pay on the 6 major holidays of the year that is 48 more hours to deduct (6 X 8 = 48), so 2,040 – 48 = 1,992 hrs. Now you figure out the percentage of leave time per hour by divide 40 by 1,992 which is .02008. For every hour you work you earn .02008 of an hour of leave time. 40 hours earns .8032 hours.
This is the most complicated, but it is also the most accurate way of paying leave time based on the time you actually have worked.
All of these get you to the same end of 40 hours of leave time per year. This is for only one type of leave time.
Other factors of leave time accrual
Tenure— Employee’s tenure often is a factor. Most employers increase the leave time based on how long a person has worked for the company. For example, 1-3 years = 40 hours, 4-8 years = 80 hours and so forth and so on.
Caps—Employers often place caps on the total leave time hours an employee can earn. This is when the employer resets the leave time every year. There are others that let their employees retain all or some of their unused earned leave time.
The easy way to accrue leave time
Is there an easier way? YES! Let your time and attendance calculate and maintain leave time accruals.
On-Time Web can maintain all of your leave time accrual types. It also lets you structure each type differently. For example, you can setup vacation leave type hourly with the ability for the employee to retain a portion of their previous years’ time while setting up the sick leave type annually without any retention. You will also be able to set up unpaid leave time accruals such as Jury Duty annually without retention. Setup the formulas and apply them to the employees. You can even factor in a probationary period before the accruals start.
You have enough to do to process payroll for your company. Let On-Time Web help you with the accruals.
If you would like to know more about On-Time Web and the accrual process, contact us at Info@on-timeweb.com or call us at (502) 223-1136.