PTO Accrual Calculator

Payroll math assumes a standard full-time year of 40 hours × 52 weeks = 2,080 hours. It is also the divisor for converting a salary to an hourly rate ($60,000 ÷ 2,080 = $28.85), which is why the calculator suggests it when you enter an hourly rate for cash value.

Per-hour accrual rates are tiny fractions because they spread a year of PTO over 2,080 hours. Two checks keep the numbers honest:

• Multiply back. 0.0385 × 2,080 = 80.08 hours, so a 0.0385 rate reproduces the 80-hour grant (the tiny excess is rounding; payroll systems carry more decimals).
• Watch the hours-per-week input. If the employee works 30 hours a week, the denominator is 1,560 and 80 ÷ 1,560 = 0.0513 per hour. Same annual grant, higher per-hour rate, because it has to be earned in fewer hours.

Whether overtime hours accrue PTO is a policy choice; many employers cap accrual-eligible hours at 40 per week so a heavy overtime month does not overshoot the annual grant.

Three policy levers control how large a balance can grow:

• Accrual cap.Accrual pauses when the balance reaches a limit, commonly 1.5× to 2× the annual grant (120 to 160 hours on an 80-hour policy). Nothing is taken away; the employee simply stops earning until they use some time. The calculator's “lost to cap” line shows exactly how many hours a cap costs by the target date.
• Rollover (carryover). Unused hours carry into the next year, either unlimited or up to a rollover limit such as 40 hours. Rollover limits and accrual caps are usually used together.
• Use-it-or-lose-it.Unused hours are forfeited at year end. This is where state law bites: California treats earned vacation as wages and says such a provision “is not legal” (California DIR vacation FAQ), while a reasonable cap is fine. Colorado, Nebraska, and Montana take the same position. Most other states allow forfeiture if the policy is written and employees have a fair chance to use the time (verified September 2026).

For a small employer the practical recipe is: accrue per pay period, cap the balance at 1.5× the annual grant, and skip use-it-or-lose-it entirely. That policy is legal in every state and keeps the accrued liability bounded.

The U.S. Department of Labor is explicit: “The Fair Labor Standards Act (FLSA) does not require payment for time not worked, such as vacations, sick leave or federal or other holidays” (DOL). Whether you must cash out an unused balance when someone leaves depends on the state and, in many states, on what your written policy says. States that require payout of earned vacation regardless of policy (verified September 2026):

A second group, including New York, North Carolina, Ohio, New Hampshire, West Virginia, and Wisconsin, defaults to payout unless a written policy clearly says unused time is forfeited. A third group leaves the question entirely to the employer. Two consequences for small employers: put the payout rule in writing before the first hire, and remember that a state-mandated sick-leave bank kept separate from vacation generally does not have to be paid out even in payout states. Penalties are real: California adds up to 30 days of waiting-time wages for a late final paycheck, and Massachusetts allows triple damages.

To estimate a payout, use Balance projection with the separation date as the target, zero planned time off, and the employee's hourly rate. The payout is taxed as regular wages (IRS Publication 15, “Vacation Pay”), so federal income tax, Social Security, and Medicare are withheld and the employer owes its matching FICA share.

On the pay stub. Payroll software prints accrued this period, used this period, and available balance. An employee on an 80-hour biweekly policy sees +3.08 each pay date; when the number stops climbing, they have hit the cap. Hours used are paid at the regular rate and taxed exactly like hours worked; PTO is not overtime and does not count toward the 40-hour overtime threshold under the FLSA.

On the books. Under GAAP (ASC 710, compensated absences), an accrual-basis employer records a liability for vested or accumulating PTO as it is earned: debit wage expense, credit accrued PTO liability, valued at the current pay rate. Five employees who each carry 40 unused hours at $25 per hour represent a $5,000 liability plus roughly 7.65% employer FICA on top. Cash-basis businesses, which most sole proprietors and small LLCs are, simply record the expense when the PTO is paid.

For tax.Even accrual-basis employers generally cannot deduct accrued but unpaid vacation pay for the year; the deduction is allowed only when the pay is actually paid, or if it is paid within 2½ months after year end (IRC §404(a)(5) and Treas. Reg. §1.404(b)-1T). Keep the book liability and the tax deduction separate, and reconcile the accrued balance each year end against your payroll system's PTO report.