PTO Accrual Calculator for Small Business
Setting a first PTO policy is one of those decisions that looks like a generosity question and is really a cash-flow question. Every hour an employee accrues is a liability you may have to pay out, and in several states you cannot take it back once earned. The design choices — accrual basis, carryover cap, whether unused time is paid on separation — matter more than the headline number of days.
Use the calculator to model any policy, then read the sections below on what each structure costs and where small employers most often create problems for themselves.
15 days on an 8-hour day = 120.
Set this accurately for part-time.
13 biweekly periods is roughly half a year.
Current balance
40 hrs
5 days at 8 hours per day.
- Accrual rate
- 3.08 hrs
- Accrued so far
- 80 hrs
- Annual entitlement
- 10 days
- Forfeited to the cap
- 40 hrs
per pay period
Hours above the carryover cap. Some states restrict forfeiting earned vacation — check local rules.
PTO rules vary by employer and by state, particularly on carryover caps and payout on separation. Treat this as an estimate and check your own policy document.
Starting values are set for a typical small business scenario — change any field to match yours. Need the plain version? PTO Accrual Calculator.
Choosing the accrual basis
The three structures behave very differently when someone leaves mid-year, which is exactly when the choice matters.
| Structure | Advantage | Risk |
|---|---|---|
| Per hour worked | Self-prorating; part-time is automatic | Balance is harder for staff to predict |
| Per pay period | Predictable and easy to communicate | Full-time and part-time need separate rates |
| Annual grant up front | Simplest to administer; good for recruiting | Someone can take three weeks in February and resign |
| Unlimited / discretionary | No accrued liability on the balance sheet | Usage often falls; needs active management to work |
The liability nobody budgets for
Accrued PTO is a real obligation. In states that treat earned vacation as wages, it must be paid out when someone leaves regardless of your policy wording.
- Model the worst case: every employee at their maximum balance, all leaving at once. That number is your exposure.
- A team of eight averaging $32 an hour with 80 accrued hours each carries roughly $20,500 of liability, before payroll taxes on the payout.
- Payouts are usually made at the employee's current rate, not the rate when the time was earned — so raises silently increase the value of old accruals.
- A carryover cap limits the exposure, but several states restrict or prohibit forfeiting earned vacation. Check your state before relying on use-it-or-lose-it.
- Separating sick leave from vacation can help, because sick leave is often not payable on separation even where vacation is. Many states now mandate paid sick leave separately, so combining everything into one PTO bucket can inadvertently make all of it payable.
What to actually offer
- US small businesses commonly start at 10 days of vacation plus separate sick leave, moving to 15 days after two or three years of service. Two weeks is the floor that reads as normal to candidates.
- Tiered accrual by tenure is a cheap retention tool: it costs nothing in year one and rewards the people you most want to keep.
- Set a cap at one to one-and-a-half times the annual accrual. Higher and balances grow into a liability; much lower and you are effectively cutting the benefit.
- Put a waiting period on use rather than on accrual — accruing from day one but only using after 90 days reads better and avoids the appearance of withholding earned time.
- Write down whether the policy is accrual or grant, what the cap is, whether unused time is paid out, and how requests are approved. Most PTO disputes are documentation failures rather than genuine disagreements.
Frequently asked questions
- How much PTO should a small business offer?
- Ten days of vacation plus separate paid sick leave is a common starting point in the US, rising to 15 days with tenure. Below two weeks total reads as below market to most candidates. Check whether your state or city mandates paid sick leave, since that is often a separate legal requirement rather than a choice.
- Should I offer unlimited PTO instead?
- It removes accrued liability from your balance sheet, which is a genuine advantage for a small business. The catch is that employees typically take less time off unless you set a minimum and managers actively encourage use. It also removes the payout obligation on separation in most jurisdictions, which candidates increasingly notice.
- Do I have to pay out unused PTO when someone leaves?
- It depends on your state and your policy. Some states treat accrued vacation as earned wages that must be paid on separation regardless of policy; others permit forfeiture if the policy says so clearly. Sick leave is frequently treated differently from vacation even in the same state.
- What is a reasonable carryover cap?
- One to one-and-a-half times the annual accrual is typical — so 120 to 180 hours on a 120-hour policy. That limits your liability while still letting someone save for a longer trip. Confirm your state allows forfeiture above the cap before relying on it.
- How do I calculate my PTO liability?
- Multiply each employee's accrued hours by their current hourly rate and total it, then add employer payroll taxes on the eventual payout. Use current rates rather than historic ones, because payouts are normally made at the rate in effect when the employee leaves.
- Can I have different PTO for different employees?
- Yes, provided the distinctions are based on legitimate factors such as tenure, role or full-time versus part-time status, and are applied consistently. Distinctions that correlate with protected characteristics create discrimination risk, so write the criteria down and apply them uniformly.