Accrued Leave: What it is, How it Works, And How to Get it Right

In this article we'll explore the intricacies of accrual leave. We'll look at types and benefits of accrual leave and how to calculate accrued holiday entitlements.

What is accrual leave?

Accrued leave is simply the paid time off your employees have earned but not yet used, and it is one of the most important balances you manage. It usually covers annual leave or vacation days, and in some policies it can also include sick leave or general PTO.

In most systems, entitlement grows in small chunks over time (for example, every hour worked or each pay period). When an employee takes time off, you deduct it from their accrued leave balance. The remaining balance is still “owed” to them in time off, and in some countries or US states, in cash if they leave.

From a business point of view, accrued leave is both a wellbeing tool and a financial liability. If balances get too large, you risk burnout, rota gaps when everyone suddenly books time off, and sizeable payouts when people resign.

Different countries and HR systems use slightly different language for the same idea. Here are the ones your managers are most likely to see:
- Accrued leave / accrued PTO – the catch-all term for earned, unused paid time off.
- Vacation accrual / PTO accrual – more common in North America, usually including holiday, personal and sometimes sick days.
- Annual leave accrual / holiday entitlement accrual – typical UK/European phrasing for paid holiday building up over the leave year.
- Holiday pay accrual – the money value of that leave, important for payroll and when someone leaves.
- Rolled-up holiday pay (UK) – for some irregular hours and part-year workers you can pay an uplift on hourly pay instead of paying holiday when leave is taken (more on this in the legal section).
👉 Whatever the label, ask yourself, “How does this person earn their leave, and what balance do they have right now?”

How accrual works in practice

Lets dive into the main ways leave can accrue, and what that means for staffing, carry-over and payroll.

Typical accrual methods

Most organisations use one of three common accrual methods for annual leave or PTO:

Accrual method	How it works in practice	Where it’s common / good fit
Per hour worked	Employee earns a small amount of leave for each hour worked.	Hourly staff, irregular hours workers, part-year.
Per pay period (e.g. monthly)	Fixed number of hours or days added each pay period.	Most salaried staff; simple, predictable planning.
Front-loaded annual entitlement	Full year’s leave given at start, then prorated for joiners/leavers.	Professional roles, where trust and flexibility are key.

Whichever method you choose, you should document:

How quickly employees earn leave (for example “1.75 days per month”),
When accrual starts (immediately or after probation), and
Whether different seniority levels accrue at different rates.

Caps, carry-over and “use it or lose it”

Most employers limit how much leave can build up to avoid very large balances and sudden gaps in staffing. Typical controls include:

Accrual caps – for example, stopping accrual once an employee reaches 1.5 times their annual entitlement.
Carry-over limits – setting a maximum number of days that can move into the next leave year.
Expiry rules (“use it or lose it”) – unused leave above the cap expires at a set date if the law allows it.

Mini checklist – before you set a cap or expiry rule:

Check local law and any collective agreements.
Make sure the cap is clearly written in contracts and your handbook.
Remind employees during the year how much leave they still need to take.
Align your HR system settings with the policy, so balances and expiry dates match reality.

💡You can define carry-over and accrual rules per absence policy with Shiftbase and see remaining balances in real time, which makes it much easier to spot employees who are not using their holiday before any “use-it-or-lose-it” date.

Accrual while off sick or on family leave

One of the most confusing questions for managers is whether employees keep accruing leave while they are off sick, on maternity, paternity or parental leave.

In the UK, government guidance confirms that statutory holiday continues to accrue during sickness absence and maternity or other family leave, and new 2024 rules explain how to calculate this for irregular hours and part-year workers.
In the US, whether PTO accrues during these absences usually depends on your policy, the type of leave (for example, unpaid FMLA vs paid parental scheme) and any state-specific rules on paid sick leave.

⚠️ Never promise that accrual stops or continues without checking the policy and local law. If you get it wrong, you risk underpaying holiday and facing back-pay claims, especially for workers with complex schedules.

💡Because Shiftbase links accrual factors to contracts and absence types, HR can configure exactly how time off should accrue during sickness or parental leave, so managers can approve requests without doing legal maths.

Legal and compliance snapshot

This section gives a high-level view of the main legal issues around accrued leave in the UK and US as of 2025. It does not replace legal advice, but it will help you ask the right questions.

UK workers are still entitled to 5.6 weeks’ paid annual leave, and that entitlement accrues over the leave year. The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 introduced major changes from 1 April 2024 for irregular hours workers and part-year workers.

Key points for 2025:
- Holiday entitlement for irregular hours and part-year workers can now be calculated using a 12.07% accrual rate of hours worked in the pay period, subject to detailed rules.
- Employers may use rolled-up holiday pay for these groups (paying an uplift on hourly pay instead of paying when leave is taken), but only if they follow the new rules and clearly highlight the uplift on payslips.
- The regulations clarify when holiday can be carried over, and what counts as “normal remuneration” for the four weeks of EU-derived leave (for example, regular overtime and certain allowances).
Because of these changes, UK employers have already seen a sharp rise in tribunal claims for underpaid holiday pay, particularly among irregular hours workers. That makes it essential to review how your system calculates holiday accrual and holiday pay for these groups.
In the United States there is still no federal law requiring paid vacation, so annual leave accrual is mostly driven by employer policy, union agreements and a growing patchwork of state and city laws.

However, for 2025 you should keep three big themes in mind:
- PTO payout at termination: Several states treat accrued vacation or PTO as wages and require payout when someone leaves; some impose penalties if final cheques are late or incomplete.
- Use-it-or-lose-it bans: States such as California, Colorado, Montana and Nebraska do not allow true “use-it-or-lose-it” policies for accrued vacation; instead you can cap further accrual or control carry-over.
- Mandatory sick leave and local rules: Many states and cities have separate paid sick leave laws, with their own accrual rules and carry-over requirements that sit alongside any general PTO policy.
For multi-state employers, this means your PTO accrual system must distinguish between company policy choices and state-mandated accrual and payout rules. A one-size-fits-all handbook paragraph is unlikely to be enough.

Designing an accrued leave policy that actually works

This section helps you move from “rough idea” to a clear, defensible accrued leave or PTO accrual policy.

Decide who accrues what, and when

Start by mapping which groups in your workforce should accrue leave, and on what basis. Full-time, part-time, irregular hours and seasonal staff may all need slightly different annual leave accrual rules to stay fair and compliant. Modern PTO accrual policies usually spell out how staff earn paid time off per pay period and how that rate changes with tenure.

A simple way to design your accrual structure:

List your main contract types (full-time, part-time, casual, zero-hours, term-time only).
Decide whether each group earns leave based on contract hours or hours actually worked.
Set a clear accrual rate (for example, “1.75 days per month” or “0.058 hours per hour worked”).
Define when accrual starts (immediately or after probation) and whether new joiners get pro-rated annual leave.
Note any special rules for irregular hours and part-year workers, especially in the UK under the 12.07% holiday entitlement accrual model.

💡In Shiftbase you can set up absence policies per contract type, and choose whether time-off accrual is based on contract hours, worked hours or not at all, so each employee automatically follows the right PTO accrual rules.

Choose your balance strategy

Once you know how employees earn annual leave or PTO, you need a balance strategy: how much can build up, what carries over, and when it is paid out. HR guidance on PTO accrual caps recommends choosing a cap that protects wellbeing but avoids huge liabilities, for example 1.5× or 2× the annual entitlement.

At the same time, research shows that many employees never use all their paid time off. In the US, a 2023 Pew survey found 46% of workers with PTO don’t take all their time off, and newer data suggests around 62% left days unused in 2023, often losing roughly one-third of their entitlement. So a good policy nudges people to take holiday, instead of quietly hoarding it.

Strategy	What it looks like in practice	Main benefit	Main risk / watch-out
Simple cap	Accrual stops once balance hits a set maximum.	Limits financial liability.	Can feel like a “penalty” if not communicated well.
Carry-over with expiry	Limited number of days roll into next year; extra days expire.	Encourages regular time off.	May conflict with law in some US states.
Cash-out option	Employees can cash in part of their accrued PTO.	Reduces balances and gives flexibility.	Needs clear tax and wage rules.
Mandatory minimum use	Everyone must take at least X days per year.	Tackles burnout and “vacation hoarding”.	Needs good scheduling to keep coverage.

Document it clearly – and avoid conflicting rules

Many legal disputes about accrued leave start because the contract, handbook and HR system all say something slightly different about PTO accrual, vacation accrual caps or PTO carry-over. Practical HR guides now stress the importance of having one clear PTO policy that covers accrual rate, caps, carry-over and payout on termination, and then mirroring that policy in your systems.

Use this quick documentation checklist for your annual leave accrual policy:

Contracts state the core entitlement and whether leave accrues during sickness or family leave.
The handbook explains how leave accrues, how caps and carry-over work, and how unused PTO is paid out.
Your HR system uses the same accrual rate, cut-off dates and payout rules as your written policy.
Managers have a one-page summary so they do not “invent” local rules.

Managing accrued leave in real life

This section focuses on what line managers and HR should watch day-to-day once the policy is in place.

Spotting red flags in leave balances

Accrued leave data is only useful if someone is looking at it. Recent surveys show that nearly half of employees do not use all their PTO, and many leave several days on the table every year. For employers, HR experts point out that this creates a growing financial liability and increases burnout risk.

Watch for these red flags in your leave balances:

Very high balances for long-tenured staff (potential large cash-outs or long absences later).
Teams where almost nobody reaches even 80% of their entitlement each year, a classic sign of vacation hoarding.
Sudden drops in balance because everyone books time off at once, often after a busy season.

💡In Shiftbase you can run absence reports and see real-time leave balances per employee and department, making it much easier to spot teams with consistently high accrued PTO or low holiday usage before problems appear.

Culture, guilt and “quiet vacations”

Accrued leave problems are not just about maths; they are also about culture. Several recent surveys show that a large majority of workers feel guilty taking time off, and many work while on holiday, checking emails or joining “quick” calls.

A newer trend is “quiet vacationing”: employees go away but pretend to be working, staying online all day instead of booking official leave. This behaviour is linked to fear of looking uncommitted, especially in remote and hybrid teams. This is bad for employees, who never fully rest, and bad for employers, who cannot plan staffing properly.

Managers can reduce guilt and quiet vacations by:

Modelling good behaviour (actually taking their own holiday and logging off).
Talking openly about annual leave accrual and reminding people to use it, not hoard it.
Making sure performance reviews do not implicitly reward “never being away”.

How software helps

Trying to manage accrued leave manually in spreadsheets quickly becomes messy, especially with different contract types, locations and PTO carry-over rules. HR and payroll sources now stress that automated tools are the safest way to keep PTO accrual, balances and payouts consistent and auditable.

Good absence management software should:

Automatically calculate PTO accrual based on each contract or hours worked.
Show managers real-time balances while they approve leave.
Sync approved absences straight into schedules and timesheets.
Provide reports on holiday usage, trends and high balances.

🚀 Shiftbase does exactly this by combining automatic leave accrual, self-service absence requests, real-time balances and integrated scheduling, so your managers can manage accrued leave as part of normal rota planning instead of a separate admin task.

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How Shiftbase simplifies accrued leave

Shiftbase connects employee scheduling, time tracking and absence management, so leave is accrued automatically based on the rules you set—no more manual spreadsheets or guessing balances. Managers see real-time holiday balances when approving requests, and employees can check their own hours, which helps reduce unused leave and last-minute surprises.

Want to see it in action? Start your free 14-day trial and test your own accrual rules in Shiftbase.

Frequently Asked Questions

It depends on the jurisdiction and your policy. In the UK, statutory holiday entitlement is usually paid out if the worker has built up leave they have not taken by the end of employment. In the US, several states treat accrued vacation or PTO as “wages” that must be paid at termination, while others allow more freedom as long as your written policy is clear. Always check local law and make sure your HR system calculates the payout in line with that rule.
Yes, in many places you can set a reasonable PTO accrual cap to stop balances growing without limit, but you must design it carefully. HR guidance suggests caps of 1–2× the annual entitlement and warns that in some US states you cannot simply “forfeit” accrued vacation, even if the cap is hit. In the UK, you can use caps and cut-off dates, but you must still give workers a real chance to use their annual leave before it expires.
In the UK, statutory annual leave continues to accrue during sickness and during maternity or other family leave, and the updated rules for irregular hours and part-year workers explain how to calculate this. In the US, it often depends on how your PTO and sick leave policies are written and whether the absence is under a paid or unpaid scheme, or state-mandated sick leave. To avoid disputes, spell this out clearly in your policy and configure your HR system to match.
Unlimited PTO can sound attractive, but practice shows it often leads to less time off and more confusion. Surveys and company case studies, including a 2025 decision by Bolt to scrap unlimited PTO in favour of fixed mandatory leave, suggest that employees either under-use unlimited PTO or perceive it as unfair. A well-designed accrual leave or PTO accrual policy with clear minimums and caps is usually easier to manage and less risky from a legal point of view.