Understanding the Accruals Cap

Accruals setupMany companies put a limit on accumulated vacation hours, and for good reason. A few years back there was an interesting case that highlights the trouble a company could get into without it.

A Nebraska County employee, Dick Kincaid, had accumulated 688 vacation hours over 30 years. That would amount to a huge payout upon termination of employment or over 17 weeks of vacation if he had decided to take the time off. He didn’t, however, and he was eventually fired for it.

If an accruals cap had been set from the beginning, Kincaid would have never accumulated so many hours and would have never lost his job over it.

Automated Accruals Tracking

Automating accruals can significantly improve the business process of paid time-off. The human resources department (or payroll manager) no longer has to manually deduct PTO hours and employees no longer have to remember what they’ve taken and what remains.

With our time tracking system accruals tracking is easy and automated. For each employee, employers simply enter the accrual rate, the hours to accrue per year, and the current remaining hours. From there the system does all the work – it deducts and adds news hours so you don’t ever have to think about it again. You don’t even have to worry about hours rolling over into the next year.

We account for that too. Here’s how:

The Cap

The Cap is a special feature which allows you some additional flexibility with accruals tracking. There are a couple of different types of caps and much confusion surrounding it so I am going to clear it up here.

The Limit Cap

Our accruals cap prohibits employees from accruing any more time than that which has been allowed to them each year. So, employees can only accrue a certain amount of time-off and no more. This means that if, after a year, they have not taken their time-off, the system stops accruing.

For an employee that is allowed 40 hours per year, setting the cap at 40 ensures that the employee never goes above 40 hours, even into the next year. Once the employee uses some of his or her time-off, the system will start accruing it again.

The feature is flexible, however, and does allow an employer to set a customized limit on the allowable roll-over. For example, if the employee never took the 40 hours but you want your employee to keep half of what she earned but never used, then you can set the cap at 60. This way, after the year has gone by and the employee still has 40 hours, the system will continue to accrue time until she gets to 60. At that point it will stop until she uses her time-off.

The Reset Cap

There is another type of cap that our customers frequently ask about. This type of cap actually clears out the employee’s time-off. Rather than just setting a limit for accruals this type of cap clears out the time so that nothing rolls into the next year. Employees then start accumulating again after their anniversary date.

We don’t offer this type of cap. Here’s why:

If employees lose all their time-off in one fell swoop at the end of each year (or yearly cycle), they will be scrambling to take their time-off at the end of the year. If all employees renew on the first of the year (which is common), then the entire workforce will be scrambling to use their time-off at the end of the year. This will either make for a very understaffed office or very unhappy employees that didn’t get to go on vacation. Additionally, no employee will ever be able to take time-off in January because their time-off will have been cleared at the end of the year.

Neither of these eventualities are very practical. This is why we set an accrual limit.

2 thoughts on “Understanding the Accruals Cap

  1. Pingback: Vacation Payout in California is Mandatory but Offering Vacation Isn’t | The Timesheets Blog

  2. Pingback: How to Keep Track of California Sick Days | The Timesheets Employee Management Blog

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