Vacation/Sick Leave Policy Setup

Greg Hatfield Updated by Greg Hatfield

Note: Vacation/Sick Leave accrual and tracking is only available to Live Payroll users.

See also, Vacation/Sick Leave Overview.

See also, Typical Examples of Policy Settings for Hourly and Salaried Employees.

Two separate categories of Paid Time Off (PTO) Policies can be created. The categories are Vacation and Sick Leave.

The setup screen is accessed from the Vacation/Sick Leave tab on the Add/Edit Client screen. Click the Add or Edit button below either the Vacation or Sick Leave Policies list to add or edit a policy. A policy describes when and at what rate PTO is accrued, if any accrual limits apply, and if any usage limits apply. The setup screen allows the user to set the various options and to save multiple policies for each category. The policies are assigned to employees on the Vacation/Sick Leave Employee Setup screen. A description of the policy options is below.

A new vacation policy starts with default settings to accrue 2 weeks per year on the first paycheck of the year. Users can edit the policy as needed. A new sick leave policy starts with default settings to accrue 1 hour per 30 hours worked with an accrual limit of 80 hours and a usage limit of 40 hours per year. This is the California minimum sick leave policy. Users can edit the policy as needed including entering the Usage Reset Date. See the description below.

Many policies accrue sick leave or vacation based on hours worked. Be sure that your payroll grid income items allow entry of hours worked in order to allow the program to calculate the accrued sick leave or vacation. In order to track sick leave and vacation hours used, the employer must have Sick Pay and Vacation income items already on the Payroll Items setup screen. If the employer does not have Vacation or Sick Pay income items, be sure to add them on the Client screen Payroll Items tab before creating the policy.

After creating a policy, be sure to save the policy by clicking the OK button.

Policy Screen Options

Name: This is the name of the policy. If there is more than one policy for a category, then the name should be different so that they can be distinguished from one another. For example, a vacation policy allowing two weeks per year might be named "Vacation (2 wks/yr)" and a vacation policy for the same employer allowing three weeks per year might be named "Vacation (3 wks/yr)".

Accrual and Usage Limits Explained: Many policies define the amount of time earned (Accrued), and the amount of time the employee is allowed to use in a given year (Usage). These are two different limits but the lower of the amounts indicates how many hours the employee has available to take. For example, the minimum sick leave policy in California must accrue at the rate of 1 hour per 30 hours worked with an Accrual Limit of 80 hours starting in 2024. But the minimum Usage Limit is 40 hours per year. This means that even though an employee may have accrued 80 hours, they can only use 40 hours per year. If an employee has not used any of the 40 hours they are allowed to use, but has only accrued 12 hours so far, then only 12 hours are currently available to use.

Accrues: This is the accrual rate in hours.

Accrual Timing: This dropdown list has the options for when the accrual of PTO occurs. The choices are:

  • at Beginning of the Year: The entire accrual amount is added to the balance on the first paycheck of the calendar year.
  • on Hire Anniversary Date: The entire accrual amount is added to the balance on the first paycheck on or after the anniversary of the employee's hire date. This requires the user to enter the employees Hire Date on the employee setup screen.
  • on Specific Day Each Year: The entire accrual amount is added to the balance on the first paycheck on or after the month and day entered in the Accrual Date field.
  • annually (Each Pay Period): The accrual amount divided by the number of paychecks per year is added to the balance on each paycheck. This requires that the employee's Pay Period is set on the Employee setup Withholding tab. For example, the user might enter 80 hours in the "Accrues" box to accrue 80 hours per year. If the employee is paid Biweekly, then the employee will accrue 2.667 hours per paycheck (80 hours / 26 pay periods per year).
  • Per Hour Worked: The accrual amount times the number of hours worked is added to the balance on each paycheck. This requires the user to check the Income Items in the list to define those for which hours worked earns PTO accrual. This is the only choice that requires the user to enter hours worked when entering the paycheck in order for the program to accrue PTO.

Accrual Limit: If a limit is entered, then when the PTO balance exceeds the limit, the balance is automatically reduced to the limit amount. Leave this field blank to allow unlimited accrual.

Annual Usage Limit: If there is a limit on the annual usage of PTO then enter the limit here. An example is the minimum California Sick Time policy effective 7/1/2015. The laws allows employers to limit the usage of sick time to 24 hours per year. This field can be left blank if there is no usage limit.

Reset Usage: This dropdown list has the options for when the Annual Usage Limit will be reset. Also see the optional field to specify a probationary period before PTO can be used. The choices are:

  • at Beginning of the Year: The Balance to Use will be reset to the Annual Usage Limit on the first paycheck of the calendar year.
  • on Hire Anniversary Date: The Balance to Use will be reset to the Annual Usage Limit on the first paycheck on or after the anniversary date of the employee's hire date. This requires the user to enter the employees Hire Date on the employee setup screen.
  • on Specific Day Each Year: The Balance to Use will be reset to the Annual Usage Limit on the first paycheck on or after the month and day entered in the Reset Date field.

Initial usage allowed ## days after the employee's hire date: If the policy allows for a probationary period after being hired before the PTO can be used by the employee, then enter the number of days after the employee's hire date before PTO can be used. The initial usage limit will be set this number of days after the employee's hire date. It will be reset annually thereafter based on the date specified.

Hours for these income items will count towards accrual: If the accrual timing is "Per Hour Worked" then the user must check the income items for which hours worked accrue PTO. This is not applicable to any other accrual timing choice.

Hours for these income items will count towards usage: Check the income items that use PTO. Typically, Vacation Pay items use vacation time and Sick Pay items use sick time, however the user may check other income items if appropriate. Note: If the employer does not have Vacation or Sick Pay income items, be sure to add them on the Client screen Payroll Items tab. Then check the Vacation or Sick Pay items as appropriate.

Ok Button: This saves the policy and exits the screen.

Cancel Button: This exits the screen without saving the policy.

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