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PTO vacation

How to Calculate PTO and Vacation Accrual

For full-time employees, PTO is a must-have perk of the job. Employers give hours and days to employees in order to take a well-deserved vacation, recover from an illness or care for children who are sick. But how much PTO to give and how its accrued, is completely up to the employer. No matter how much PTO your employees receive, it is essential to understand how to calculate it and vacation accrual correctly.

What is PTO?

A couple of decades ago, employees typically received vacation and sick time separately. For example, an employee might have two weeks of vacation and five sick days. Those days had to be used for the intended purpose – taking a vacation or staying home sick. Today, employers give workers lump time designated as PTO or paid time off. PTO combines vacation, sick and personal time that employees can use at their discretion.

For example, an employee can use PTO to go on a trip, stay home with a sick child, wait for a repairman or just take a break from work. How the time is used is up to the worker and is not the business of the employer.

How much PTO is Required?

There is no set amount of PTO an employer is required to give an employee. According to the Fair Labor Standards Act (FLSA), benefits are matters of agreement between an employer and an employee. The FLSA does state that an employer does not have to pay workers for time not worked, like vacations, sick leave, federal or other holidays.

The exception to the rule is for federal contractors.

  • On a government contract to which the labor standards of the McNamara O’Hara Service Contract Act (SCA) apply, holiday and/or vacation fringe benefit requirements are stated in the SCA wage determinations in contracts that exceed $2,500.
  • On a government contract to which the labor standards of the Davis-Bacon and Related Acts apply, holiday pay and/or vacation pay is required for specific classifications of workers only if the Davis-Bacon wage determination in the covered contract specifies such requirements for workers employed in those classifications.

Distributing PTO

Every company has a different policy on how PTO is accrued and distributed. Some employers vary PTO amounts by year of employment, i.e., for every five years of tenure an employee receives an additional week of PTO. Other examples include:

  • PTO Given as a Set Amount. Employers give employees a set amount of PTO days or hours to use throughout the year or all at once. This amount might be truncated for new employees. For example, if 120 hours of PTO begins Jan. 1 and the new employee starts in July, he or she would receive a lesser amount, like 60 or 30 hours. Many employers defer PTO benefits for new employees after a probationary period.
  • PTO Accrued per Pay Period. When employers choose to accrue PTO, it involves calculating PTO hours per pay period. For example, if an employer pays employees semi-monthly, the employee might earn five hours of PTO each pay period. Providing smaller amounts of PTO means employees typically have to stagger the amount they take, instead of using it all at once.

It is common for many employees not to take their full PTO each year. In fact, only 33% of American workers plan to use all their PTO and 13% don’t plan on taking any time off at all. Besides encouraging employees to take a much-needed, and beneficial, break, some employers allow workers to roll over their leftover PTO. The rollover period might be 30 or 60 days. Other companies simply require employees to use their PTO or lose it to simplify calculations.

How to Calculate PTO

For employees, calculating the amount of PTO you’ve earned depends on how it is awarded. If you receive PTO as a lump sum at the beginning of the year, you subtract the amount you’ve used from the entire amount. If you receive 120 hours of PTO each January, three 40-hour weeks, and you’ve taken two days and two hours, you subtract 18 hours from 120. The calculations are a little different for accrued PTO by pay period. According to Indeed:

  1. Determine how many PTO hours you accrue per year. Some employers give PTO hourly so employees can take an hour or two at a time for appointments, doctor visits or attend school events. Others give it by days. If you receive three weeks of PTO per year, you need to convert those days to hours. Three weeks is 15 days or 120 hours.
  2. Divide your PTO hours by pay period. The most common pay periods are weekly, biweekly, semimonthly and monthly. If you are paid weekly, you have 52 pay periods per year. Biweekly is 26 pay periods per year. Semimonthly is 24 pay periods and monthly is 12. If you receive 120 hours per year and are paid weekly, you divide 120 by 52 equaling roughly 2.3 hours of PTO per period. Biweekly is roughly 4.6, semimonthly is 5 and monthly is 10.
  3. Multiply your pay period PTO by time worked. Finally, calculating PTO requires finding out how much time you’ve worked. Multiply the amount you accrue each pay period by the number of pay periods you’ve worked. If you’ve worked two months without taking any time off and are paid semimonthly, you’ve accrued 20 hours; 5 PTO hours per pay period times 4 pay periods equals 20. If you are paid weekly, 2.3 PTO hours times 9 pay periods equals 20.7 PTO hours. Keep in mind there are four months with five weekly pay periods.

These calculations show accrued PTO isn’t as simple to calculate, for both employers and employees, for weekly and biweekly employees.

The Unlimited PTO Question

As noted above, calculating and tracking PTO can be tricky and time consuming for payroll. Some employers have opted to give employees unlimited PTO, allowing them to come and go as they need, so long as the work gets completed. Google, Hubspot and Netflix are some of the companies that have added unlimited PTO to their company culture. The idea behind offering unlimited PTO is to offer employees a better work/life balance. Employees have the ability to decide if and when they can take time off, without damaging the company.

The Pros: Unlimited PTO frees up payroll from having to track and calculate PTO. Employers also don’t have to pay out large sums of unused PTO to employees who quit. Employees have much more freedom as they aren’t required to get managerial approval when they need to take time off. Unlimited PTO is thought to increase productivity and allows for more communication between employee and manager. Unlimited PTO can also entice candidates to join your company.

The Cons: Unlimited PTO policies leave companies with a lot of questions. For example, what happens when employees take so much PTO that the work suffers? Or how does unlimited PTO fit into the Family and Medical Leave Act, which tracks time off taken and protects the employee from losing his or her job? Does unlimited PTO work for non-exempt employees, those who receive overtime pay? There is also a new phenomenon where unlimited PTO creates a culture of competition between employees who look down on those who take PTO as being disloyal.

Tips for a Successful PTO Policy

PTO is necessary to give your employees time to relax, rejuvenate and come back to work refreshed. But the policy needs to work for both the employer and the employee.

Be transparent about PTO. Communication is key to a good PTO policy. For industries like construction, workers are needed more in the busy season than during the winter months.

  • Make sure team members know about time-off plans. Create a time off tracking system that’s available to all employees. This can be as simple as a Google Sheet, shared calendars or a whiteboard.
  • Have policies in place about how many team members can be gone at the same time. Preference may be given based on tenure on who puts the time-off request in first.
  • Let employees know when they need to use their PTO. Send automated alerts to employees who could lose PTO they don’t use it. If you use a rolling PTO system, make sure employees are aware if they are near the maximum hours.

Keep everyone on the same page. Make sure the entire team knows when employees will be out. Ask the employees taking PTO to make sure any work is covered and by whom. Add an out-of-office event to Core HR and email.

Incentivize off-season PTO to mitigate multiple requests during holidays. For example, it is common for employees to take the week off between Christmas and New Year. If you need some staff working during that time, offer extra PTO to those that take off less popular holidays or during slow times.

Have a good tracking system. A good workforce management system, like ExakTime’s Time Clock App, can not only track when your employees work but the number of hours they’ve accrued. The app also includes scheduling features that allow employers to assign shifts and tasks to workers and crews and send alerts. See how it works by contacting us today.