Calculating PTO by hand is not a simple task. There are many rates to choose from and the calculations aren’t always intuitive. For this reason, most small business owners just end up using a yearly accrual rate. This method is easy. You just have to decide how many days employees should get per year and give it to them in a lump sum. However, if you’re a little more math savvy, you can calculate PTO with other accrual rates that may be a better fit for your business. I’ll explain the different rates and the calculations.
Also, Timesheets.com has a free tool for calculating time off that you can try.
Typical Accrual Rates
No matter which accrual rate you choose, your employees will get a certain number of hours to use per year. The accrual rates vary in the frequency at which employees earn their time.
- By hours worked
- Twice a month
- Every 2 weeks
- Once a month
Before you calculate PTO, you must decide how many hours you want your employee to accrue per year (based on a full-time schedule) – maybe it’s 40, 80, or some other number. In the sections below, we’ll figure out the number of time employees should earn at each pay period.
A yearly accrual rate is great for long-term employees or employees who have already put in a year of tenure. Calculations are pretty basic. When an employee takes time off, subtract it from the running total. At the beginning of the year or on the employee’s anniversary date, add their time to whatever is leftover from the previous year.
But many companies don’t want their employees to have to wait a full year to be able to take some vacation time and so they will use any of the following rates instead.
By Hours Worked
Accruing time by hours worked is a special accrual rate that does not guarantee a certain number of hours to accrue per year. This is a great rate for part-time employees who work variable schedules and it is also used to fulfill sick time requirements.
If you want their vacation time to reflect the actual time they put in at the company, then this is the rate for you. Part-time employees will get fewer hours than their full-time counterparts, and employees who work overtime would earn more.
Decide how many hours you would want your employees to get each year if they worked a regular full-time schedule. For this example, we’ll say 80 hours or two weeks. Next, figure out how many hours your employees would work in a year if they worked full time. This would be 40 hours times 52 weeks, minus the time off (and any paid holidays). In this example, the employee would work 2000 hours per year.
To get our accrual multiplier, we’ll divide 80 (hours in two weeks of work) by 2000 (hours worked in the year) to obtain .04. So for every hour our employees work they should earn .04 hours of PTO.
If you are using our service to track accruals, you can set this number in the system. Then your employees will earn appropriate PTO automatically regardless of whether they work 50 hours a week or 30. For this accrual rate, it’s really nice to have a system do the work for you because this is a little more math-heavy than the other accrual rates.
A daily accrual rate is another good rate for part-time employees. But the caveat is that these part-timers must work full 8-hour shifts. This is not a great rate for employees who work part-time shifts.
To figure an employee’s accrued time based on a daily rate, you will divide the number of hours to accrue per year by the number of working days in a year, so 5 days x 52 weeks.
For an employee working 40 hours a week, getting 80 hours of paid time off per year, you will divide 80 by the number of working days in the year. 80/260 gives you .307. Multiply .307 by the number of total days in your pay period to see PTO in each cycle.
If the employee worked 5 days in the pay period, you would multiply 5 x .307 = 1.535. So this employee would get 1.535 hours of paid time off in this pay period. If he worked the full year, it would add up to 80 hours. If the employee just works 4 days a week then he would get 1.228 hours each pay period.
Monthly, Bi-Monthly, or Every Two Weeks
Besides once yearly, these rates are the most common and it’s not too hard to calculate either.
Divide the number of PTO hours granted per year by 24 for twice monthly or by 26 for every two weeks.
So employees given two weeks of vacation per year will get 3.333 hours each bi-monthly paycheck.
This accrual rate will be a little easier to handle than the daily or hourly rate since employees will see the same amount on each paycheck. It’s also a little less confusing and easier to figure out an employee’s current PTO amount if records go missing.
Paying Out PTO When Employees Leave
Paying employees for time earned is never fun for owners who are trying to manage a budget. Employees leave the company at random times and PTO can accumulate over the years into large sums that, in some cases, must be paid for with the last check.
When paying employees, some locations allow you to pay for PTO at the rate at which an employee earned the time off, while others like California require the payout amount to be calculated based on the current rate of pay. This detail can make a large difference in the amount due. Check with your local HR source or labor board to determine if there’s a payout rate requirement before calculating your employee’s payout amount.
The easiest way to calculate a payout amount is to use our handy payout calculator located here.
The Easy Way to Calculate PTO
Let Timesheets.com do these calculations for you! No matter which method you choose, the software will do the calculations each period and you won’t have to keep separate records or worry about making costly mistakes.