There are several ways to calculate accruals for your employees. Probably the most common is to give them their whole lump sum at the beginning of the year or anniversary date, but there are other ways to calculate accruals that are common for certain types of workers. One of the most complicated but useful **methods of calculating accruals is by hours worked.**

For employees who may not be long-termers you can add time to their accruals bank on a monthly or biweekly basis. Or, if you just like being super accurate, you can add time based on the actual number of hours they work each pay period.

## Accruals By Hours Worked

This accrual rate is particularly great for employees who work a variable number of hours per year. If the employee is entitled to 2 weeks vacation each year, but ends up taking several weeks off for medical leave or something else, you may want the accrued vacation hours to reflect that time spent away from work. Likewise, if your employee puts in extra hours, you might want him to be compensated for that extra time with a little extra vacation time.

Calculating accruals by hours worked offers this flexibility. But calculating it isn’t as easy as just throwing it all into the bank at the beginning of the year…

## The Calculation

First, decide on approximately how many hours you want your employee to accrue per year – maybe it’s 40, 80, or some other number. Then we’ll figure out the fraction of an hour that they should earn for each hour they work.

As an example, we’ll say our employee gets about 2 weeks, or 80 hours per year. There are 52 weeks in a year so a standard work year contains 2080 hours (based on 40 hours per week and 52 weeks per year). Now we’ll divide 80 by 2080 (vacation hours per year/hours worked per year) to obtain .0384. So for every hour our employee works he should earn .0384 hours of vacation.

Once we’ve set this number in the system, our employee will earn appropriate vacation hours regardless of whether he works 50 hours a week or 30.

### Example

To see this in action, let’s say our employee averages 50 hours a week for the whole year. 50 hours times 52 gives us 2600. 2600 multiplied by .0384 gives the employee 99.84 hours of vacation. That’s an extra couple of days he’s earned.

Conversely, if the employee only averaged 30 hours per week for the year, he would only get 59.9 – not quite a full two weeks.

To set this up in the Timesheets system, you’ll visit the Settings page for the employee and then click the Options tab. At the bottom of this page you will find the accruals settings where you can enter your prefigured values.

If you don’t already have an account with Timesheets.com, give us a call so that we can help you set one up. Tracking accruals with Timesheets.com is painless and you won’t have to remember a single calculation because they are all done for you!

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The US government says there is 2087 work hours per year. I am a contractor paid by the hour with no PTO at all. This means I have to figure in the 5 major holidays as well as anything else where I might not be able to make up the time on other days in the pay period. I went with a 2 weeks of vacation, 5 days of “sick” time and the major holidays a total of 20 days or 160 hours of PTO.

2087 – 160 = 1927 This gives me my target maximum hours worked

160 / 1927 = 0.083 or 8.3% The rate of accrual I need to set aside to go into my PTO savings.

For me the actual value is calculated after taxes and other payroll deductions such as healthcare insurance.

Anyone see something wrong in this calculation?

The calculation looks good. And keeping track of your accruals as a contractor is very smart!

My company is going to transition to an accrual system. My anniversary date is Sept 21st and would be awarded 80 hours vacation. Would they simply figure what I would of earned from 9-21-15 to 7-1-2016? and then allow me to earn the rest up-to my anniversary date?

If your company is using our system, they’d just figure out what you should have earned since your hire date and plug that number into the Currently Accrued Hours field. Then they would set the Hours to Accrue Per Year field to 80, set the calendar date, and let the system start working. Easy peasy.

How do you figure out vacation time for employees that have a 6-month no-vacation time, 10 days (accrual of 0.83 vacation day/month) for 1-5 years. Transitional of 5 to 6 years (.83 x … before the anniversary month) +(1.25 x…months left in the year after anniversary), 6-10 years (1.25 a month) and transitional again of 10-11 years ((1.25 x … + 1.67 x …) and 11-on (1.67 a month)

My boss refuses to buy any new software and has me doing it on Excel, and it’s worked but the more language I put in to incorporate what exactly he’s looking for, the more it becomes inconsistent. Help!

Carolyn,

Let me see if I understand you correctly. If you are in the transitional period and your anniversary month was March, then you would get (.83×3=2.49) + 1.25×9=11.25) vacation days. So about 14 days. In the transitional period, then, you would have more days off than you did in the first 1-5 years. However, if your anniversary month was December, then you would only get (.83×11=9.13) + .83. Better hope you get hired by this company early in the year because your vacation time would be significantly lower if hired later in the year!

Does it look like I am understanding you correctly?

What are your thoughts on establishing maximum accrual caps when you calculate vacation earned this way? The “standard” seems to be 1.5 times the annual rate, but we have a variety of part-time employees who work different numbers of hours from each other and from week to week, and I’m not sure what number I should use for that “annual rate.” I’m also unable to tell if there’s any issue with providing different caps for different employees and/or how you would go about deciding how to categorize them into groups for capping purposes. I hope that all makes sense – I haven’t been able to find much info about this; we decided to have our employees accrue by the hour because it seemed like the simplest way to keep everything fair, but it doesn’t seem like the most common way to do things! Thank you.

Hi Kristen,

It sounds like you’re doing this exactly right. The “by hours worked” method is a very good choice to calculate vacation for an employee who works part time and random schedules. For employees who are full time, or part time and working a predictable number of hours, you can give them a set value of time per year. Like 40 or 80 hours, as an example, and then set the cap accordingly.

Meanwhile for employees who work more randomly and less than full time, the by hours worked method gives a very fair way to allow them to accrue time off, but only for the time they worked. As for coming up with an appropriate cap for these part timers, there’s no real ‘standard’ way to do this. One way would be to assume they work full time, and calculate the cap as the amount of vacation they would earn if they worked full time for the entire year. Or as you mentioned you could do 1.5 times that value.

The cap is really most applicable for the full-time employees anyways, as they’re the ones most likely to accrue a large number unused hours. We’re still deciding whether or not to set a cap, but I think we’ll just base it off of full-time hours if we do. Thank you!

I am curious how you calculate vacation time for an employee after a pay increase is given? For example if a person was making $25 an hour and had 40 hours of vacation accrued on the books they would have a vacation accrual of $1,000 ($25 X 40). If that person is given an increase to $30 an hour what happens to the person’s available hours of vacation and vacation accrual. There seems to be two options. The first option is increasing the vacation accrued amount to match up with the increased rate. In this case since the person has 40 hours of vacation and their rate is now $30 an hour the vacation accrual would be increased on the balance sheet to $1,200 ($30 X 40) thereby allowing the employee to have the same number of vacation hours but costing the company more because the employee didn’t use their hours when they were given at a lower rate. The second option would be to reduce the number of hours available to the employee. Since at the time of their increase the employee had earned a vacation accrual of $1,000 then their available hours are now 33.33 ($1,000/$30). This would reduce the number of hours available to the employee but they would be paid the amount that was accrued for them. In this case the employee has less hours at a higher rate and their is no additional cost to the company as a result of the employee’s pay increase. Going forward the employee would accrue all additional vacation hours at the higher rate. The only issue is with the hours accrued prior to receiving their new rate. Are both options allowed? Is the company required to pay the employee the same number of vacation hours at a higher rate just because they chose not to use them before they were given a raise?

Tim,

That is a good question. I don’t know if it is standard to make any adjustments to an employee’s vacation pay based on a raise. I understand you concern, especially if an employee has a lot of time in the bank, but I tend to think of vacation accruals as time, not dollars.

That said, you are probably free to deal with the situation as you please. Our federal government does not impose any rules on employers regarding vacation pay.

This is from the Department of Labor website: “

How are vacation pay, sick pay, holiday pay computed and when are they due?The FLSA does not require payment for time not worked, such as vacations, sick leave or holidays (Federal or otherwise). These benefits are matters of agreement between an employer and an employee (or the employee’s representative).”

Beyond that, I would check the laws in your state.

The society for human resources management put out this document detailing vacation laws by state:

Vacation, Sick, PTO Laws. Revised June 2013If you are still not sure, please consult your lawyer.

I’m trying to calculate based on “vacation is 1 hour for every 50 hours worked” so the standard calculations aren’t doing it for me. Any suggestions on how to calculate this?

Hi Lily,

I would do the calculation like this: First take 40 hours per week times 52 weeks, so 40 x 52 = 2080 to get the total hours a full time employee would work per year. Now divide the total yearly hours by 50 hours to get 41.6. This is how many hours a full time person would accrue per year under your system. Now divide 41.6 by 2080 to get .02. This is how many hours should accrue per hour worked for your employee. If you are using our hours accrual system, all you have to enter is that number, and the system will add the appropriate amount of time per hour. If you are doing it by hand, you would multiply .02 by the total hours on each paycheck. You can check your work by multiplying .02 by 50 to get 1.

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I work at Elmwood and I have been working alot of hours,and I have 17 hrs. of PTO and i dont think that is right,could somebody please explain this to me. Please e-mail me at jomuhlbauer09@gmail.com Please, and Thank you for your time.

If an employee has 4.17 hours of accrued vacation time, and only took 1 day and 1 hour, how would you calculate the balance

1 day is presumably 8 hours, so 1 day and 1 hour are 9 hours. 4.17 – 9 leaves the employee with -4.83. This means he or she needs to accrue more time to bring the balance positive.

Hello. I was wondering if you might be able to help me with some math for a new proposal in regards to pay increases. I am proposing that my employer consider changing the current pay step increases from years of service to hours worked (because we work a ton of overtime).

So the concept would be to convert 1 year of service (or full time employment) to equal 2080 hours. And give consideration to overtime hours worked (at a rate of 1.5 hours, not 1 hour) towards your next pay increase that occurs every 2 years or 4160 hours.

Can you help me show the math on how this concept would work?

Thank you

Hi Hope you have good day so far.

I want to know about vacation hours,

I have worked as Part time Employee, I worked 6days a week 5hrs a day. so (6day*5hrs/day=30hrs weekly)

I have worked from December 21st,2014 to October 26th,2015 and in this period of time i have worked total

1433.45Hrs ( including extra hours and over time and working for other coworkers also )

So how hours of accrued vacation time I should have ??

I have left the job and they paid me for 25hrs as my vacation and sick leave.

( which i had asked for only 1 day from Dec-21-2041 to Oct-26-2015 and that also was counted as unpaid leave )

So, I want to know how may hours I should have a accrued as Vacation and Sick.

Please give me any estimate on this.

Every company has their own policy on accruals. The accrual rate at one company will be different than another and the amount that is offered to employees can vary from employee to employee. You will have to contact the company for complete details.

Thanks for the quick reply but I have been paid for 25hrs so from there I know the rates but I am confuse about how many hours it should be.

Once my manager told me you will earn 1hr every 30hrs you work and as you work 30hrs/week 5 6days only 1 day off in a week so you get 5sick days in a one year, but still how they count I can not figure it out. if I take his words in count than 1433.45/30=47.78hrs should be there. So can you please suggest me something on this.

Based on the numbers you provided, that looks correct. You would also want to subtract the one day you took off. I would go talk to your employer. They might still owe you 15 hours. They should have been keeping records on this and providing you with totals on each paycheck.

When PTO is accrued for each hour worked, do employers typically include hours paid for holidays as part of the hours used to determine the accrued amounts? For example, if the employee works 4 days at hours each during the week of Thanksgiving but is paid the 8 holiday hours for Thanksgiving, is it typical to include the 8 holiday hours in the calculation for accrued PTO that week? Thanks.

Hello Erin,

No that is not typical. Our accruals system does not include holiday hours in time accruals.

If I am working average 40 hours a week with 80 hours every two weeks. Do I multiple 40 ×52 =2080. Then Multiple 2080 By .0384= 79.872. Will this be the average pto I can accumulated a year at my job. ?

I have a .8FTE (summer off) who per our PTO policy is earning PTO at the rate of 200 hours per year x .8 = or a total of 160 hours per year. My Quickbooks Mac version only lets me enter PTO rates per year (ie. 160 hours/year) paid per pay period (every two weeks). The problem is rather than working 26 pay periods per year she works 19. How can I manipulate the Quickbooks so that she accrues at the correct rate? By my calculations she should be accruing 160hrs/19 pay periods = 8.4210 hrs/payperiod. As it is currently set she is only accruing 6.1538 hrs/pay period x 19 pay periods = 116.92 hrs per year. Any suggestions?

Our vacation time is prorated for hours and accrued. At both 5 years and again at 10 years employees are given an additional week. What do you do for workers who were part time at the beginning of working with the company but now are full time. Would you give them the full extra week at 5 years – or do you wait until they have accrued hours equal to 5 years of full time work. Example: I have a worker who was very part time for 2 years (10 hours per week). For the last 3 years she has been full time. Do I credit her with 5 years of service and give her another week of vacation?

This is such a good question, Joan, and the answer could vary from business to business. If it were me, I would ask myself why the employees get the extra week at 5 years. Is it because they have put in so many hours with you or because they have remained loyal to your company for 5 years? Is it because they have proven they are sticking it out with you and you are rewarding their tenure?

I think it just depends on which aspect you value, the time they’ve put in or the general commitment.

Why would a small company of only 1 employee us the accrual method of vacation? The first year, I did not receive any vacation time. Had to ask the second year, receiving 40 hours. Now, going on the 3rd year asking for 2 weeks vacation. At this rate, half the year will be over before I have accrued enough time to take a decent vacationl

Not understanding why this method is being used.

Hi June,

Often times, when companies have a probationary period of one year, they will give employees their vacation time as a lump sum so that, after employees have been there one year, they will be able to take their full vacation. However, there may be any number of reasons why employers choose not to do it this way. If an employee works part time, for example, the accrual rate may be “by hours worked” instead of “once yearly”.

Not knowing your employer or your situation, I cannot be of much more help.

Could someone please assist as to how to calculate PTO for someone who works 24 hours per week? Our full time EES get 104 PTO hours annually. We have them accrue time on tri-mester basis. The first allotment is given to them 30 days after hire, then starting each trimester to follow. Thank you!

My husband works on call 24/7 and last year he had 1299.50 hours for this company. They just told him he didn’t work enough to earn vacation pay for the year 2015. What should he have earned. He did start working weekends for another company last September, because they couldn’t guarantee him enough work. Any thoughts?

Hi Claudia,

There is no standard for a company’s vacation policy and accrual rate. I do not know what your husband might have earned with that company because I do not know their policy. Sorry I cannot be of more help.

If you worked 83 minutes over the hour at a pay rate of $17.25hr..in overtime then why Is your pay out amount less than your overtime pay am you receive an hr??..please explain this to me

I have been auditing our PTO accruals and have found a big problem. Our policy manual is confusing – it was supposed to be one week for your first year, two weeks the second, three weeks the third and it maxes out there. Last summer we changed it to be available up front instead of at an accrual rate (accrual for first week during first year but two weeks available at two year anniversary). This only confused bookkeeper and it was never changed on the payroll so everyone got confused so I changed it back to use as accrued. I went through and did an audit and found that everyone was only accruing the one week, no second or third week after their anniversary.

I am having trouble with two things 1) wording this properly in the handbook 2) setting the policy. I am trying to figure out what the average office is doing and kind of tailor for us from there.

So do I say for #1: Full time employees accrue 1 week for the 1st year, 2 weeks after the 2nd year and maximum 3 weeks afterwards.

And for #2: on the payroll of their anniversary, start the new accrual?

Thank you so much for your unbiased opinion. I am just needing an outside opinion who has no stakes in it. 😉

I understand your reason for wanting to have time accrue in the first year since you don’t know the new employee well enough to give them all their time at once but, unfortunately, it could be complicated to switch the accrual rate to once yearly after the first year. It is probably better to pick an accrual rate and stick to it, like you’ve decided to do. You could just keep the accrual the way you have it or you could use a once yearly accrual rate with a probationary period. So the employee wouldn’t get their week of time off until the third or the 6th month of employment.

As for your wording, I might word it like this:

#1 Full time employees accrue 1 week of vacation during their first year of employment at a rate of __ per __ (month, hour?). Beginning at their one year anniversary date, they will earn 2 weeks of vacation in their second year of employment at a rate of __ per __ (month, hour?). Beginning at their two year anniversary date and in every year thereafter, they will earn 3 weeks of vacation at a rate of __ per __ (month, hour?).

Our company offers 80 hours of vacation benefits, 40 hours of sick leave and 9.5 holidays. Would the appropriate calculation to determine the vacation accrual rate be as follows:

Hours worked per year:

2080 – 80 (vacation) – 40 (sick) – 76 (holiday) = 2080 – 196 = 1884

Vacation Accrual Rate:

80/1884 = .0425

If our handbook states each employee is entitled to 10 days of vacation, would your suggestion still be appropriate? If full time employees (averaging 40 working hours/week) are entitled to earn a 10 days vacation time per year, how could they earn the benefits they are entitled to without an accrual rate that accounts for the number of working hours they would actually work each year?

That is my question now too. If an employee gets a few paid holidays off and takes some PTO they’d never be able to earn their full allotted time based on 2080 hours calculation! Does anyone account for this by including paid days off in accrual?

You are right, Debbie. The accrual rate of 2080 would never allow them to get up to their full allowed time off. I have heard of companies doing either, however: using the standard hours of 2080 or subtracting out the potential time off or using a modified total based on the number of hours they actually work.

The problem with the hours worked rate is that only in a perfect world would it ever be accurate. The fact is, some people don’t use all of their vacation time, some people don’t take sick at all. For them, the modified rate would end up giving them too much time. For someone who goes on maternity leave or something like that, they wouldn’t end up accruing their full amount.

im trying to figure out how many hours i need to average in the next 4 weeks so i get a paid vacation,can anyone help me with this please.im averaging 30 hours a week and i need to get to an average of 32 hours per week in 4 weeks.how many hours a week do i need to work in the next 4 weeks?

Hi Dan. I don’t have enough information to help you. I do not know your accrual rate. How many hours of paid vacation do you get in a year?

Our part-time employees (those who work 20 hours or more per week) are paid for official holidays worked, proportionate to the number of hours scheduled per month. Can you tell me how I would calculate this?

I’m not sure if I understand you correctly. Do you mean that your employees will get holiday time based on their average daily shift? If so, then find the number of hours scheduled for the month – let’s say it’s 90 – and then find the number of work days in the month in question. So that might be 21. Now divide 90 by 21 to get 4.28. So the employee should get about 4 and a quarter hours for their holiday pay.

Question: My offer letter states vacation pay as: “Ten days per annum”. I was let go after 6 months, having taken only 4 days of vacation total. Does employer still owe me 1 day, or 6 days? or nothing?

Im in Illinois

Thanks for your help!

According to illinois.gov, employees do have to be paid out for their unused vacation. If you met the probationary period, you were awarded the full 10 days, and you only took 4 days, then you would be owed payment for 6. Check your hiring contract to be sure.

https://www.illinois.gov/idol/FAQs/Pages/Vacation-FAQ.aspx#faq3

I think I may be making this more complicated than it has to be but doing my calculations I’m now wondering what hours to consider in the accrual. If we have 6 paid holidays per year (if it falls on work day) and employees get paid time off, should these house be included to calculate their earned PTO? If we don’t then it would never be the case that an employee who works 36 hours per week, has had 5 holiday days paid and used 8 days off to get their full 12 days of 86.5 hours. Do most people who use the calculation of 2080 hours of work for full time in a year to come up with rate include the hours for paid days off in the PTO accrual calculation?

Our policy, for instance is 12 days of PTO for employees who’ve worked for us 2-4 years. What we consider a day is their usual week divided by 5 (common to have employee who works 36 hour in the week but these hours vary each week). Help!

If I have 88 hours of vacation time I want to go on vacation from September 21- October 4 do I hove enough hours

Hi Shannon,

September 21- October 4 is 10 working days which adds up to 80 hours. So, yes, it looks like you have enough time saved up.