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Choosing Your Vacation Rate and Time Off Accruals

Vacation rate

When a company offers vacation time or PTO, they have to decide on a vacation rate for the accrual. There are a few options. Vacation time can accrue by hours worked, by the day, the week, or pay period. Alternatively, employers can choose to give out a lump sum at the beginning of the year. There are many rates to choose from and they are all suited for different needs and scenarios.

  • Once per year – Employees get their total yearly time off hours at once, either at the first of the year or on their anniversary date.
  • Per pay period – This accrual rate will match the pay period which will be either, monthly, bi-monthly, weekly, or bi-weekly.
  • Per hours worked – Time off can be calculated based on the number of hours employees worked in the pay period.

Comparing the Different Accrual Rates

Yearly vacation rate

Giving employees their full time off benefits once per year is probably the most common accrual method. It doesn’t require any complicated calculations and you only have to deal with it once per year.

Benefits

  • It is easy to calculate and track.
  • It’s nice for employees to have all their time off available at once for vacations.

Drawbacks

  • If employees leave the company, they might be owed a full year’s worth of vacation payout. Not all states require that employees be paid out their time off benefits at termination but some do.
  • With this method, there is usually a year’s wait for benefits to apply. During the first year, then, employees don’t have any vacation time to use at all.

Vacation rate by pay period

Regardless of which of the four pay frequencies a company uses, the accrual rate can be set to match.

  • Employees can start accruing their time off as soon as they start working. They still have to wait a year to accrue their full vacation benefits, but they would be free to take shorter vacations in the first year.
  • When vacation benefits are accrued by the pay period, the employee only has as much available time off as they have earned. If the employee needs to be terminated and vacation paid out, the pay out would not exceed their actual time off earnings.
  • You have to calculate the accrual rates to figure the amount that should accrue each pay period. This takes a little more work than simply handing out a set amount once a year. With an automated accruals tracking system, however, you really don’t have to think about it at all. Just plug in your numbers and walk away.

By hours worked accrual rate

Calculating vacation benefits by the number of hours an employee works is a good rate for part-time employees that don’t work a set schedule. Pulling a number out of a hat for an employee that works 40 hours some weeks and 10 others doesn’t make much sense. So calculating the time off by hours worked ensures employees earn a fair amount of time off.

  • Part-time employees will accrue fewer vacation hours than full time employees.
  • The hours to accrue per year is based on an employee that works full time, so it can be a little confusing to setup.
  • This rate needs to be multiplied against the employee’s hours worked each pay period and so is the most complicated rate to use, unless you’re using an automated system to track accruals. Then you can just set it and forget it.

Easily Calculate Vacation Rate

You can learn about how to calculate these accrual rates here. The best way to calculate accruals, though, is to let someone else do it for you! Online accrual tracking is easy.

 

Set it and forget it with Timesheets.com.

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8 Comments

  1. Shirley W.
    Shirley W. May 10, 2017

    I have been working in a dental office since August 2010. My previous manager always accrued my vacation on my anniversary month, therefore I always earned my vacation days every August of the year. Until recently my previous manager quit and the new manager came aboard. She uses a different accrued vacation method -by pay period. Up until aug 2016, I got my vacation days. Then, I didn’t get any accrued hrs until Jan 2017, then I received my accrued hours on every paycheck. When I questioned her about the 4 months of accrued hours from aug – dec 2016, she said that I don’t receive any because I already got my vacation days for the year, is that true? I feel like I am getting cheated for the 4 months of vacation hours!

    • Peggy Emch
      Peggy Emch May 11, 2017

      When you got your accrued vacation on August, it was likely for the previous year, however, it may have been for the following year. Did you get time off when you startd in 2010 or did you get your first accrual balance in 2011?

      • Shirley W.
        Shirley W. May 11, 2017

        Hi Peggy,
        I didn’t get any time off in 2010 and I got my 4 vacation days in August 2011. So my question is does my boss own me 4 mths worth of vacation hours?

        Shirley

        • Peggy Emch
          Peggy Emch May 15, 2017

          I would definitely try talking to your boss again. It sounds like you got the previous year’s time off in August and then didn’t get any time off from August until January.

  2. Joe M
    Joe M June 10, 2019

    are you available still for assistance. I changed our pto from annual to accrual and dealing with some downfall of pre loading to much pto into employees banks. Would be great for a opinion. Went from you got lets say 40 hours after working a year to started earning day one.

    • Lindsay Sommers
      Lindsay Sommers June 12, 2019

      Hi, if you are a timesheets.com customer, we would be happy to make sure that your accruals are set up in the system to ensure that they are being calculated correctly. You can contact our support team directly through your account. If not, you will have to do some calculations to ensure that their current accrual value is correct and then add hours accordingly. If you don’t have an automated accrual system yet, we would highly recommend getting one so you don’t have to worry about human error.

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