Calculating PTO hours can be a hard task. However, a good manager knows what PTO accrual is and how to calculate it. There are different rates to choose from therefore it isn’t a simple task and sometimes calculations aren’t always accurate.
Many small businesses use a yearly PTO accrual rate. While many others prefer a month-based accrual rate.
This article takes you through the definition of PTO, PTO accrual, its calculations, different rates, and what to do with the accrued vacation time.
What is PTO?
PTO stands for paid time off. It is a type of benefit the companies give to their employees. In the paid time off, employers give employees a sort of bank of hours from which employees can request off days for different types of leaves. These include sick days, vacation days, etc.
What is PTO Accrual?
Let’s first define the term accrual. Accrual literally means to gather something or to accumulate. That gives us the definition of PTO accrual, which means accumulated paid time off over time. It is the accrued time off an employee has left with them over the time of a year.
Should Your Business Grant PTO?
Many businesses use PTO as a benefit to retain their employees. Offering paid time off can be a great way to reduce turnover.
So is it the right thing for your business and should you use it? The answer is, it’s up to you.
Legally there are no laws guarding this benefit. So, it is totally up to you if you offer it or you don’t. No law says it’s mandatory.
The main thing you need to take into account is your budget. If you do have the budget for it, you can offer paid time off to your employees, considering the benefits it comes with.
When it comes to offering PTO, different businesses have different rules. Some prefer allowing this benefit for full-time workers while some allow it for all types of employees. In the end, it all depends upon the nature and needs of your organization.
Benefits of Offering PTO
Offering PTO has many benefits. For instance:
- It increases employee morale
- Helps manage employee burnout
- It reduces the chances of unscheduled leaves
- Helps maintain a good work-life balance
- Has healthy benefits for employees’ mental health
- Increases retention and decreases the turnover rate
Implementing PTO: What Is The First Step?
If you decide to implement PTO, what should be the first step? The answer is to decide the amount of time you’re willing to allow as PTO. Your PTO policy should mention the number of hours you will allow your employees every year or month. Remember that it is totally up to you to decide this number since there are no laws that govern PTO.
Most businesses commonly offer the following number of hours:
- 40 hours or 5 days
- 80 hours or 10 days
- 120 hours or 15 days
- 160 hours or 20 days
Consider the Roll-Over Policy
Another important thing to consider when implementing PTO is the roll-over policy. Most organizations would make their employees use the paid time off in the given year leaving no room for rollover. This would mean any leftover PTO at the end of the year will become zero from January next year.
However, some businesses are more flexible in this matter. Any leftover PTO can be added to the PTO for next year. For example, if you offer a PTO of 10 days and an employee has 5 days of PTO left in one calendar year, it will be added to the next year. This will make the PTO next year 15 days.
Whatever you decide, your PTO rules should be mentioned in the employee handbook for easier comprehension.
Let’s now take a look at how to calculate PTO accrual.
How to Calculate PTO Hours?
To calculate PTO hours, let’s first understand what are the ways of PTO accrual. Some simple, some complex, here are the following ways PTO can be accrued.
Yearly PTO Rate
The yearly PTO rate is the simplest way of calculating PTO. It is common for employees who work full time that has worked for at least a year.
At the beginning of each month, all employees have a specific number of PTO hours that they can avail themselves of within that year. Then you subtract the number of hours from the total depending on how many leaves they take from you.
Here’s an example:
You gave Kate an annual PTO of 40 hours or 5 days.
She takes a leave of 10 hours from you, which you grant her.
After that, this number of PTO hours gets subtracted from the total (40 hours). That means she now has 30 hours of PTO left (40 PTO hours-10 hours of PTO = 30 hours) in her yearly hours’ bank. How she divides it over the year depends on her.
By Hours Worked PTO Accrual Rate
This method is more common for part-time workers. Since these employees work only part-time, they will get fewer hours than their full-time counterparts, and employees who work overtime would earn more.
For this method, first, you need to decide how many hours you would want your employees to get each year if they worked a regular full-time schedule. For example, 80 hours or two weeks. Next, calculate how many hours your employees would work in a year if they worked full time. This would be 40 hours x 50 weeks, subtracting the time off (and any paid holidays).
That gives us that the employee would work 2000 hours per year.
Next, divide the total number of hours i.e. 80 hours by 2000 hours per year which gives us 0.04.
Simply speaking, for every hour the employee works, they will earn .04 hours of PTO.
To calculate PTO hours for a part-time employee who worked 4 hours, multiply the hours worked by this accrual multiplier:
4 hours worked X 0.04 = 0.16
This means that an employee who works 4 hours would earn 0.16 (nearly 10 minutes) of paid time off.
You can use the similar constants 80 hours PTO and 2000 hours worked every year and figure out the paid time off for your employees no matter how many hours they work.
Daily PTO Accrual
The daily PTO accrual method is great for both full-time workers and part-time workers. The only thing that you need to keep in mind is that the employees whether they work full or part-time should work 8 hours per day. This method is not a great method for employees working in shifts.
Since we’re using the standard 8 hours per day as the base of calculations, the rate will be calculated as follows:
- PTO for full-time schedule = 80 hours
- Total days worked per year = 260 (52 weeks x 5 days)
To figure out the amount of PTO an employee will accrue for every day worked, use the numbers above and put them in this equation:
Daily PTO Rate = Annual PTO Hours / Annual Days Worked
= 80 / 260
This means that for every day an employee works, they will receive 0.30 hours of paid time off.
Remember that if an employee works 8 hours on only specific days and not on others, PTO will be given considering only the full days. Days worked less than 8 hours will be discarded.
If a part-time employee works an eight-hour shift Tuesday and Thursday, along with a six-hour shift on Monday, Wednesday Friday, their PTO accrual is as follows:
Employee PTO = Number Of Full Days Worked x Daily PTO Rate
= 2 x 0.30
Weekly PTO Accrual Rate
When it comes to hourly or daily PTO accrual calculations, both ways work for either part-time employees or full time. However, the weekly PTO accrual rate method isn’t the perfect method for part-time workers. An accrual method that goes beyond one full day is more suitable for full-time employees.
For those employees you calculate the PTO in the following way:
- Annual PTO = 80 hours
- Total weeks worked annually = 52
Weekly PTO Rate = Annual PTO Hours / Total Weeks Worked Annually
Weekly PTO Rate = 80 / 52
= 1.5 hours
Biweekly PTO Accrual Rate
Many companies pay their employees every two weeks. Therefore, the PTO depends on that. To calculate the PTO hours, you follow the exact similar way. Simply take the total amount of PTO you give and divide it by the number of two-week periods that employees work in a year.
- Total Annual PTO = 80 hours
- Weeks Worked Annually = 52
- Total Two-Week Periods Annually = 26 (50 divided by 2)
Two-Week PTO Accrual Rate = 80 Hours / 26 Two-Week Periods
Two-Week PTO Accrual Rate = 3.07 hours
If an employee works 40 hours both weeks, they’ll receive 3.2 hours of PTO for that pay period.
Easy PTO Tracking with AttendanceBot
Wondering how to figure out PTO for employees easily? Try AttendanceBot. We understand you have got a lot on your plate and calculating PTO accrual is time-consuming.
With AttendanceBot’s employee scheduling and time tracking features, you can easily handle all of your business needs and leverage your time effectively.
With this software, you can forget worrying about employee scheduling, and communicate with employees all in one platform.
We understand that all companies are different and so are your leave types. You can create your own leave types, create your own quotas, create custom multi-level approval workflows and set up your own time periods.
Whether it’s tracking leaves, time off, sick leaves, or vacation time, AttendanceBot helps you with it all.
How to Track PTO with AttendanceBot?
- The user can simply type in the leave type name, followed by the date, and hit “confirm”
- Alternatively, they can apply by using a conversational approach as well. A few examples are:
- WFH tomorrow
- Sick – Omitting a specific date is assumed to be a request for ‘today’
- Vacation 05/04 to 05/07 – this is a request for 4 days of time off including the 4th and 7th of May
- Working remotely this Friday
- Working from London Office next week – This means you are planning to work from a remote place for the entire next week.
Simply say ‘leave’, ‘vacation’, ‘time off’ etc to denote a vacation or time off, ‘sick leave’ to denote a sick day, and ‘wfh’ or ‘working from home’ to denote working from home.
- You can specify the start date and end date in different formats
- Numerical form MM-DD or MM/DD.
- You can use phrases like ‘today’, ‘tomorrow’, ‘day after tomorrow’, ‘next week’, ‘last Friday’, ‘this Tuesday’.
- You can say “Jan 30” or “March 21, 2021”
AttendanceBot would verify the actual date with you before recording your leave request.
You can also refer to this short video to quickly understand how to apply for time off.
Calculating PTO manually is not a simple task. There are many rates and ways to choose from and the calculations aren’t always intuitive. You should invest in the right PTO tracking software that suits your organizational needs and budgets and employees.