Business Math: How to Calculate PTO and Vacation Accrual

Let’s Talk Business Business Math Business Math: How to Calculate PTO and Vacation Accrual

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    Chelcy
    Keymaster
    Calculating PTO by hand is a 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.

    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.

    PTO Calculations

    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 amount of time employees should earn at each pay period.

    Yearly

    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 left over 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 which 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.

    The calculation

    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.

    Daily

    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.

    The calculation

    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 the see PTO in each cycle.

    Example

    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.

    The calculation

    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 pay check. It’s also a little less confusing and easier to figure out an employee’s current PTO amount if records go missing.

     

    SOURCE:https://www.timesheets.com/blog/2013/04/calculate-pto-vacation/

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