September 13, 2022
No matter if you have one employee or a hundred, it’s important to know how to calculate PTO accrual. There will inevitably be a time when your employees need a day off. Whether it’s for a vacation, sick day, or family emergency, it’s important to have a policy in place for employees to use their paid time off at their discretion.
Of course, calculating PTO is easier said than done. Especially if your business offers a PTO accrual. Read on to learn more about the different types of PTO policies and how a PTO accrual calculator can help you easily manage paid time off for all your employees.
Types of PTO Policies
First things first: when it comes to understanding how to calculate PTO, you need to define your business’s PTO policy. The Balance explains that a paid time off policy combines vacation, sick time, and personal time into a single bank of days for employees to use when they take paid time off from work.
There are three popular options to choose from, each with its own advantages and disadvantages:
Also known as a lump sum PTO policy, this strategy is as straightforward as it sounds. Essentially, employees are given all of their PTO days upfront to use throughout the year. At the end of the period, their unused days may expire or a portion may roll over into the next year. The period may be the start of the calendar year or the employee’s start date.
Each year of employment, employees may have a day or two added to their annual allotment. This strategy gives employees more flexibility for how and when to use their PTO and can also be used as an incentive or method for employee retention. Plus, the PTO balance is easy to calculate since it’s a lump sum. For instance, a new employee may start with a total amount of 40 hours per year of PTO.
The downside is that employees can truly use their PTO whenever they wish, which can leave your team in a lurch. Many employees may also try to use up their PTO before they leave the company, which isn’t beneficial to the transition process.
Offering an unlimited amount of PTO is slowly gaining popularity in the corporate world. However, the Society for Human Resource Management explains that paid open or unlimited leave is still the least popular PTO policy. According to the most recent numbers, only 6% of companies indicated they offered this benefit.
Unlimited PTO can be a great tool to use for recruitment and makes it easy to calculate PTO time. But it also has its drawbacks.
According to Zenefits, the lack of a specific allotment of vacation days means there is no policy to encourage time away from the office. This leaves the potential for employees to be chastised for taking their vacation days. At the same time, there may be employees who take too much advantage of this policy.
One of the most popular PTO policies continues to be accrued. This strategy involves calculating PTO balances based on the number of hours worked or a quarterly or monthly accrual period. There’s no rollover policy like for a lump sum, but there are still some rules in place like a maximum amount of PTO an employee can accrue.
This remains one of the best ways for large and small businesses to offer PTO. While it can be slightly more difficult to calculate a PTO accrual rate, it’s a great way to accurately reflect the amount of work employees put into your business
What makes this type of PTO policy more complicated is that there are also different types of PTO accrual. Here are a variety of accrual types and their nuances:
Accrual by Week
This strategy is helpful if you have employees who consistently work eight-hour days. For this calculation, a full day’s work is the foundation of the formula. PTO may also be accrued by week, though this is more beneficial for full-time employees on a consistent work schedule.
Accrual by Pay Period
This method is best for employees on a bi-weekly payment schedule. This way, they can see how their time off is accrued in bulk.
While the best PTO accrual method depends on your business needs, most stick to accrual by hours worked.
How to Calculate Accrued PTO
Calculating accrued PTO can sound complicated, but there’s a simple formula you can typically follow. The experts at Indeed provide three steps to calculate accrued PTO for your team:
1. Set Your Accrued PTO Limit
What is the PTO limit for your employees? This can vary depending on seniority. For instance, new hires may be able to accrue 10 days of PTO a year, while a more senior team member may be able to earn 20.
This helps you determine the total number of hours an employee can accumulate during the course of the year.
2. Divide Annual Hours by Pay Period
Next, calculate the number of hours an employee can accumulate during each pay period. This is either 12 if your employees are paid monthly or 24 if paid twice a month.
For instance, an employee who receives 15 days off per year can accrue 120 hours of PTO annually because 15 (days) x 8 (hours worked in a day): 120 hours. If they are paid twice a month, divide 120 by 24, which means they will accumulate five hours of PTO each pay period.
3. Multiply the Number of Hours Worked by Pay Period PTO
To calculate the amount of time an employee has accumulated, you need to multiply the amount of time that they accrue in each pay period and multiply that by the total amount of hours worked.
As you can imagine, completing this formula for dozens of employees can be time consuming. It can also be further complicated if you have a mix of full-time and part-time employees who may not all work 40 hours a week consistently.
That’s why many businesses turn to an accrued PTO calculator to help.
Benefits of Using a PTO Accrual Calculator
A PTO accrual calculator based on hours worked is the most accurate way to track employee time and determine their PTO accrual rate. A PTO rate calculator can help your business:
Don’t be bogged down by spreadsheets or complicated calculations again. A PTO accrual calculator takes your employees’ information (hours worked, PTO limit, and pay period) to easily determine how much PTO they have accrued.
This saves you time to focus on important tasks that improve your business’s bottom line.
Improve Employee Satisfaction
PTO policies are incredibly important to your employees. Many times, potential hires look at these benefits before making their final decision. A PTO rate calculator eliminates human error that can occur when calculating accrued PTO and the frustration that comes with it.
You and your employees can have the peace of mind that their PTO is always being calculated correctly with a PTO calculator.
Be Transparent With Employees
The right PTO accrual calculator gives your employees more transparency into their accrued time off. When your employees have access to the calculator, they can easily check their PTO balance no matter where they are. This puts them in control of their schedule and gives them a better understanding of their accrual rate.
Customize Accrual Rates
Do you employ both salaried and hourly employees? PTO for hourly employees may be different for your salaried employees. A PTO accrual calculator can help you determine accrual rates for all of your employees regardless of their seniority or category of employment.
If an employee’s status changes, like if they earned more annual PTO as part of their raise, this can easily be updated and reflected in the calculator.
PayClock Online Time Clock With Free PTO Accrual Calculator
When you need an intuitive, adaptive PTO calculator, you can trust Lathem. PayClock Online Time Clock is the solution that makes employee time tracking a breeze, including tracking PTO.
As soon as employees clock out, information about their shifts will be synced to a timesheet which can be accessed by employees and managers through an employee portal. This gives them an accurate picture of how many hours worked in addition to accrued PTO.
The time tracking reporting software includes a free PTO accrual calculator that can help your business automate this tedious process. Additionally, it can identify hours worked, calculate full and part-time status, seasonal work, and Full-Time Equivalent (FTE) employees.
PayClock Online reports can be accessed anywhere you are. Employees can view their records including PTO from anywhere they are, on any device, with the touch of a screen.
Learn more about PayClock Online Time Clock software and its included PTO accrual calculator today!