If your business has employees, you likely have a policy for paid time off. While many employers would find it simplest to just grant each employee a fixed amount of vacation time, doing so could leave the company with a liability if the employee takes the full allocation then leaves. For safer and more accurate PTO calculation, many companies instead allow employees to accrue PTO as they work.
Calculation by Pay Period
Because salaried and exempt employees receive set compensation regardless of the number of hours they work, many businesses calculate their PTO in a straightforward manner. Calculating PTO by pay period allows you to evenly distribute these employees’ accumulation throughout the year.
Step 1: Determine how many PTO hours the employee will receive per year.
You will likely have employees earning PTO at different rates, with more senior employees earning more hours per year than newer employees. For example, an entry-level employee may earn 80 hours of PTO per year, while a senior manager might have twice that many.
Step 2: Divide the annual PTO hours by the number of pay periods in a year.
Most businesses pay employees every two weeks, so you will likely divide the number of PTO hours earned per year by 26. If you pay your employees weekly, divide by 52 instead. If the employee earns 80 hours of PTO per year and gets paid every two weeks, he will earn 3.08 hours of PTO each pay period.
Calculation by Hours Worked
If you have hourly or part-time employees, you may want to award PTO based on the number of hours worked. Calculating PTO hourly allows you to award less PTO for hourly employees who do not report to work or for part-time employees who do not always work the same number of hours in a pay period.
Step 1: Determine how many hours the employee will receive per year.
While many businesses award full-time employees two weeks of PTO per year, you may choose to award part-time and hourly employees less than salaried and exempt employees.
Some businesses award part-time employees only 40 hours of PTO per year. Other businesses still award part-time employees two weeks of PTO each year, but the number of PTO hours is based on the employee’s average weekly hours worked. For an employee working 25 hours per week, two weeks of paid time off would require only 50 PTO hours.
Step 2: Determine how many hours the employee will likely work per year.
Multiply the employee’s average weekly hours by 52, the number of weeks in a year. For an hourly employee working 40 hours per week, use 2,080 hours per year.
If you have an hourly employee working 40 hours per week and earning 80 hours of PTO each year, you may choose to divide the PTO hours by 2,000 (50 weeks) rather than 2,080. This method allows you to award PTO hours for actual hours worked, not for PTO used.
Step 3: Divide annual PTO hours by annual work hours.
If your hourly employee earns 80 hours of PTO each year and works 40 hours per week, or 2,080 hours per year, divide 80 by 2,080. As a result, this employee earns 0.038 hours of PTO for each hour worked.
Using PTO in Advance
Because all methods of PTO accrual make it difficult for employees to take time off during the first few months of the year, many businesses allow employees to borrow vacation time. Businesses typically limit the amount of time an employee can use in advance, but often allow at least 40 hours so employees can take an entire week off.