Now that you’ve had a week to mull over the PTO categories and your own policy, we’ll cover the next step in the process, the PTO accrual! Besides an employee’s take-home pay, PTO accruals are often a favorite part of a job. Most people don’t like to do something for nothing, but what about doing nothing for something? In other words, you aren’t at work, but you still receive a paycheck!
Due to competition among companies to hire qualified and committed workers, employers today are aware of the fact that employees are keen to receive fringe benefits, such as employer-sponsored health insurance, 401k plans, and PTO (Paid Time Off). PTO is a significant component of an employee’s total compensation package. In fact, some employers value PTO so much that they offer unlimited PTO to employees! Yet other employees (and employers) are not entirely sure about PTO, or the accrual plan that is in place at their company.
Calculating accruals is not rocket science. However, it is important to understand the specific plan your company has in place. Once you know the policy, you’ll easily be able to calculate accruals going forward.
The Components of PTO
Before diving into the PTO accrual calculation, you need to find out if your PTO plan is a true PTO plan (where specifics about time off is irrelevant because everything is lumped into the same category), or if your paid time off is actually recorded as vacation, sick, personal, bereavement, etc. The reason this is important is that some employers will have different types of PTO accrue at different rates.
Or, they might even give employees types of time off in a lump sum, while another kind of time off is accrued. For example, some employers will give employees all of their vacation time up front starting in January, but the employees may accrue sick time all year long. The benefit of having a dynamic PTO plan in place is that it will allow an employee to take vacation at any time during the year, but will help prevent employees from exhausting their sick time all at once.
Besides different types of PTO, there may also be complex rules for PTO. For example, many employers will allow certain kinds of PTO to roll over to the next year if unused. Other employers may only let a portion of the remaining time to roll over, while others will have a “use it or lose it” policy where PTO is concerned. Knowing these details about your company’s PTO plan will help ensure a complete understanding.
Furthermore, it’s crucial to ensure you’re following proper HR guidelines as well! For example, in many states, you cannot have a use it or lose it PTO policy. If an employee’s PTO is described as earned or accrued, it cannot be taken away, but only paid out. Not only is it essential to make sure your policy is HR approved, but also clearly stated in your handbook. Do your research and understand your state’s laws before implementing anything. Cover your bases!
Amount of PTO
To know how to calculate PTO accruals, you’ll need to start with the amount of PTO each employee is offered on an annual basis. Keep in mind that some employees will accrue more PTO each year than other employees, and this is typically due to things such as their tenure with the company or a special agreement they negotiated upon hire.
So, what is the typical amount of PTO given to employees each year? Well, statistics vary, since federal law does not require employers to pay employees for time off. However, data shows that after one year of employment, American full-time workers can typically expect to receive around 10 days of PTO.
Now, keeping that data in mind, we can use 10 as our PTO amount for calculations.
When calculating PTO accruals, we need to know all there is to know about what goes into the equation for the accrual. We will start with the accrual frequency.
Employers can choose from several different frequencies to calculate accruals, and they are as follows:
- By number of hours worked
- By days worked
- Bi-weekly (every two weeks)
- Semi-monthly (two times per month, no that is not the same thing as bi-weekly)
This probably looks a lot like the different pay frequencies an employer can offer an employee, right? That is because payroll and PTO go hand-in-hand, so it would not make sense to calculate accruals at a radically different frequency than the payroll. It would start to get a little confusing and frustrating, which is the exact opposite of what we’re going for!
The next factor that goes into the equation for calculating the PTO accrual is the accrual rate. This rate will depend on the things mentioned previously—the components of your company’s PTO. If your company has true PTO, then there would be nothing to break out (vacation, sick, bereavement, etc.).
Therefore, the process for figuring out the accrual rate and calculating accruals would be something like this:
- There are 52 weeks in a year, and your employees can accrue up to 80 hours of PTO (10 business days).
- Employees are hourly employees, so they accrue by the number of hours worked.
- If an employee works 40 hours per week, times 52 weeks per year, the employee will have 2,080 hours available to accrue PTO under.
- Divide 80 (the number of hours in the PTO bank) by 2,080 (the number of available hours to work), and you will have your PTO rate, which is .0385.
- If employees work all 2,080 hours in a year, they will accrue 80 hours of PTO.
That was not so bad!
Non-Accruing Time and Pro-Rating
One thing to consider is that there will be certain situations along the way where employees may wonder why they did not accrue PTO time. Such cases include unpaid absences from work, overtime, and being on-call. In these situations, employees do not typically accrue PTO time, since employers base the accruals on regular time worked.
Also, if an employee begins employment path way through a fiscal year, that employee may only be able to accrue a fraction of the PTO days, until the calendar resets for the year.
The Other Side of PTO
Besides knowing what a PTO accrual is and how it is calculated, there is one more important thing to understand about this topic: unless there is a specific reason that you are stockpiling PTO time (planned absences, such as vacation or maternity, or anticipating family illness), try not to let PTO go unused.
Studies show that workers who forego vacation and personal time are at a higher risk for stress-related illnesses and burnout. Companies offer PTO as part of a benefits package that they intend employees to use, not to keep as a trophy that sits on the shelf. Here is a little helpful reminder: When you are considering your symptoms, remember PTO. PTO is always there in the middle of SYMPTOMS. In other words, it is important to use your PTO time to keep yourself healthy in every aspect of the word—for your own good, and for the sake of your career.
Keep PTO Accruals in Focus
With everything else that occupies space in your brain during a day, PTO accruals may be the last thing on your mind. Now that you know how PTO accruals are calculated, and you know how using PTO time benefits workers, you can start to focus on the fact that at each interval in which PTO time accrues, it’s basically like money in the bank. After all, time is money, right?