Paid time off — abbreviated as PTO — is a benefit that some employers offer to their employees. While there’s no legal requirement for companies to offer paid time off to their employees, it can be a useful benefit that helps to attract and retain top talent. For that reason, more and more companies are incorporating PTO into their employee benefits package.
There are various ways to offer PTO. Ultimately, the goal is the same: it gives employees paid time off work, which they can use for vacations, sick leave, personal time, or anything else they want to do with it.
Some companies offer an annual bank of hours or days to their employees, which they can use upon request. Others offer unlimited PTO. But some companies use the ‘accrued PTO’ method, whereby employees acquire time off based on the number of hours that they’ve worked. The more the work, the more PTO they have.
In this blog, we’ll run through the ins and outs of PTO accruals, and answer that question: how are PTO hours accumulated?
How are PTO hours accumulated?
PTO hours are accumulated over a period of time. The more hours that the employee works, the more PTO they will have. How much time the employee accrues depends on the company’s policy; they may allocate a number of hours for each week, two weeks, month, year, or pay period that the employee has worked.
For instance, let’s say that an employee has worked at the company for one year on a full-time basis. During the following year, they may be entitled to 160 hours of paid time off (the equivalent of 20 days). This is a straightforward approach; things can get a little more complicated when managing part-time employees when an hourly approach to PTO accrual is generally more appropriate.
How do you calculate PTO hours?
To calculate PTO hours, you’ll need to know how much PTO you want to make available to your employees. A good starting point is to determine how much you would offer a full-time, salaried employee over a one-year basis. From there, you can divide your full-time hours by the number of hours you wish to offer.
Let’s say a full-time employee works 2080 hours a year. You want to offer 160 hours of PTO for full-time employees. The employee would gain one hour of PTO for every thirteen hours worked. You can apply the same calculation to your part-time employees; if they work 39 hours in a month, they will accrue three hours of PTO.
How does PTO accrue?
PTO usually accrues per hour worked. The more hours that the employee works, the more PTO they will receive. Companies can manage their PTO accrual policy in a variety of ways and will depend on whether the employee is in a salaried or hourly position. Ultimately, PTO accrues in line with the amount of time that the employee spends working for the company. The more hours they work, the more PTO they will be entitled to, per the company’s PTO policy.
How is PTO payout calculated?
PTO payout is calculated in two ways, depending on whether the employee is in an hourly or salaried position. Ultimately, the end result is the same: you’re paying the employee for the unused PTO hours they have accrued once they leave your employment.
For hourly employees, you simply multiply the employee’s hourly rate by the number of PTO hours they have accrued. For example: they earn $10 an hour and have accrued 6 hours of PTO. Their PTO accrual amount would be $60.
For salaried employees, you must first calculate the employee’s hourly rate. You can do this by dividing the value of their salary divided by the number of hours they have worked. (example: $40,000 a year/2080 hours = $19.2 an hour). From there, you multiply the number by the amount of PTO hours they have accrued. (Example: they have 17 hours. 17 x 19.2 = $326.40).
How is time off accrued?
Time off is accrued over a set period of time that is defined by the company. The employee may gain PTO accrual based on how many hours, weeks, or pay periods they’ve worked at the company. The more that the employee works, the more PTO they will accrue. There’s usually a cap on how much the employee can accrue (for example, all PTO must be taken before the end of the calendar year).
What does 20 days PTO mean?
20 days PTO means that the employee has twenty days of paid time off. They will take the twenty days in line with the company’s PTO policy; for instance, they may be able to take the time off all at once (twenty consecutive days) or have to break it up into smaller chunks. 20 days is effectively the same as ‘four weeks’ if the company follows the usual Monday – Friday schedule.
What does accrued PTO mean?
Accrued PTO is paid time off that has been earned over a period of time. For example, an employee may ‘accrue’ paid leave for every forty hours that they work for the company. This differs from ‘banked PTO,’ which is when a company has a standard PTO policy that applies to all its employees. PTO accrual is favored by small businesses as it’s a convenient way to offer a much in-demand benefit without having to put together an expensive benefits package.
What is my PTO worth?
Employees can determine what their PTO accrual is worth by calculating the number of hours they have accrued and multiplying it by their hourly rate. If an employee has 18 accrued PTO hours and an hourly rate of $10, then the value of the PTO would be $180. Salaried employees can find their hourly rate by dividing their salary by the number of hours they’ve worked. To calculate PTO can then multiply the hourly rate by the number of hours they have accrued.
PTO accrual can sound tricky, but it’s not really. A benefit that brings value to both employer and employee, it’s a great way for companies to attract talent without breaking the bank.