Calculating PTO and vacation accrual is part of the payroll process – and one that needs to be done quickly and accurately. For full-time employees, PTO is a must-have perk of the job. Employers give hours and days to employees to take a well-deserved vacation, recover from an illness or care for sick children. But how much PTO to give and how it is accrued is completely up to the employer. No matter how much PTO your employees receive, it is essential to understand how to calculate it and vacation accrual correctly.
A couple of decades ago, employees typically received vacation and sick time separately. For example, an employee might have two weeks of vacation and five sick days. Those days had to be used for the intended purpose – taking a vacation or staying home sick. Today, many employers give workers lump time designated as PTO or paid time off. PTO combines vacation, sick and personal time that employees can use at their discretion.
For example, an employee can use PTO to go on a trip, stay home with a sick child, wait for a repairman or just take a break from work. How the time is used is up to the worker and is not the business of the employer.
There is no set amount of PTO an employer is required to give an employee. According to the Fair Labor Standards Act (FLSA), benefits are matters of agreement between an employer and an employee. The FLSA does state that an employer does not have to pay workers for time not worked, like vacations, sick leave, federal or other holidays.
The exception to the rule is for federal contractors.
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Every company has a different policy on how PTO is accrued and distributed. Some employers vary PTO amounts by year of employment, i.e., for every five years of tenure an employee receives an additional week of PTO. Other examples include:
It is common for many employees not to take their full PTO each year. In fact, some 46% of US workers don’t take all of their PTO, according to Pew Research. Besides encouraging employees to take a much needed, and beneficial, break, some employers allow workers to roll over their leftover PTO. The rollover period might be 30 or 60 days. Other companies simply require employees to use their PTO or lose it to simplify calculations.
For employees, calculating the amount of PTO you’ve earned depends on how it is awarded. If you receive PTO as a lump sum at the beginning of the year, you subtract the amount you’ve used from the entire amount. If you receive 120 hours of PTO each January, three 40-hour weeks, and you’ve taken two days and two hours, you subtract 18 hours from 120. The calculations are a little different for accrued PTO by pay period. According to Indeed:
These calculations show accrued PTO isn’t as simple to calculate, for both employers and employees, for weekly and biweekly employees.
As noted above, calculating and tracking PTO can be tricky and time consuming for payroll. Some employers have opted to give employees unlimited PTO, allowing them to come and go as they need, so long as the work gets completed. Google, Hubspot and Netflix are some of the companies that have added unlimited PTO to their company culture. The idea behind offering unlimited PTO is to offer employees a better work/life balance. Employees have the ability to decide if and when they can take time off, without damaging the company.
The Pros: Unlimited PTO frees up payroll from having to track and calculate PTO. Employers also don’t have to pay out large sums of unused PTO to employees who quit. Employees have much more freedom as they aren’t required to get managerial approval when they need to take time off. Unlimited PTO is thought to increase productivity and allows for more communication between employee and manager. Unlimited PTO can also entice candidates to join your company.
The Cons: Unlimited PTO policies leave companies with a lot of questions. For example, what happens when employees take so much PTO that the work suffers? Or how does unlimited PTO fit into the Family and Medical Leave Act, which tracks time off taken and protects the employee from losing his or her job? Does unlimited PTO work for non-exempt employees, those who receive overtime pay? There is also a new phenomenon where unlimited PTO creates a culture of competition between employees who look down on those who take PTO as being disloyal.
PTO is necessary to give your employees time to relax, rejuvenate and come back to work refreshed. But the policy needs to work for both the employer and the employee.
Be transparent about PTO. Communication is key to a good PTO policy. For industries like construction, workers are needed more in the busy season than during the winter months.
Keep everyone on the same page. Make sure the entire team knows when employees will be out. Ask the employees taking PTO to make sure any work is covered and by whom. Add an out-of-office event to Core HR and email.
Incentivize off-season PTO to mitigate multiple requests during holidays. For example, it is common for employees to take the week off between Christmas and New Year. If you need some staff working during that time, offer extra PTO to those that take off less popular holidays or during slow times.
Have a good tracking system. A good workforce management system, like ExakTime’s Time Clock App, can not only track when your employees work but the number of hours they’ve accrued. The app also includes scheduling features that allow employers to assign shifts and tasks to workers and crews and send alerts. See how it works by contacting us today.