How To Calculate PTO and Vacation Accrual?

If you are not math savvy, calculating paid time off is not an easy task to deal with. Things are getting a bit more complicated when most of your employees are off for summer or winter vacation and new employees are having short term contracts.

Going for the yearly accrual rate is most commonly the option, however, some companies would like to have different accrual rates for vacation such as hourly pay. We will go through such cases and present the ways on how to calculate vacation accrual. 

  1. Yearly accrual rates
  2. Monthly accrual
  3. Semi-monthly or twice per month vacation accrual
  4. Bi-weekly, or every two weeks vacation accrual
  5. Daily vacation accrual
  6. Hourly vacation accrual
  7. Calculating the hourly rate of vacation time
  8. PTO hours to days converter
  9. Best practices on vacation accruals

Yearly accrual rates

If you go for the yearly approach, it is the easiest to calculate. Ie: for 12 months each full-time employee has 11 paid vacation days. This is also the best option if in your company you have full-time employees, that have passed the tenure year. The math is easy: when they take time off, you deduce from the total PTO the number of days off.

Additionally, to benefit of the entire 11 days you will have to work for one year. This is why employees would not like to wait so much, so other accrual types come handier.

The situation gets difficult when you are dealing with temporary workers. Shorter accrual rates are a better fit for such situations.

Important: For employees that are not hired on the first day of the year, their vacation must be prorated. This means that the employee will not benefit for the full amount of vacation days, for one year but for the rest of the year. 

Two PTO calculation examples: a. for a full time employee in days, and b. for a part time employee in hours.

A. for a new full-time employee hired on 1 July 2019, hired in a company offering 11 paid vacation days yearly, the calculation will be the following.

  • 2019 has 250 working days (and 115 weekends) within the 12 months. 
    From 1 January to 1 July, there are 84 working days. 
  • Let's calculate the employee's prorated number of working days: 
    250 working days - 84 working days = 166.
  • Divide the number of days worked by the total number of days in the period:
    166/365 = 0.454.
  • Multiply this quotient by the number of days off granted per year. 
    0.454 x 11 days = 4.9 days.
  • The employee shall be offered 4.9 days of PTO in 2019.

B. for a part-time employee working 10 hours per week the steps to calculate the vacation days would be the following:

  • Divide the number of hours worked by the number of hours of a full-time employee weekly:
    10/40 = ¼ = 0.25
  • Multiply the result by the amount of PTO hours provided to full-time employees per year:
    0.25 × 88 hours = 22 hours.
  • The employee will benefit from 22 hours of time off per year.

If the employee had been hired on 1 July, the prorated value would be calculated as follows:

  • Start by dividing the number of hours eligible per year (22) by the number of weeks (52) 22/52 = 0.423
  • Calculate the number of weeks between two dates: between 1 July 2019 and 1 January 2020 - there are 26 weeks and 2 days.
  • Multiply the number of hours the employee should receive every week by the number of weeks until the end of the year.
    0.423 × 26.2 = 11.08
  • The result is 11.08 hours to be offered to a part-time employee.

Monthly Accrual

If you go for the monthly accrual within your company. This is a great option, easy to calculate and appreciated by employees.

  • The monthly PTO calculation would be as follows: the number of total PTO hours per year divided by 12 months.
  • Let’s check one concrete example: Josh has 80 hours of PTO yearly. 
  • 80 hours / 12 months per year= 6.66 hours per month.

To calculate the available balance on a particular day, lets say end of April (after 4 months of work starting January 1), then multiply the monthly accrual with the number of months worked: 6.66 hours x 4 months = 26,64 PTO hours. Tip if you divide 26.64 by 8 hours the default number of hours per day you get the value in days 26.64/8=3.33 days.


Semi-Monthly or Twice Per Month Vacation Accrual

This type is again easy to handle and employees will have the same amount of accrual at each payday. The calculation of the number of hours that employees can accrue for their holidays, in this case, is the following:

  • The semi-monthly PTO calculation would be as follows: the total PTO hours per year divided by 24 periods. Where 24 = 12 months x 2, as the name says - bi-monthly - twice per month.
  • 80 accrued PTO hours/24=3.33 hours earned twice every month.

Bi-Weekly or Once Every Two Weeks Vacation Accrual

To calculate theonce every two-week accrual is a bit more different from the semi-monthly.

  • Since it's every two weeks you will have to divide the yearly number of PTO hours by 26, not 24 (like in the semi-monthly case). Where did we get 26 from?
  • This is the simple math result of this equation: 52 weeks in a year / every 2 weeks.
  • 80 accrued PTO Hours/26 = 3.07 hours earned every two weeks.

Daily Vacation Accrual

This is another good accrual type. The daily PTO accrual works well with full-time employees. When it comes to people dealing with shifts this is not a good option. Moreover, part-time employees must work full time for a good calculation. In companies with high-turnover, this type of accrual is often the norm.

  • Let’s see the formula for the daily PTO accrual type for a full-time employee working 40 hours a week: 80 accrued hours/ (5 working days x 52 weeks) = .307
  • The result (quotient) needs to be multiplied by the number of days worked. 0.307 x 22 days worked = 6.75 hours earned for 22 days (the number of working days in July).

Hourly Vacation Accrual

The calculation of paid time off, in this case, is the following: divide the yearly accrued vacation hours by the total number of hours worked in a year.

  • For 2019, we are speaking about 2000 hours. This type of PTO rate is good for employees that are working variable schedules.
  • 80 accrued hours /2000 = 0.04 hours earned per hour worked.

Calculating the Hourly Rate of Vacation Time

To calculate the hourly rate of vacation time, or PTO pay follow these 3 simple steps:

1. Identify the hourly pay based on your salary
For a full-time employee that works 40 hours a week (5 days per week x 8 hours ) for a full year - 52 weeks and has a salary of $52,000, it will earn per week $1,000 and $25 hourly.

Hourly rate formula = [$52, 000 / 52 weeks per year ] / 40 hours per week = $1,000 /40 = $25.

2. Identify how many hours of vacation you tool
If you took 3.5 days of vacation, the calculation would be:

PTO days from hours =3.5 x 8 hours per day = 28 hours of vacation.

3. Identify how much you need to pay
The hourly work pay is equal to the vacation pay.

Vacation pay = hourly work pay of 28 hours of vacation x $25 per hour = $700 before taxes.


PTO Hours to Days Converter

If you are looking to convert easily hours of PTO to days, depending on the number of hours you work per day, here you can find the conversion:

If you earn this many hours of PTOThen you have this many days of PTO
81
162
243
324
405
486
567
648
729
8010
8811
9612
10413
11214
12015
12816
13617
14418
15219
16020
16821
17622
18423
19224
20025

Best practices on vacation/PTO accruals

PTO and Vacation accruals is a topic with several variables that HR managers need to consider in their policy.

  1. Track not only one type of time-off but several ones. You must track not only the vacation days but also the sick days. Other types of leaves can exist; however, these should not affect these balances.
  2. Handling time off in lieu or overwork bonus. We have encountered companies that provide extra PTO hours or days to the PTO balance of long-hour workers (compensatory). 
  3. Different allowances by contract type. The allowances should differ according to the contract types and the role (i.e., between managers and staff or between full-time personnel and part-time workers).
  4. PTO rollover: What happens at the end of the year? Will the unused days/hours will be carried to the next year? If yes, how many days. In some countries the carried days, must be used in a specified number of months (ie in the first 4 months of the year, else they will be lost).
  5. Agree on how much PTO your employees can earn. The PTO calculation requires you to agree on how many hours a full-time employee can accrue yearly. The US government doesn’t require employers to offer paid vacation. However, employees benefit from an average of 11 paid vacation days (88 hours).
  6. Tenure bonus. Reflect on the fact that senior employees will accrue more PTO days per year than the junior ones. For example, some companies give +1 PTO day for every year in service until employees reach 15 PTO days annually.
  7. Define the accrual period. The next step would be to decide on what type of accrual rates your employees will choose:
    • yearly
    • monthly
    • twice per month
    • weekly
    • twice per week
    • daily
    • by hours worked.
  8. Probation periods: Consider if there will be a waiting period before the vacation accrual starts for newcomers. Reflect on the fact that new employees. Will they become eligible after the first 90 days of employment or after 12 months of continuous service?
  9. Holidays: Does your organization offer paid public holidays, if yes, are they all the 11 federeal holidays, or only a few of them. Most of the times US business follow these holidays are New Years Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas.
  10. Proration for new hires: Depending on the contractual start date of the employee, if the company has an annual policy that allowance might be prorated. Ie, if the employee is entitled to 10 days of PTO per year, however hired on April 1, it should get only 3/4 of that entitlement.
  11. Annual start date: For most organization the business start date is January 1, and on that date the annual reset happens, yet, for some sectors such as education it starts on September 1. Other countries might have other annual start dates also.
  12. Have a balance cap: Employees should be encouraged to spend their PTO. Such policies encourage reluctant staff to spend their time off and should comply with the legislation.


FAQ

How many days is 88 hours of PTO?

88 hours / 8 hours per day = 11 days of PTO.

How many days is 28 hours of PTO?

28 hours / 8 hours per day = 3.5 days of PTO.

How many days is 200 hours PTO?

200 hours / 8 hours per day = 25 days of PTO.

How to calculate PTO hours to days?

To calculate the PTO hours in days, divide the number of hours of PTO by 8, or the number of hours you work per day.

For example if you have 80 hours of PTO yearly then 80h / 8h per day = 10 days of PTO.