How To Calculate Prorated PTO
Calculating prorated PTO is a lot like finding the square root of a banana. It’s very tricky, but with a little practice, you can do it.
In most cases, it is calculated with a fairly simple formula. However, there are a few caveats you have to consider when calculating this form of PTO in your company.
What exactly is prorated PTO?
Not all time-off is created equal.
When you hire a new employee at any given time other than the very first day of the year, their vacation days must be prorated. The total number of vacation days an employee is entitled to is based on the full calendar year in most instances, assuming that the company operates under an annual accrual policy.
In this case, the new employee will most likely not start the year with the full number of vacation days. Therefore, you should calculate how much vacation they should take for the remainder of the year. It also dictates how much vacation time they accrue as they go on with their year. Therefore, figuring out how to prorate PTO is a crucial task, since it will happen almost every time you hire a new employee.
How you can start calculating prorated PTO
Before you start doing any calculations, you’ll need to figure out just how many hours or days of vacation you want to give your employees. This usually varies according to local leave laws and policies concerning PTO.
Most businesses prefer to give employees a yearly accrual rate since it’s easy to calculate. If, for example, an employee takes a day off, you can simply subtract it from the total for the year.
In many companies, employees can also accrue time off based on the number of hours they work. This method is ideal for part-time employees who have varying schedules. Calculating paid time off according to hours worked allows you to give full-time employees more time off than part-timers. Furthermore, you can also provide more vacation days to those who work overtime. Usually, your method of PTO accrual is usually one of the following:
- By hours an employee has worked
- Given twice per month
- Awarded every two weeks
- On a monthly basis
- Accrued annually
How to prorate PTO
For full-time employees
The process of calculating prorated PTO is relatively simple for full-time employees. All you have to do is:
- Determine the number of days that an average employee works during a given time.
- Divide that number by the number of total days in that period.
- Multiply it by their accrual rate.
Sounds confusing? Allow us to put it into context with a quick example.
Hannah works at an IT company that offers 2 weeks (or 10 working days) of vacation annually.
The company she works for functions on an annual basis. She was hired on May 1. Between May 1 and December 31, she will have worked 244 days for the company in the year she was hired.
So, start by dividing the number of days she worked by the total number of days in the year: 244 / 365 = .668
Then, multiply that total by the accrual period (10 days): .668 x 10 = 6.68
Hence, if Hannah started work on May 1, she will be entitled to 6.8 days off.
For part-time employees
Calculating prorated vacation days for part-time employees is best done by calculating hours rather than days. To do this:
- Divide the number of hours your part-time employee works by 40 (which is the standard work hours for full-time employees)
- Then multiply that number by the number of vacation days for a full-time employee.
Still confused? Let’s look at another example.
Caroline is a part-time employee at the same IT company, where she works around 10 hours per week. As mentioned above, the company offers 10 days of vacation per year, which translates into 80 hours per year.
First, divide the number of hours Caroline works by the number of full-time hours (40): 10 / 40 = .25
Multiply that calculated rate by the number of vacation hours provided to full-time employees (80): .25 x 80 = 20
This means that Caroline will be entitled to 20 hours of vacation per year.
Having allocated Caroline’s vacation days, you will now prorate her PTO by dividing it by hours rather than days.
Let’s say that Caroline also started working at the company starting May 1. Determine how many hours she will earn per week for vacation.
Divide the vacation time she’s allotted by the number of weeks in each calendar year (52): 20 / 52 = .3846
Hence, Caroline earns .3846 hours of vacation hours per week. If she has also been hired on May 1, she will be working 35 weeks for the company this year.
So, multiply the number of weeks she will work by the number of hours she will accumulate per week: .3846 x 35 = 13.46.
Thus, Caroline will receive 13.46 hours of vacation.
How our tool can help
Did reading all these steps give you a headache? Do you want to calculate your employee’s PTO in a smarter way, while also automating your leave tracking in the process? Look no further than Vacation Tracker to solve your problem.
With our leave management solution, you can request, approve and manage your PTO in just a few clicks, directly from Slack, Microsoft Teams, Google Workspace, or even just an email address. Our tool makes it easy for users to customize their leave tracking experience. And yes, that includes automating and allotting prorated PTO to all employees.
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