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Paid Time Off: What Is It and How Do You Calculate PTO?

Taking pride in your work is rarely a bad thing. In fact, a little extra dedication will improve your client’s experience and likely your bottom line as well. But what happens when we work too hard? What happens when we don’t use our time-off benefits?

It turns out that not taking time off is detrimental to our business, health, and economy. Employees that don’t give their brains some much-needed rest tend to “burn out” and become less creative and less productive. They are also more likely to be susceptible to getting sick, resulting in worker absence or greater insurance usage.

A study cited by Forbes showed that the economy misses out on hundreds of billions of dollars each year because, as a society, we’re hoarding our PTO. Taking time off improves productivity, provides mental clarity, and helps your employees maintain balance, which in the long-run should help you attract and retain high-quality talent.

It’s clear that offering paid time off as a perk is critical to your company and employees’ success, but how do you calculate PTO and keep track of it? Therein lies another problem – if you mismanage employee PTO accrual, you could end up paying unnecessary labor costs. Or if you don’t encourage them to use their PTO, you may be on the hook to pay it all out if they quit or get let go.

Avoid the liability of unused PTO by learning to properly calculate, track, and encourage PTO usage. Our guide will help you along the way:

What Is PTO?

PTO is an abbreviation for paid time off, and it’s a term used to describe an employee’s paid time away from work. Paid time off covers a range of reasons for taking time off from work, including sick leave, personal leave, and vacation time.

Paid leave in the United States is a relatively new concept that President William Taft proposed back in 1910. He argued that every American worker should get 2-3 months of vacation per year. He believed time away from work would increase the workers’ energy and effectiveness when they returned. Although he fought hard with Congress to get a law passed, it ultimately never came to fruition.

Around that time, Germany and Sweden took President Taft’s lead and passed laws mandating seven weeks of paid time off per year. It wasn’t until 1993 that the Family Medical Leave Act (FMLA) was passed in the US, guaranteeing time off to deal with medical issues. Beyond that mandate, the US Congress hasn’t passed any laws or mandates requiring companies to offer paid time off for non-medical issues.

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How Do You Calculate PTO?

Calculating PTO by hand isn’t always a straightforward task, which leads many companies to opt for the easier annual accrual rate. If you’re a bit more math savvy or use a PTO calculator, you can choose from one of several PTO accrual methods that may be a better fit for your business.

Here’s a breakdown of the five most popular methods of PTO accumulation and how they work:

1. The Annual PTO Bank

Many companies give a lump sum at the beginning of the year, and as you use it, the total hours decrease. It’s common enough, but not as popular as the accrual method. Here’s an example scenario:

Ashley starts her work year in January with 80 hours of PTO. In March, she uses 40 hours to take a week’s vacation to the beach. When you subtract the 40 hours she used from the 80 she started with, you end up with 40 hours, or 1 week, left.

The Annual PTO Bank is by far the most generous paid time off method because employees don’t have to accrue anything. They get a lump sum immediately when they start working.

2. The Working PTO Accrual Method

Most companies set policies in place that allow each employee to accrue a set number of PTO hours each pay period. Rather than starting with dozens or hundreds of hours of PTO, you earn it over time as you rack up work hours. Here’s an example scenario:

David works a full-time schedule of 40 hours per week, and he works 50 weeks per year. Taking the 50 weeks times his 40-hour workweek, you get a total of 2,000 total hours worked per year. His company offers 80 hours (2 weeks) of PTO each year. Here’s how you calculate David’s accrual rate:

80 Hours of PTO ÷ 2,000 total work hours = 0.04

Each pay period, David takes his hours worked multiplied by 0.04 to get his accrued PTO. Many see this as the fairest method because the employee earns the right to take time off over time.

3. The Daily PTO Accrual Method

Daily accrual is most useful for employees working full eight-hour shifts, as part-time employees working half shifts or less won’t accrue PTO the same way. Here’s an example scenario:

Elizabeth gets 80 hours of PTO per year, and she works 250 days per year (50 weeks multiplied by 5 days in a week). Determining the daily PTO accrual rate means taking the annual PTO hours and dividing them by the annual days worked. Here’s how the math checks out:

80 hours of PTO ÷ 250 days per year = 0.32 Daily PTO Rate

As such, Elizabeth now knows that for each day worked, she’s accrued 0.32 days of PTO. Over a week, she’ll earn 1.6 hours, and over a year, that 1.6 hours turns to 80 hours (1.6 multiplied by 50 weeks).

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4. The Weekly PTO Accrual Method

Weekly PTO accrual is biased toward full-time workers that accumulate based on a weekly total of hours worked. Here’s how:

Alex receives 80 hours of PTO annually. He also works a total of 50 weeks per year. To calculate his weekly PTO rate, we’ll take the annual PTO hours and divide them by the total weeks worked annually. Here’s how the math turns out:

80 hours of PTO ÷ 50 weeks worked per year = 1.6 hours = Weekly PTO Rate

At any given time, Alex can look at how many weeks he’s worked this year and multiply it by 1.6 to understand how much PTO he has accrued. For example, if he’s worked 10 weeks, then he’s accrued 16 hours and can take two days off (assuming he hadn’t used any PTO before 10 weeks).

5. The Bi-Weekly PTO Accrual Method

This is another popular method because many companies pay employees every two weeks. It’s similar to the weekly PTO accrual method with an adjustment to the math for the spaced-out pay periods. Here’s a common scenario:

Christina gets 80 hours of PTO per year. She also works 50 weeks per year and gets paid bi-weekly. To determine her PTO accrual rate, we’ll take her 80 hours worked over a two week period divided by the 25 two-week periods in a standard work year for her. Here’s a look at the math:

80 hours of PTO ÷ 25 two-week periods worked per year = 3.2 hours

Similar to Alex’s scenario above, Elizabeth can take her two-week periods and multiply by 3.2 to get her annual accrued PTO.

Using ZoomShift To Streamline PTO Tracking

Implementing a paid time off policy is challenging but definitely doable. You’ll also need to decide your PTO rollover policies, unused PTO payout policies, and provide your team with any blackout dates during which PTO is either not possible or highly discouraged.

Once you’ve picked the best method for your business, you have the arduous task of accurately calculating, tracking, and communicating time off balances.

Thankfully, ZoomShift has a built-in PTO calculator and time-off request tracker, so you don’t have to spend hours keeping up with a complex spreadsheet. Instead, everything’s in-app and running calculations for you as changes occur in the system. Payroll will accrue, and each team member has easy access to the app to see their schedule, PTO balances, and time-off requests.

Whether you’re keeping up with a team of 10 or 1,000, ZoomShift will make your life easier. No more messaging back and forth to get shifts covered and no more messy spreadsheet calculations to tell your staff how much time off they have.

With ZoomShift, you set it up once, and the system does the heavy lifting on your behalf so you can focus on more important matters. In the end, leaders need to set an example for their teams by not only encouraging time off but taking some themselves. You have to live the culture you’re trying to create.

If you’re in need of an advanced scheduling system with all the PTO tracking tools built-in, then give ZoomShift a try.

Sam Molony

Sam Molony is the marketing strategist at ZoomShift, the leading employee scheduling software. When Sam's not publishing or promoting new content you can find him playing his guitar or baking.

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