When a company offers vacation time or PTO, they have to decide on a vacation rate for the accrual. There are a few options. Vacation time can accrue by hours worked, by the day, the week, or pay period. Alternatively, employers can choose to give out a lump sum at the beginning of the year. There are many rates to choose from and they are all suited for different needs and scenarios.
- Once per year – Employees get their total yearly time off hours at once, either at the first of the year or on their anniversary date.
- Per pay period – This accrual rate will match the pay period which will be either, monthly, bi-monthly, weekly, or bi-weekly.
- Per hours worked – Time off can be calculated based on the number of hours employees worked in the pay period.
[Tweet theme=”tweet-box-shadow”]Here’s a breakdown of vacation accrual options.[/Tweet]
Comparing the Different Accrual Rates
Yearly vacation rate
Giving employees their full time off benefits once per year is probably the most common accrual method. It doesn’t require any complicated calculations and you only have to deal with it once per year.
- It is easy to calculate and track.
- It’s nice for employees to have all their time off available at once for vacations.
- If employees leave the company, they might be owed a full year’s worth of vacation payout. Not all states require that employees be paid out their time off benefits at termination but some do.
- With this method, there is usually a year’s wait for benefits to apply. During the first year, then, employees don’t have any vacation time to use at all.
Vacation rate by pay period
Regardless of which of the four pay frequencies a company uses, the accrual rate can be set to match.
- Employees can start accruing their time off as soon as they start working. They still have to wait a year to accrue their full vacation benefits, but they would be free to take shorter vacations in the first year.
- When vacation benefits are accrued by the pay period, the employee only has as much available time off as they have earned. If the employee needs to be terminated and vacation paid out, the pay out would not exceed their actual time off earnings.
- You have to calculate the accrual rates to figure the amount that should accrue each pay period. This takes a little more work than simply handing out a set amount once a year. With an automated accruals tracking system, however, you really don’t have to think about it at all. Just plug in your numbers and walk away.
By hours worked accrual rate
Calculating vacation benefits by the number of hours an employee works is a good rate for part-time employees that don’t work a set schedule. Pulling a number out of a hat for an employee that works 40 hours some weeks and 10 others doesn’t make much sense. So calculating the time off by hours worked ensures employees earn a fair amount of time off.
- Part-time employees will accrue fewer vacation hours than full time employees.
- The hours to accrue per year is based on an employee that works full time, so it can be a little confusing to setup.
- This rate needs to be multiplied against the employee’s hours worked each pay period and so is the most complicated rate to use, unless you’re using an automated system to track accruals. Then you can just set it and forget it.