Vacation time is a valuable benefit that employees look forward to enjoying. However, situations arise when employees join or leave a company mid-year, requiring a prorated vacation.
Prorating vacation days can be stressful, especially if you have new hires. Luckily, the process for prorating vacation isn’t difficult, but there are a few things you should know. In this blog post, we will delve into what prorated vacation is, how to calculate it, and why it is essential for businesses.
What Is Prorated Vacation?
There are several methods for calculating vacation days, and the specific approach may vary depending on company policies, labor laws, and employment agreements.
- Prorated vacation refers to the allocation of earned time off for employees based on the proportion of time they have worked at the company. The amount of prorated vacation time granted is determined by calculating the completed months, weeks, or hours of employment with the company.
- Prorating vacation days is essential to maintain fairness, consistency, compliance, and efficiency in vacation time management. It promotes equity among employees, ensures legal compliance, facilitates resource planning, helps manage costs, and contributes to employee satisfaction and engagement.
- Prorating vacation days ensures that employees are granted an appropriate amount of vacation time based on their actual period of employment. It prevents situations where employees who join or leave the company mid-year receive the same number of vacation days as those who have worked for the entire year.
- Many labor laws mandate that vacation entitlement should be calculated based on the actual duration of employment within a vacation accrual period. By prorating vacation days, companies ensure they comply with legal requirements and avoid potential legal disputes related to vacation entitlement.
- When employees join or leave the company mid-year, prorating vacation days helps managers effectively anticipate and manage workforce availability. It allows for proper project scheduling and workload distribution and ensures that vacation time is used efficiently without disrupting operational efficiency.
- By accurately allocating vacation days based on an employee’s period of employment, companies can avoid paying for unused vacation days that an employee would not be entitled to due to a partial year of service. This helps in optimizing compensation and benefits expenses.
- Prorating vacation days demonstrates that the organization respects employees’ time and ensures that everyone is treated fairly. Employees are more likely to feel satisfied and engaged when they perceive that vacation policies are applied consistently and proportionately.
Accrual Rates
Your employee handbook should state how your employees earn time off. No matter which method you choose, your employees will be given a specified number of hours or days to use per calendar year. The various types of accrual rates are:
- By hours worked
- Twice per month
- Every two weeks
- Once per month
- Annually
How to Calculate 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. Most businesses prefer to give employees a yearly accrual rate because the calculations are simple. For example, if an employee takes a day off, you can simply subtract it from their total for the year.
Many companies also allow employees to accrue time off based on how many hours they’ve worked. This method is ideal for part-time workers who have varied schedules. If you calculate paid time off by hours worked, then you can reward full-time employees with more time off than part-time employees. Not only that, but you can also reward those who work overtime with more vacation days.
How to Calculate Prorated Vacation for Full-Time Employees
Full-time employee vacation days are the easiest to calculate:
- Determine the number of days that an average employee works during a set time.
- Divide that number by the number of total days in that period.
- Multiply it by their accrual rate.
If you work off of the year as most employers do, then you can divide the number of days that an employee has worked by the total number of days in a year, then multiply it by the accrual rate.
Need help? Here’s an example.
- If an employer offers ten days of vacation per year, and an employee was hired on April 1, she will have been employed for a total of 274 days by the end of the year.
- Divide the number of days worked by the total number of days by 365, the total number of days in the year. Your answer should be around 0.75.
- Next, multiply that number by the number of accrual days, which in this case is 10. In this example, an employee would get 7.5 days off.
Calculating paid time off for remote employees works the same way. Your in-office employees and remote employees should have the same number of days off because they work the same amount of hours no matter the location.
How to Calculate Prorated Vacation for Part-Time Employees
Prorating time off for part-time employees gets a little bit trickier because they don’t work full days. So instead of using days worked as your metric, you should use hours. You can start by dividing the average hours that your employee works by 40 (the number of hours a full-time employee works). Next, multiply that number by the number of vacation days, just like you would for full-time employees.
Need help? Here’s an example.
- Suppose you have a new part-time employee who works 20 hours per week, and your business offers ten days of vacation. Ten days translates to 80 hours (the number of hours a full-time employee would have for vacation).
- Divide the number of hours the part-time employee works by the number of hours a full-time employee works. That’s 20 divided by 40, which equals 0.5.
- Next, multiply that number by the amount of vacation that your full-time employees get. 0.5 x 80 = 40. Your part-time employee would get 40 hours or five days of vacation.
Calculating PTO for Employees Who Leave
If you let an employee go or they choose to quit, you’ll need to pay them for any vacation days they did not take on the payroll. Even if your employees did not take vacations, they might still be owed for their vacation time if they leave during the year. If your business allows employees to accumulate paid time off over the years, you need to pay them for those days with their final paycheck.
In many places, you might be able to pay for time off at the regular employee rate. Other states require you to pay the full amount that will be calculated based on their current pay rate.
Prorated Vacation Days: The Takeaway
Calculating employee time off doesn’t have to be difficult. You can choose when an employee starts receiving this benefit and how long they’ll have to take advantage of it. Next, consider how employees will accumulate their time off before you can begin prorating. It’s typically best to manage time off by giving employees a set number of days off per calendar year so that you can manage everyone at the same time and not have to worry about hire dates.
This post is written for actiPLANS by Matt Casadona who has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.
