How is PTO Calculated & Policy Standards for Time Off

In part one, I went over the various types of PTO offered and the different ways employers commonly offer and distribute this time to their employees. More than how it is used and distributed, there are a lot of factors that go into determining how much PTO an employee will actually receive (assuming the company they work for does not offer any unlimited PTO options) and how it is to then be paid out if an employee is terminated.

How PTO is Calculated

When it comes to how much PTO a specific employee is going to receive, there are many factors that go into making the determination. Factors that may affect the amount of PTO offered might be things like seniority or time an employee has been with a company. Generally after a certain waiting or starting period (90 days, 6 months, 1 year) an employee is given a certain amount of PTO each year. That amount may increase after a certain number of years with the company.

On occasion, experience with previous organizations or in previous roles, is considered when an employer is determining the amount of PTO to give an employee. If someone has been with a company for a long time and built up extra PTO and then makes a job change, a new role may be far more enticing when allotments are made for that PTO that at been earned over time.  In addition, it is not unheard of for an employer to reward an employee with additional PTO when they hit certain goals or go above and beyond to produce a high quality work product.

Employers most commonly allow employees to use their PTO in one of two ways. Once it is determined the amount each employee gets in a year, some companies allow them to use the PTO as it accrued throughout the year, after they work a month, or 1/12 of the year, they are allowed 1/12 of their PTO. In many cases it is calculated on a per or week worked basis. Other companies give their employees a yearly allotment at the beginning of the year and then allow you to borrow against that bank throughout the year. Say an employee gets four weeks, as soon as a new year starts, they could feasibly use it all right away, though it technically will not yet be fully earned until the end of the year.

Depending on the employee and how their time is earned, not all of their PTO may be used within the year it has been allotted. For this reason, many employers also allow for rollover of unused time up to a certain amount. Most commonly, 40 hours, or one full week, may be rolled over and added into the PTO banks for the following year..

Termination and PTO

When an employee leaves a company, some employers may compensated them for their earned but unused PTO. Similarly, if more time has been used that has actually been earned, an employer may choose to dock pay from an employee’s final paycheck to account for it. If the employee has earned but unused PTO, they are normally given a lump sum and taxed accordingly. When it comes to paid time off and terminating an employee the policies are pretty standard across the board and really don’t have much room for leeway.

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Jessica Miller-Merrell

Jessica Miller-Merrell (@jmillermerrell) is a workplace change agent, author and consultant focused on human resources and talent acquisition living in Austin, TX. Recognized by Forbes as a top 50 social media influencer and is a global speaker. She’s the founder of Workology, a workplace HR resource and host of the Workology Podcast.


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