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

There are numerous considerations that are taken into account when determining how much PTO a certain employee will get. Seniority or length of employment with a company are two factors that may influence the amount of PTO provided. An employee often receives a set amount of PTO each year following a specific waiting or starting time (90 days, 6 months, or 1 year). After a set number of years working for the company, that sum might rise.

The amount of PTO an employer decides to grant an employee may occasionally take into account the person’s prior experience with other companies or in different roles. A new role may be much more alluring when allowances are made for that PTO that has been accrued over time if someone has worked for a company for a long period and has accrued additional PTO before changing jobs. Additionally, it is not unheard of for an employer to give an employee more paid time off (PTO) when they surpass expectations or perform exceptional work.

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.

Not all of an employee’s PTO may be used within the permitted year, depending on the employee and how their time is earned. Due to this, many employers also provide the rollover of unused time up to a predetermined limit. The most frequent amount that can be carried over and added to the PTO banks for the upcoming year is 40 hours, or one full week.

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

Learn more about Jessica Miller-Merrell, SPHR, SHRM-SCP, the founder of Workology, a workplace HR resource, and the host of the Workology Podcast. More of her blogs can be found here.


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