Did you know that recent statistics from December 2021 show that the average American worker only receives 10 days of paid time off (not including paid holidays and a few sick days)? Not only that, but 55% of them don’t even use all of their paid days off each year.
While the federal government doesn’t require you to offer paid time off to your employees, it’s a fantastic benefit that can help you attract top talent while also ensuring that your employees are rested, rejuvenated, and engaged in the work they’re doing for your company. However, if you are a small business and do offer paid time off, it’s your responsibility to manage accruals so that you don’t get slapped with a labor law violation.
You can use a vacation accrual calculator to help you determine that appropriate accrual rate. But, there are a few other things you need to understand about calculating your employees’ PTO as well.
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How Much Vacation Time Should You Give Employees?
Deciding how much vacation time to provide for your employees is totally dependent on the company’s needs and vacation policy. Just because companies like Zappos give its employees unlimited vacation time doesn’t mean all companies should jump on this trend, and it certainly doesn’t mean you must follow suit.
That being said, you should absolutely consider giving your employees paid time off, especially if you are offering a salary that’s a little on the lower end or aren’t offering many other benefits as part of the entire offer. Why? Well, it’s the right thing to do, first of all. But employees also perform better when they take time off.
Employees who take most or all of their vacation time each year perform at higher levels, are more productive and are more satisfied with their jobs than those who do not, according to SHRM's Vacation's Impact on the Workplace report.
Still, though, how much vacation time should you give your employees? The average is between 5 and 15 a year, depending on the other benefits you offer.
Annual Accrual vs. Lump Sum Accrual
Now that you’ve hopefully decided on a fair amount of PTO to offer your hardworking employees, it’s time to understand the difference between annual accrual and lump sum accrual so that you can calculate correctly.
It’s important to note that this isn’t really necessary information to have if you base your paid time off calculator on a 365-day calendar or use the regular fiscal year (most businesses do). However, you will need to make sure you set an actual start date for the accrual to begin as that’ll be crucial in determining how much PTO each employee has earned or taken during any given year.
If you opt to go the lump sum route using the calendar year as your guide then you’d just “give” employees 10 days of PTO, for example, on January 1st and then let them use those days up before December 31st of that same year. However, if you want to offer something more complex, things start to get, well, more complex.
Let’s say that you offer a fixed amount of PTO once an employee has been with you for 90 days. So, their accrual period starts on the 91st day. Simple payroll software can help you remember when their start date was and how many paid days off they have left.
However, on top of that, you also need to account for how many weeks, days, or total hours your business is open for. Just follow these steps to get an annual accrual rate:
- Decide on a set number of paid days off you’d like to offer.
- Calculate how many hours per week your employees work (usually 40, but can be more or less depending on what constitutes a full-time employee at your business!).
- Calculate the total available working hours in a year (refer to the paragraph above; maybe you don’t work a standard 52 weeks a year).
- Decide when the start date is so that you can calculate from the correct starting point in the year.
How to Calculate the Accrual Rate per Cycle
It’s important to note that, as Fit Small Business points out, some states require you to put accrual rate information on each pay stub. Click here to learn more about pay stub requirements by state.
Whether the state requires you to provide the information or not, it’s still pretty helpful to put that information on pay stubs so that your employees know how much paid time off they’ve accrued. To do that, though, you need to learn how to calculate the accrual rate per cycle.
Now, let’s say you pay your employees semimonthly (twice a month). This means that your business has 24 pay cycles in each year.
All you have to do is follow this formula:
# hours of PTO per year / 24 pay periods = Hours of PTO earned every two weeks
Again, there are plenty of online payroll and accounting tools and software that you can use to help you calculate this and even help ensure that it all stays up to date and printed on each employee’s pay stub for their own records.
Speaking of software that can help you manage PTO accruals, we recommend taking a look at Gusto. Not only is it pretty affordable for scaling businesses and startups, but it offers you the ability to easily track PTO and sick leave requirements by state to ensure that you’re always compliant.
Invest in Your Employees with Wealth Stack
At Wealth Stack, we offer digital financial advisory services that help you invest in yourself and your employees while also increasing the value of your business.
When you invest in your employees’ well-being, you are investing in the people who help make your company great. And, that starts by setting them up for a solid financial future. Yeah, we’re talking about retirement accounts. The Wealth Stack Growth Pack allows you to offer simple, affordable managed IRA plans to all of your employees with zero hassle. We take care of everything for you.
On top of that, though, the Wealth Stack Growth Pack is designed to help you:
- Access the funding you need at the terms you want
- Learn how to use that cash to increase the value of your business
- Attract top talent
- Increase business productivity
- Retain your best employees
To start investing in yourself, your employees, and your startup, learn more about the Wealth Stack Growth Pack here.