How Do I Calculate Vacation Accrual?

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If you’re like most people, you probably look forward to vacation time each year. It’s a chance to relax and recharge your batteries. But have you ever stopped to think about how that vacation is funded? Chances are, your employer helps pay for it through their vacation accrual policy.

According to CNBC, more than half of working Americans accrue vacations they fail to take advantage of. This loss equaled $62.2 billion lost in benefits. Therefore, it’s crucial for you to use your accrued vacations as it’s beneficial to you and the economy. So, what is vacation accrual, and how do you calculate it? In this article, we’ll explain how to calculate vacation accrual so you can easily plan your next trip. 

How Does Vacation Accrual Work?

The Bureau of Labor Statistics states that most American workers’ standard paid vacation days is 10 days per year. However, the employee’s years of service to a company or their position within the company generally determine their number of paid vacation days. The longer employees work for a company, the more paid vacation days they may get per year. 

For instance, employees who work with an organization for 10 years might get around 15 days of paid vacation per year. Those who work with a company for 20 years may get 17 paid vacation days per year, while those who work for over 20 years often get up to 25 paid vacation days. These paid days off don’t include sick leave, bereavement days and national holidays.

How Vacation Hours Accumulate Each Year

The vacation hours an employee accumulates depend on the organization they work for. The amount paid for vacation hours depends on the organization’s informal agreement between the employer and employee, the company’s policy and the collective bargaining agreement.

Employees accumulate different paid vacation hours per year depending on whether they are full-time or part-time workers. Usually, full-time employees get two weeks of paid vacation yearly, equivalent to 80 hours per year for every 2080 hours worked. The vacation hours accrued each year and the number of hours worked will give you an accrual rate. Here’s an example to guide you.

For instance, let’s take a full-time employee, John, who is eligible for 80 hours of vacation per year. To get the accrual rate, first, take John’s total hours of vacation per year (80 hours) and divide it by the total number of hours he is expected to work for each year (2080 hours) to get an accrual rate of 0.0385 hours per PTO. This means that for every hour John works, he will get 0.0385 hours of paid vacation.

Based on the accrual rate, if John makes $13 per hour, he also makes $0.5 per hour in vacation pay. To reach that number, multiply $13 by 0.0385 to get $0.5. Therefore, based on the accrual rate, John should get $1,040 in gross wages and about $40 in vacation pay per pay period. 

Please note that the vacation pay amount will not be added to your pay. Instead, it is paid out when you use your paid vacation leave. Many times, if you don’t use your paid vacation leave, you forfeit it the following year.

How to Calculate Vacation Accrual

If you’re an employer, calculating vacation accrual can be pretty hectic if you have many employees. But if you only have a few employees, vacation accrual calculations are pretty simple. The calculations involve four steps, which are:

  • Step 1: First, determine the amount of vacation time every employee has accumulated from the start of the accounting period. Always keep a record of this information to record accurate data.
  • Step 2: Add up all the vacation hours an employee has earned within the period in question.
  • Step 3: Once you get the total of the vacation hours, subtract the vacation time the employee put into use.
  • Step 4: Finally, multiply the accrued hours the employee did not put into use by the hourly rate paid for that employee. Record the findings.

For example, let’s take an employee working for Organization X who accrues 80 hours of vacation time. If the employee’s hourly rate is $25 per hour, the total value of the accrued vacation will be $2,000. We got here by multiplying the accrued vacation time (80 hours) by the hourly rate ($25).

To add on, let’s say this employee decides to use 20 hours of their vacation time. To get the total vacation accrued, you subtract the used vacation time from the total vacation time accrued (80 hours – 20 hours = 60 hours) and multiply it with the hourly rate ($25), which equals $1500. This is the total accrual vacation amount to be paid.

How to Use Online Accrual Calculators

An online accrual calculator helps you monitor paid time accruals and usage over time. Online accrual calculators are primarily free and assist when you are stuck doing accrual calculations. 

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Examples of great online tools to help you manage vacation accruals are Gusto, actiPLANS, Excel Forum and Sling. These tools are excellent for scaling startups and businesses and allow you to track vacation accruals easily.

Although an employee’s online accrual calculator is helpful in many ways, it can only be as good as the data you put in. Supposing that you record inaccurate numbers, you’ll receive inaccurate results. If you’re using accurate information, you should expect an employee vacation accrual calculator to save you time. When using this calculator, you should pay attention to some of the factors like:

  • The total sum of paid time off per employee
  • Where each employee is located, as PTO varies in different locations
  • If any PTO has been used previously, before running new numbers through the calculator

Even though it might be easy to account for PTO data, a large company may be at risk when calculating PTO without specialized software. Therefore, it’s essential to use high-quality software for consistency and accuracy in the calculation results.

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