Different Methods of Tracking PTO Accrual

Construction companies must choose from multiple PTO tracking methods to meet the diverse needs of their workforce.

PTO allotment systems are becoming increasingly important as the commercial construction industry continues to be a finicky beast when it comes to time off.

At one single jobsite, there may be seasonal workers, union workers, full-time workers, part-time workers and trade workers from everywhere under the sun. Different classifications, all accumulating paid time off at different rates, levels, and times.

See? Finicky.

Traditionally, the construction industry erred towards dividing employee time off into the categories of vacation time, sick time and personal leave.

Nowadays, with a renewed focus on recruitment and retention caused by a spike in commercial competition, the pendulum has swung more toward Paid Time Off or PTO. PTO is one conglomerated, singular bank of time that an employee can pull from and use as they wish.

Here’s the thing. PTO is not a generalized system — there are multiple ways in which it can be provided. So how do you go about selecting what will work best for your company as well as your employees?

Let’s explore some of the options to see what might fit best for your business.

Method 1 of PTO Tracking: Unlimited

Construction companies adopt unlimited PTO policies to attract top talent and gain a competitive edge.

New talent is attracted to unlimited policies because they view it as a symbol of trust between themselves and their employers. They enjoy the added agency it encourages.

Benefits of Unlimited Time Off

Employees who are trusted with unlimited PTO often demonstrate stronger loyalty and improved job performance. This increases overall profitability.

The policy itself is easy to manage and isn’t heavy on the budget because there is no vacation payout whenever an employee quits.

Risks and Challenges of Unlimited PTO

Why are unlimited policies not favored amongst contractors? The risk of abuse.

If a limit isn’t set and absences pile up, the company then runs into potential delays at the job site. Delays can lead to missed deadlines. That can then lead to both financial loss and damage to reputation.

Method 2 of PTO Tracking: Allotment

PTO allotment policies provide the employee with a specific amount of time that can be applied as paid time off in whatever way the employee wishes.

The time itself can come in the form of days or hours.

Days tend to be easier to track, although the employees then must spend them on either half or full-day increments. Hours, on the other hand, are harder to monitor but can be used in smaller increments over longer periods.

Distribution Methods for Allocated Time Off

How these vacation day allocations are distributed is at the discretion of the employer.

A fresh stack of days (or hours) can be given in a few different ways:

• The beginning of the calendar year (January 1st)
• The start of a new fiscal year
• The date of the employee’s anniversary with the company

New hires tend to have a pro-rated bank of days to pull from, depending on how early or late in the year they are hired.

Tenure-Based Benefits

Companies reward employee loyalty by increasing PTO allotments based on years of service. For example, after a full year, an employee could receive an extra three days of PTO; after five years, they earn seven, and so on.

This method can lead to increased employee retention rates because of the steady increase in benefits over time.

Advantages of Allocation Systems

As a policy, the allotted time is flexible and manageable. The employer can easily communicate time allocations, and the employee can easily understand the allocation system.

Not only are allotments easy to track, but allotment systems are easy to use when requesting or approving time off.

Allotment systems make managing different classifications of employees more feasible, as each type of classified worker can get specific yet different numbers of days.

For example, seasonal employees receive five while full-time employees receive ten. Employees receive the added benefit of being able to schedule time away from the office earlier in the year since they’re not waiting for time to accrue.

As a result, not only are employers given advanced notice for planned absences, but this can also lead to fewer scenarios where multiple employees are out at the same time.

Potential Drawbacks of PTO Allocation

Despite all of the benefits of PTO allocation, there’s the risk of PTO liability.

When an employee quits, some states require a company to pay out any of the employee’s unused PTO. If the employee quits earlier in the year, like right after the lump sum was added, the company is liable for paying it out.

Equally so, an employee may choose to use up all their allocated vacation time rapidly and then immediately quit once their time is spent.

Rollover Considerations

It’s also important to mention rollovers, which occur when employees forgo taking days off during the year to roll any allotted time over into the next.

Rollovers further increase the company’s appeal and job market competitiveness, but it could mean more loss in payout.

Companies implementing a new PTO policy should consider how residual time off can be handled: should all days be carried over? Should only a percentage? Should none be carried over?

Establish a clear policy and adjust it to what works for your company.

Method 3 of PTO Tracking: Accrual

Accrual is traditionally accumulated in hours per time worked.

Now, the biggest difference between the accrual and allotment systems of PTO is that accrual time builds up over time, while allotment is given up front.

Pay Period Accrual Calculations

The most common accrual PTO method is to provide accrued time every pay period. It’s important to note that there are differences between how accrued PTO accrues based on a salaried worker and an hourly worker.

The first step will always remain the same: before making any calculations, decide whether to have an accrual cap.

An accrual cap is the maximum number of hours an employee can accrue in a year. Accrual caps are used to determine exactly how much time is accrued per pay period.

If you don’t have an accrual cap, then you can independently set how much is accrued per pay period.

Salaried Employee Calculations

Let’s say you set a PTO accrual cap of 120 hours per year that accumulates after each pay period.

For a salaried worker, paid semimonthly or 24 times in total, this will equate to five hours each pay period. Here is the math:

Total number of possible accrued hours / number of pay periods

120 hours / 24 pay periods

Keep in mind that the accrued numbers will change depending on the frequency with which employees are paid (bimonthly, weekly, monthly, etc.)

In the example set above, the math results in 5 hours of PTO allocated per pay period.

Hourly Worker Considerations

Hourly workers accrue PTO based on the total number of hours worked annually. Figuring out the PTO rate for each pay period depends on the total number of hours they will work in a year.

For simplicity’s sake, let us say an hourly worker will work a 40-hour work week for 50 weeks. 40 hours multiplied by 50 weeks equals a total of 2000 potential hours worked. Now, divide the PTO accrual cap of 120 by 2000, and a worker will receive .06th of an hour for each hour worked during a pay period.

Here is the math:

40 (hours worked in a week) x 50 (weeks scheduled to be worked in a year) = 2000 (total potential hours worked in a year)

THEN

120 (PTO accrual cap) / 2000 (total potential hours worked in a year) = .06 (of an hour for each hour worked)

Flexible Accrual Benchmarks

Companies can set accrual benchmarks. However, they’d like it if the pay period approach didn’t fit with their processes.

Accrued time, for example, can be added at the end of each week or month or six months, or year that is worked. What works best depends on the set-up of the company.

Benefits and Challenges of Accrual

PTO accrual time reduces the cash out loss that occurs when an employee quits a company. Employees are only paid out what they have already accrued, not the yearly cap.

With turnover issues increasing, accrued PTO is an effective way to remain competitive in the eyes of new talent while also ensuring that employees don’t abuse the PTO system.

On the other hand, there is increased room for error if not properly handled.

Employees’ work weeks can vary depending on the season. Paid leave requirements can differ between localities. Employees may have gaps in employment with the company, depending on the availability of jobs. Both time and money can be lost if the math is done incorrectly or if the information is updated inconsistently.

The effectiveness of tracking accrued PTO greatly depends on the type of tracking and software that’s used.

Selecting the Best Option

While considering the new PTO policy options, it’s worth considering what type of paid time off tracker you have on hand. The ultimate test for quality software is whether it can manage tiers of employees working different sets of hours at different accrual rates.

If it’s all too much to keep track of, outsourcing to a dedicated payroll service is always an option.

Payroll services provide an opportunity to save you both time and confusion.

What does all this mean? The methods for tracking paid time off aren’t a one-size-fits-all type of benefit. You have plenty of possibilities, including mixing and matching throughout the year.

Remember, you can always perform a trial run of each policy before making a more permanent selection.

The choice of which type of PTO method will best suit your company comes down to several factors, like the total number of employees, number of pay periods, time-card tracing, budget and frequency of work, such as whether your specialty is seasonal or not.

Look at the make-up and schedule of your company, choose a PTO allotment system that works for your company and adapt when necessary.