Which paid time off policy would work best for hourly employees?

PTO accruals would work best for hourly employees, although some companies also provide PTO banks to their employees.  

The PTO banks include personal time off, sick leave, vacation time, etc., and are provided in bulk at the beginning of the year or during the employees’ work anniversaries. It is done only once a year, and if the employee exhausts them all, they would have to wait until the following year for renewal. 

In the case of PTO accruals, employees receive their leaves at specific intervals over the year. This could be monthly, quarterly, or half-yearly. The PTOs can be segregated into different types, such as personal time off, vacation pay, and so on, or could be in bulk. 

Given that attrition rates are high among hourly employees, by providing PTO banks, it is likely that companies would lose money through leave encashments when the employee exits the company. As a result, it is best to let the PTOs accrue over time. It works well for the employees as well, as they no longer have to wait till the new year begins to use their paid time off. 

Five things to keep in mind while drafting paid time off policy for hourly employees

1. Determine how to treat vacation pay in the PTO policy

Some companies prefer including vacation time as a part of the PTO, whereas others prefer creating a separate vacation policy and PTO policy. There are benefits and disadvantages to using either of them. Since there’s no one-size-fits-all component. Identify what works for your organization, and ensure legal compliance while drafting your PTO policy.  

2. Identify if you are legally obliged to provide PTO.

Please check if your state mandates to provide PTO to your employees. For instance, companies in the US don't need to provide paid time off to employees unless it falls under the Family and Medical Leave Act (FMLA). 

That said, companies prefer providing paid time off for its numerous benefits in terms of improved employee morale, mental wellbeing, productivity, and so on. Understand the legal obligations surrounding PTO policy for hourly employees, and talk to a lawyer if possible before creating one. 

3. Define the deadlines, approval process, and the limits

Once you have identified the legal obligations, the next step would be to identify the key stakeholders in the PTO approval process, the template for time off request forms, different types of PTOs allowed and the accrual rate for each of them, the deadlines for submitting and approving the PTO requests and so on. 

4. Determine how to measure the benefits of implementing PTO policy 

It is not enough to implement a PTO policy. Check how your employees feel about it and how well they use it. Determine if the PTO policy has helped reduce attrition and improved the team’s productivity. 

5. Automate leave requests and Paid time off management 

Choose time off management software that lets your employees request hourly time off, tags policy violations,  automatically adjust leave balances, manages the approval process, and does a lot more, thereby reducing the administrative burden on the HR team and providing a superior employee experience. 

How is the PTO accrual rate for hourly employees calculated?

Before calculating the PTO accrual rate, identify how your PTO policy is defined. Depending on the regional laws and the company policy, the accrual rates for PTO and Vacation pay would be calculated together or done separately. 

Both options have pros and cons; for instance, while a combined PTO reduces the administrative burden on the managers and HR, it also leads to a massive payout during employee termination. 

Similarly, a separate PTO policy for PTO and Vacation pay will help employees use their time off appropriately and give more clarity to employees, it is a less attractive option for potential candidates since it does not offer flexibility. 

Once that is sorted, here are some basic calculations to help you get started: 
If the employee works 8 hours work shift for five days in a week, the total number of hours worked in a week = 40 hours (8x5)

Let’s assume that an employee receives 12 (96 hours) days of Personal time off, 8 (64 hours) days of sick time off, and 3 (36 hours) days of bereavement leave accrued at a fixed interval, making a total of 184 hours of PTO in a year.

Additionally, they receive 10 (80 hours) days of vacation pay. The total number of hours worked in 52 weeks (over a year) would be 2080 hours (40x52).

1. For combined PTO policy:

Number of PTO hours allowed to an hourly employee = 264 hours (184 of hours PTO+ 80 hours of vacation pay)

Total working hours in a year = 1816 hours (2080 - 264)

Accrual multiplier = 0.14 hours (264 ÷ 1816)

Here, for every hour the employee works, they earn 0.14 hours of PTO.


2. For separate PTO and vacation policy

Number of PTO hours = 184 hours (96 hours of personal time off + 64 hours of sick time off + 24 hours of bereavement time off)

Number of vacation hours = 80 hours

Total working hours in a year = 1816

Accrual multiplier for PTO = 0.1 hours (184 ÷ 1816)

Accrual multiplier for vacation = 0.04 hours

Here, for every hour the employee works, they earn 0.1 hours of PTO and 0.04 hours of vacation time.

Frequently Asked Questions on Paid time off policy for hourly employees.

1. Is it advisable to use an unlimited PTO policy for hourly employees? 

No, it is not advisable to use an unlimited PTO policy for hourly employees since they are paid based on their work hours. Implementing an unlimited PTO policy could lead to legal complications if you are unaware of those obligations.

2. How can we reward PTO to employees in case of an hourly PTO policy?

When PTO is used to reward employees for their long tenure or their excellent work, companies usually have a separate policy for vacation pay and PTO. Rewards are added as a part of their vacation pay and will be updated in the time off management software that employees can use whenever they see fit.