What is Prorated PTO? (AKA Prorated Vacation Time)

All companies need to provide PTO for their employees. But in doing so, some complicated issues can arise.

For example, what happens when someone starts working midway through the year? Do they get the same amount of PTO as everyone else?

This is when prorated PTO comes into play. There are certain situations where you may need to alter your PTO policy to maintain fairness and avoid unnecessary expenses.

Keep reading to learn all you need to know about prorated PTO, how to calculate it, and how to make it work for your business.

What is Prorated PTO?

Prorated PTO (Paid Time Off) is when you adjust an employee’s paid time off quota based on their actual time worked or employment duration. 

You would typically prorate PTO in the following situations:

• New hires: When an employee joins a company partway through the year, their PTO is adjusted proportionally to reflect their start date.
• Part-time employees: Workers who don’t work full-time hours receive a prorated amount of PTO based on their work schedule.
• Employees leaving mid-year: When an employee departs before the end of the year, their PTO entitlement is recalculated based on their actual time worked, altering any payout for unused PTO.
• Changing employment status: If an employee switches from full-time to part-time (or vice versa), their PTO is adjusted accordingly.

Why Prorate PTO?

Prorating PTO helps keep your PTO policy fair and consistent.

Imagine a few hypothetical scenarios.

One, your PTO policy states that employees get 16 days of PTO per year. A new hire comes on board from the first of July.

Without prorating PTO, they’ll get 16 days of PTO to use for that year, despite only working half of the year, while other workers toil away for the whole year but still get the same amount of PTO.

In another scenario, you grant one employee the accommodation of working part-time; they work just three days a week, while the rest of your team work five days a week.

Prorated PTO keeps their PTO allotment equal to their working time. Otherwise, they’d get the same number of vacation days as everyone else despite working 3/5ths of the time.

Then there’s unnecessary expense to the company.

For example, if an employee leaves the company halfway through the year, you may be on the hook (depending on your location, and your company’s PTO payout policy) for paying out any unused PTO from their yearly quota.

If the person worked for six months, you could still end up paying them 12 months’ worth of leave.

It’s then possible that you could hire someone to replace them, give them a full year’s leave, and you would have ended up paying for twice the PTO that you should have.

Prorating keeps expenses consistent and predictable, while also fairly compensating employees for the actual time worked.

How to Calculate Prorated PTO

To calculate prorated PTO, adjust the employee’s total yearly entitlement by the portion of the year they worked.

Here’s a simple formula you can use in many cases:

Prorated PTO = (Annual PTO Allowance / 12 months) × Number of months worked

Let’s look at some clear examples for a few different proration situations.

Calculating prorated PTO for new hires or mid-year departures

If a team member leaves or starts part of the way through the year, calculate the percentage of the year worked, and prorate their PTO accordingly.

Example 1:

• Elliot starts working on July 1st. The total PTO entitlement for John is 14 days per year.
• July 1st is 50% of the way through the year, so his prorated balance is 7 days (14 days * 0.50)

Example 2:

• Darlene leaves the job on September 30th, and has a total PTO entitlement of 14 days.
• She has worked 9/12ths of the year (75%). This makes her prorated PTO balance 10.5 days (14 x 0.75).

Note that in some cases, prorating someone’s PTO balance for leaving part way through the year may result in a negative balance.

With our example above, if Darlene had already used 12 days of PTO that year, she would have been over her prorated balance of 10.5 days.

In this case, many companies will deduct the negative balance (in this case, 1.5 days) from the employee’s final paycheck.

Make sure you find out first if this is legal to do in your location. Some laws prohibit deductions or penalties like this. 

If that’s the case, you either need to accept that some people will get away with a little bit extra, or switch to a different PTO system (such as accruals).

Calculating prorated PTO for part-time employees

Many companies set up their leave policy with the assumption that the employee will be working a regular full-time schedule (usually 5 days, 40 hours per week).

If an employee works fewer hours, you should prorate their PTO balance to reflect that.

To do this, calculate the percentage of a full-time schedule they are working, and use that percentage to prorate their PTO relative to a full-timer’s quota.

Example:

• Angela’s company gives full-time employees (full-time defined as working 40 hours per week) 20 days of PTO per year.
• Angela works part-time, and only works two days a week (eight hours each day) for a total of 16 hours per week.
• Her schedule is 40% (16/40) of a full-time schedule. Her company wants to keep PTO entitlements fair and equal, so she gets 8 days of PTO per year (20 x 0.40).

A few things to note.

One, there’s no hard and fast rule that part-time employees need to get exactly the same ratio of PTO as full-timers.

However, it’s best to do this if you want to avoid any accusations of unfairness or bias against people with different employment status.

Also, prorating PTO for part-time employees can get more complicated when the employee works shifts of different lengths (e.g. not a full 9-5 each day) and when they work a different number of days each week.

That’s why companies with part-time employees (particularly those with variable schedules) more often use accruals.

Alternatives to Prorating Vacation Time/PTO

Prorated PTO only really applies for lump-sum PTO (meaning when PTO is front-loaded and made available at the start of the year).

If you work with a PTO accrual system, there’s no need to prorate vacation time, as PTO will always be relative to the amount of time worked.

For example, if team members earn 1.5 days of PTO for every month worked, you don’t need to worry about adjusting someone’s balance if they start part way through the year, leave part way through the year, or work only a few days per week.

Accruals are typically a better option if employees work different schedules (e.g. some part-time, some full-time), or for companies with higher headcounts where incorrectly calculated PTO can add up to a big expense.

Learn more: how to calculate PTO accruals

Unlimited PTO is another alternative to prorating PTO. 

Since there’s no limit or quota, there’s no need to adjust anything if someone quits early in the year or starts midway through the year.

However, this doesn’t necessarily solve issues of perceived unfairness (and there are more issues with unlimited PTO that may make it not the best option).

Best Practices for Implementing Prorated PTO

Here are some tips for implementing a prorated PTO system that works for your team.

• Take some time to think it through, and weigh the pros, cons and potential issues that may come up with a prorated PTO system.
• Clearly define how your policy works (e.g. when PTO will be prorated, and how the calculation will be done).
• Make your policy easily available for all team members, and notify team members of any changes.
• Check to ensure your policy follows all relevant labor laws.
• Train HR staff and managers on how prorated PTO works and ensure they fully understand the policy.
• Automate calculations where possible, to save time and avoid human error.

One of the biggest roadblocks with prorated PTO is manually calculating the proration amount and ensuring that people always have the correct amount of PTO.

That’s why it’s best to use a leave management software that can handle prorated PTO for you. We recommend Flamingo for this (it’s free to use, and is perfect for small to medium-sized teams with growing headcounts).

Final Thoughts: to Prorate or Not to Prorate

Prorated PTO is a good way to ensure fairness and equality in your company when it comes to vacation time and other forms of PTO.

Managing prorated PTO can be a bit of a headache at first, but it’s less of a problem than a system that creates discontent in your team, or results in unnecessary expenses that take away from the company’s profits.

The best way to avoid headaches is to ensure your HR or leave management system can automatically handle prorations for you.

Another option is to go with an accrual system for paid time off.

Accruals mean employees always get as much PTO as they’ve earned. You don’t need to backtrack and recalculate any balances to keep it fair.

Ultimately, it’s your choice how you shape your team’s PTO policy. Just try to keep it fair and beneficial for all parties involved.