Recent research from the US Bureau of Labor Statistics (BLS) shows that 70% of employees at small businesses have access to annual paid vacations — a type of paid time off (PTO). However, not all workers are entitled to the same PTO. Some deserve more and others less, depending on many factors. These include tenure and the number of hours worked in a particular year.
What you’ll learn
What you’ll learn
Updated: April 14, 2025
Key takeaways about prorated PTO
- Prorated PTO is paid time off adjusted to the number of hours or months an employee works in a particular year
- It’s used for people who don’t work an entire year, such as part-time employees
- When allocating vacation time, prorated PTO improves fairness and consistency
- You can use time-based or hours-based proration methods to calculate prorated PTO
That’s where prorated PTO comes in. It ensures that each worker gets vacation time they have earned. But how is prorated PTO defined, how do you calculate it, and what are some ways to put this method into practice at your company?
Understanding prorated PTO
Simply put, prorated PTO is defined as adjusted paid time off. It applies to employees who don’t work a full year, such as part-timers and people who leave before the calendar year ends. These employees get a fraction of your organization’s usual PTO based on months or hours they have worked.
When you prorate PTO, full-time employees who work the entire year get their whole vacation time. Those who start mid-year or work part-time are only eligible for a portion of it, which promotes fairness. In short, by meeting vacation policy requirements, every employee is entitled to earned PTO.
Prorating PTO isn’t just about fairness. It also provides standards for vacation time calculation, keeping things consistent across the organization. So next let’s find out under what circumstances should employers typically prorate this perk.
When does prorating PTO apply?
- New hires: For example, if you recruit employees in July, they won’t receive the whole paid time off for that particular year. Instead, they get a portion of it based on how many months or hours they work between July and December
- Part-time employees: Part-timers work fewer hours than full-time employees. So they get fewer PTO days, but in proportion to their work hours
- Employees leaving before the end of the year: In states like California, employers must pay employees for unused vacation time when they resign or are discharged. Prorated PTO ensures that if a worker leaves before the year is up, they are only entitled to the PTO they have accrued up until their departure, not the full year
Now that we better understand the purpose behind prorated PTO, let’s find out how employers can calculate it.
Calculating prorated PTO
To calculate prorated vacation days, first determine your standard PTO policy. This usually involves setting annual vacation entitlement, which is the maximum number of paid days off a full-time employee can get in a year. You’ll use it as the baseline for PTO calculations.
Besides annual vacations, employees can also earn PTO monthly or hourly:
- Monthly accrual: You divide the annual vacation days by 12 to get monthly increments. Workers get a fixed portion of their yearly PTO every month
- Hourly accrual: Employees accrue PTO based on hours worked. When creating time-off policies, you may say that for every 30 hours worked, an employee gets one hour of paid time off
How you calculate prorated PTO varies with your vacation accrual method. Here are examples for more clarity:
How to prorate vacation time for a full-time new hire
Let’s look at this scenario: Simon joined Widgets, Inc. in early February 2025 for a full-time position in their production department. The company usually offers 18 days of annual PTO for full-time employees. How much vacation time will Simon be eligible for in that year?
To figure out PTO in this scenario, use the time-based proration method where you calculate the proportion of the year an employee will work. Next, determine the monthly PTO accrual rate. Then multiply the two figures to get the employee’s prorated PTO for that particular year.
- Annual PTO for full-time workers: 18 days
- Employment duration for 2025: Simon will work for 10 months (February to December)
- Monthly PTO accrual rate: 18 days ÷ 12 months = 1.5 days per month
- Prorated PTO for 2025: 1.5 days × 10 months = 15 days
How to calculate prorated vacation time for part-time employees
Penny works part-time 15 hours per week in an organization where full-time workers (40 hours per week) yearly receive 20 days of PTO.
You will use the hours-based proration method to calculate Penny’s annual vacation time. Divide her weekly hours by the full-time equivalent hours. Multiply the results by the number of yearly PTO for full-time workers.
- Full-time PTO: 20 days
- Part-time to full-time work ratio: 15 hours ÷ 40 hours = ⅜
- Apply the ratio to full-time PTO: ⅜ of 20 days = 7.5 days
How to prorate PTO for an employee leaving before the end of the year
Melisa gets 15 PTO days per year and resigns at the end of August. In a state that requires accrued PTO payout, how many days will the employer owe her for that year alone (assuming she used all her vacation time in the previous years)?
- Annual PTO entitlement: 15 days
- Work duration for the year she’s resigning: Melisa worked for eight months (January to August)
- Monthly PTO accrual rate: 15 days ÷ 12 months = 1.25 days per month
- Prorated PTO for worked duration: 1.25 days/month × 8 months = 10 days
Melisa’s PTO payout will be 10 days of PTO multiplied by her daily salary.
Now that we know how the numbers come together, let’s touch on some ways to keep track of it all.
Best practices for managing PTO
Paid time off is one of the benefits employees want the most. And there’s a good reason for that.
“PTO gives employees the ability to integrate work and life in a way that works for them individually. When employees take time from work, they unplug, recharge, or take care of whatever is necessary in their lives. Often, they return more engaged and productive.”
— Kelly Beckner, MBO Partners, Vice President of Corporate Human Resources and Administration
However, PTO is a financial liability for employers, and you want to squeeze as much value as possible from it if you offer the benefit to employees. The following tips can help you effectively manage PTO.
Follow all applicable PTO laws
There are no federal PTO laws. For the most part, businesses can offer paid time off and manage the benefits as they see fit. However, some states, including California, New York, and Kentucky, have PTO requirements. Check your state’s website for any applicable paid time-off guidelines.
Communicate PTO policies to employees
Whether your state has PTO laws or not, anything regarding paid time off should be part of a clear, written policy. Some items you’ll want to cover in a PTO policy include:
- How PTO works: Are vacation, holidays, and sick time included?
- Whether both part- and full-time workers are entitled to PTO
- Who is (and who isn’t) covered by the PTO policy?
- Time-off accrual
- Whether or not PTO is paid out upon discharge or resignation
Once the policy is ready, make sure that everyone on your team has a copy in a physical or digital employee handbook. You can also include it in an employment contract. Whenever policy changes occur, update employees via email or text to keep everyone on the same page.
Prorated PTO: Employers should plan accordingly
Paid time off can be an excellent opportunity to keep employees happy, engaged, and healthy. However, rolling out PTO and managing it can be extra work, especially for small and midsize businesses that are often understaffed. The good news is that with the right HR software can manage PTO efficiently and effectively.
Use OnPay to automatically track PTO, whether it’s vacation, sick time, or holidays. Employees can request days off anytime, and you can approve all of the requests within the platform. Managers and their teams can track PTO from one place to stay on the same page on how time off hours or days add up.
Take a tour to see how easy payroll can be.
Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.