How Prorated Vacation Time Works

It’s easy to manage vacation days when everything is normal. For instance, when everyone at the company work similar hours, from the start of the year until the end.

But edge cases make it tricky. What happens when someone starts working midway through the year? What about when someone quits halfway through? How does their vacation time work now? And how does it change with full-time employees and part-time employees?

That’s where prorated vacation comes in. Keep reading and we’ll explain all about it.

What is Prorated Vacation and How Does It Work?

Prorated vacation means adjusting (prorating) available vacation time to fit how long an employee has worked for the company.

Generally this happens when someone starts their job midway through the year. The company’s leave policy gives a certain number of vacation days per year. But since this employee has only worked a portion of the year, they should only be given a part of the universal annual vacation allowance.

This keeps it fair for all employees, while allowing new employees the benefit of vacation time.

There are a number of ways that prorated vacation time can work. It depends on the type of employee – part time, full time, salaried or hourly. The company can also choose to approach this a number of different ways (as long as they still abide by any relevant labor laws).

Let’s look at how to do it next.

How to Prorate Vacation Pay

Prorating vacation pay usually works based on the calendar year. We’ll assume the company’s working year is January 1st – December 31st. If yours is different, the principles still remain the same.

For Full-Time/Salaried Employees

It’s fairly simple to prorate vacation time for salaried, full-time employees who start working midway through the year.

You calculate the percentage of the year they work, and apply that to the paid vacation time quota.

To make it easy, let’s say they start working exactly halfway through the year. If your leave policy allows for 20 vacation days per year, then this employee’s prorated vacation time is 10 days.

If they start working on another date, it will take slightly longer to calculate, but it’s still very simple. Take the number of days the employee will work that year, divide it by 365, and use that figure to calculate the number of prorated vacation days.

For Hourly Employees

For employees who are paid hourly, it takes a little more calculation. But it still works the same way.

You’ll just need to calculate their service time in terms of hours worked, as a percentage of the total number of hours they would have worked, if they had been in the job for the whole year.

Use that figure to calculate their prorated vacation time.

For Part-Time Employees

The same applies above for a part-time employee. If they’re paid hourly, calculate how many hours they’ve worked out of the total for that year, and prorate their vacation hours as such.

If they’re paid a standard amount per day/week/month, then just calculate the number of days, like we did for a full-time employee, and work from there.

Prorating Vacation Pay for Terminated Employees

The other situation you might use prorated vacation is when employees leave the company midway through the year.

In most cases, you’re required to pay the employee for any unused vacation time with their final paycheck. But if they only worked part of the year, they may not be entitled to being paid out for their entire vacation quota for that year.

To calculate the amount to pay out, just do the same thing as in the first example. Calculate how much of the year they have worked, and use that figure to come up with the percentage of their vacation quota to pay out.

Don’t forget to take off any vacation time they have already used. So, for example, if an employee left exactly halfway through the year, giving them 10 days’ prorated vacation time for that year, but already used three days, the payout amount should be seven days.

What’s the Difference Between Prorated and Accrued Vacation Pay?

Prorated vacation involves changing an employee’s vacation allowance, to reflect that they will not work a full year in the business.

But it’s still working off the basis that employees get a set number of vacation days per year, which become available to them as soon as the year begins.

Accrued vacation time means that vacation time steadily increases with time worked. So, there’s no need to prorate this allowance, since the accrual method already does this.

For instance, let’s say a company gives employees 12 vacation days per year, and an employee starts working exactly halfway through the year.

With prorated vacation, the employee will have 6 vacation days to use, as soon as they start working (let’s assume there’s no additional clause in their leave policy requiring them to work x number of days/months before they can take PTO).

With accrued vacation time, they’ll get 1 vacation day per month, which constantly accrues, adding up to 6 days by the time they’ve been working for 6 months.

The total allowance is the same, it just stacks up rather than all becoming available in one go.

Alternatives to Prorating Vacation Days

Prorating PTO is not the only way to do it. There are a few alternatives, which may or may not work better for your business, and your employees.

Here are a few options.

Alter the Employee’s Leave Year

One option is to change the leave policy’s effective date for each employee. No one says it always has to be the January 1st – December 31st calendar year..

For example, if an employee begins working on May 23rd, their yearly vacation allowance might run from May 23rd to May 22nd the following year.

This means you don’t have to prorate anything, but it does make things quite complicated when it comes to tracking each employee’s own leave year – so it might not be the best idea, especially for larger teams.

Accrual

We mentioned accrual before, which is the most common alternative to prorating PTO. It effectively solves any issues to do with employees starting or finishing their job part way through the year, and fairly links each employee’s earned benefits to the time they’ve actually worked.

It is a little more complicated, but if you can handle the extra work, it’s the fairest way to do it.

Unlimited PTO

Many modern companies today offer unlimited PTO, which removes the need for prorated vacation or accruals.

It requires trusting your staff not to take advantage of the system, and setting up clear performance-based KPIs for employees to work towards. But that added trust can work out to be very beneficial, and help get greater buy-in from your team members towards the common goal.

Just Don’t Prorate

Finally, you can just choose to not use any proration method at all.

If someone starts working after the year has already started, they’ll still get the same number of vacation days in that period as everyone else.

This is obviously the easiest way to do it. But it does raise questions of fairness, which some team members may take exception to. Thus, it’s probably best to do something to prorate vacation days, even something very simple.

Simple Leave Management with Flamingo

The easy way to keep tabs on your team’s leave policy is with Flamingo.

Flamingo puts the leave request and approval process right in Slack, to fit your existing workflow. It’s easy to use and highly customizable, allowing you to alter each individual’s leave policy, to prorate vacation days, add additional days for long service, and more.

Setup is quick and easy. Start using Flamingo now and save hours per week on your leave management process.