How to Calculate Accrued Vacation Pay

By hrlineup | 25.11.2020

In companies, some employees work constantly and do not take their vacation days throughout the year. At the end of the year, there is a question as to what becomes of these vacation days? How can the employer confirm them? This results in paid vacation days accruing placing the employer in a position where they have to pay or these days. Employee vacation days may be dependent on a multitude of factors, making it challenging to easily calculate accrued vacation days for all employees. Here is a simple way to get started.

How to Calculate Vacation Pay? 

There are several ways to calculate vacation pay. The first is through a PTO where paid time off is calculated based on a fixed number of days each year. Each time that an employee takes time off, one day is deducted from the total number of days.

Another simple way is taking into consideration the employment benefit policy of the company. Within this policy, the regulations outline how the employer handles accrued vacation days.

Accrued vacation days are all the vacation days that the employee has not yet used. The best time to calculate them is at the end of the accounting period to determine whether there are any that have rolled over from the past. At the end of this period, it is also possible to add up all those that have been earned. The addition of both of these offers the total number of vacation days for the year.

The next step is taking away the number of vacation days that were used up in the last accounting period. The difference is then recorded. With this, it becomes possible to determine the total number of days that have been accrued.

Another way to calculate vacation pay is by considering the following variables: –

  1. Time spent at the workplace – This could be calculated by the number of hours worked, days, weeks or months worked. This is the ideal solution for employees who are working part-time. At the end of the year, the accrual is calculated based on the total number of hours that the employee works in a year. An accrual multiplier indicates the total number of vacation hours that an employee is entitled to for every year that they work.
  2. Employees who work every month have a different calculation. For these employees, the calculation begins with the total number of vacation time that they are allocated each year. This can then be divided to how many days this translates to in a month. For all the days that are not taken, all that is needed is calculating the number of months.

Employers have different policies when it comes to accrued vacation pay. Many choose the use it or lose it philosophy, where if you do not use the vacation days within the year, then they are automatically forfeited, and no funds will be paid. In other cases, the accrued dates are carried forward into the next year.