6 Tips on Prorated Vacation

Lauren is the manager of an ad agency. As the holiday season approaches, she knows that many of her employees will be booking plane tickets home or abroad for vacation. Lauren wants to get her work schedule organized, knowing who will be gone when and for how long. One by one, she goes through her list of employees and prorates vacation days so that each employee knows how much vacation they have available to use.

By: Brad Nakase, Attorney

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When a new employee is hired, an employer must prorate his or her vacation days. If this is not done, then a new employee must wait months before being able to use vacation days, one of the best benefits at a workplace. This can risk employee burnout. Some businesses assign a certain number of vacation days to be taken in a year. This means a new hire that begins work after January 1 won’t receive the full amount of vacation days for the rest of the year.

It is possible for an employer to manager employee vacation time based on the hiring date. For instance, an employer might offer employees ten days of vacation days to be used throughout the year. An employee is then hired on April 4, and the employer gives them ten days of vacation time to be used until April 4 of the next year. However, this strategy of managing vacation time gets complicated the more employees an employer has. Therefore, employers generally like to manage vacation days from the first of the year until the end of the year, because it is easier to track everyone’s time using a single schedule.

If vacation days are given based on the calendar year, then a new hire won’t be given their full amount of vacation time available. For them, the employer will have to calculate a new number of vacation days that’s appropriate for the remainder of the year. The new employee will receive the normal number of vacation days (i.e. ten days) at the start of the next calendar year, the same as the other employees.

Example: Ted starts work at an office in Hermosa Beach. His start date is May 6. Employees at this office normally receive ten days of vacation time per year. However, Ted has started almost halfway through the year. Therefore, he does not qualify to receive the full ten days of vacation. His employer will calculate a fair number of days based on the time he will work this year (7 months, from May to December). Starting in January, he will receive the full ten days that the other employees enjoy.

Employees can earn time off according to different methods, which are normally specified in an employee handbook. Vacation can be accrued by:

  • Hours worked
  • Twice per month
  • Every two weeks
  • Once per month
  • Annually

Before an employer starts calculating prorated vacation time, he or she should know how many hours or days of vacation time he or she wishes to grant employees. Most companies choose to give employees vacation time based on yearly accrual because the calculations are simpler. For example, if an employee takes two days off for a trip, those two days are subtracted from the total for the year.

Some employers choose to have employees accrue vacation time based on hours worked. This method of calculating is best for part-time employees with non-standard schedules. If vacation time is calculated by hours worked, then full-time employees receive more vacation time than part-time employees. This also means that those who work overtime can be rewarded with more vacation days, because they work more hours.

4. Prorated Vacation – Full-Time Employees

In order to calculate vacation days for full-time employees, the following simple calculation can be performed:

  1. Take the number of days that an employee works during a set period of time.
  2. Divide that number by the total number of days in that period.
  3. Multiple that number by the employee’s accrual rate.

If the accrual rate is yearly, as is the case with most companies, then the employer can divide the number of days worked by the total number of days in the year, then multiply that number by the accrual rate.

Example: Susan works at Office Depot, where employees receive ten days of vacation per year. Susan was hired on April 1, and by the end of the year, she will have worked 274 days. In order to calculate how many vacation days she receives, we need to divides the number of days worked (274) by the total number of days in the year (365). The answer is .75. We now multiply .75 by the number of accrual days, which is 10 at Office Depot. Susan should receive 7.5 days of vacation.

5. Prorated Vacation – Part-time Employees

Calculating prorated vacation for part-time employees is a little more difficult. Because full days are not worked, hours should be used to calculate time off. We start by dividing the average hours a part-time employee works by 40 (the number of hours a full-time employee works). Then we multiple that number by the number of vacation days that full-time employees receive.

Example: Calvin works at 7-Eleven as a part-time employee. At 7-Eleven, full-time employees receive 10 days of vacation leave each year. Calvin works 20 hours per week. To determine Calvin’s earned vacation time, we divide the number of hours he works (20) by the number of hours full-time employees work (40). The resultant number is 0.5. Now, we multiple that number by the amount of vacation full-time employees receive. However, because we’re talking in hours, we need to convert vacation days to hours. Ten days of vacation equals 80 hours of vacation. So, 0.5 times 80 equals 40. Calvin should receive forty hours, or five days, of vacation.

6. Vacation Payout for Terminated Employees

If an employee quits or is fired, then he or she must be paid for any earned vacation days. Even if an employee did not use some or all of his or her vacation time, he or she is entitled to be compensated for that time. Those days or hours should be paid in the final paycheck.

Example: Polly is the manager of a soap company where employees receive ten days of vacation time each year. She fires her employee Gerard for taking bites of the soap samples. Gerard still has five days of unused vacation time. Polly is so mad at Gerard that she chooses not to pay him for the vacation days that he did not use. She tells him that he forfeited those days when he chose to eat the soap. Gerard hires a lawyer and successfully sues Polly for denied wages. He has the right to be paid for the unused vacation days.

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