GENERAL DISCUSSION

Paid Time Off (PTO) is the time that the employee is being paid but is not actually working. PTO is, quit simply, non-productive paid time. You pay for the time, but you as the employer receive nothing in return. PTO includes paid holidays, paid vacation days, paid sick days, and other similar paid time off.

PTO DISTRIBUTION STRATEGIES

There are two distinct strategies for calculating and tracking PTO costs in TimeTrax. You'll need to understand both methods in order to select the strategy that best suits how you want to track your costs. The two strategies, which are explained in greater detail below, are:

1. Undistributed PTO
   

   With this method, PTO costs are not distributed to job cost reports. Instead, PTO is coded to overhead accounts such as "Vacation Pay" or "Paid Holidays".



2. Distributed PTO
   

   With this method, each week TimeTrax calculates the annual PTO cost of each employee, divides it by 52 and then adds it into the employee's cost for that week, thus spreading the cost across the projects and cost codes in the weekly payroll cost reports, including the Payroll Transfer Schedule.

UNDISTRIBUTED PTO

The Undistributed PTO is the method where you ARE NOT going to distribute the cost of paying for PTO to your projects and cost codes. The word "Undistributed" used here means not distributed to specific projects and their cost codes. It does not mean that you don't track the PTO costs, it's just that you don't distribute the cost to projects or cost codes.

With this PTO method, you have the option to post the PTO costs to overhead, or to divide the PTO costs into Overhead and Direct Expenses (COGS). In other words, when your Office Manager takes a vacation, you may post the cost of that vacation time to the Expense (overhead) account for the Office Manager. However, when you Field Supervisor takes a vacation, you may elect to post the cost of those PTO hours to a Direct Expense (COGS) account such as "Undistributed Field Labor". The purpose of this strategy would be to have your P&L display the PTO costs for your Office Manager as an overhead expense and also display the PTO cost for field employees as a direct expense (COGS).

Although these costs would not be included in the other direct costs, the employer would be able to easily ascertain the cost of the PTO as a percentage of the overall payroll, which in many cases is sufficient for estimating purposes.

The advantage is that this process is less complicated because you don't let TimeTrax calculate the PTO costs each week and include it in your weekly payroll cost reports and the Payroll Transfer Schedule. Instead, you code the employees time sheet for one of your overhead codes in the days that the PTO was actually taken.

The disadvantages are that your Job Cost Reports and your overhead reports for specific personnel (Office Manager, Owner, Project Manager, etc.) will not include the cost of PTO. The PTO will be a separate line item on your P&L Reports.

DISTRIBUTED PTO

Distributed PTO is the method where the PTO cost is calculated and distributed across the time when they are productively working. In other words, your payroll costs as calculated by TimeTrax will include the cost of each employee's PTO. This is the most accurate method of accounting for PTO.

The advantage is that the job cost reports include the cost of PTO in each cost code. In addition, if you are paying your Workers Compensation by cost code, then you will pay a much lower rate for employees who are being paid for PTO, typically you can use the office/clerical rate instead of the more costly regular rates.

The disadvantages are that this system is slightly more complicated to administer because you need to be aware that on the weeks that an employee takes PTO, you don't need to transfer any funds in the Payroll Transfer Schedule because the cost to pay the PTO hours been accumulating in the prior week's transfers.

EPTO vs HPTO

In TimeTrax, we recognize two different types of PTO:

1. HPTO = Holiday Paid Time Off
   

   This is Paid Time Off that the company gives to employees for official holidays. It is typically given to all employees that are on the company payroll on the day of the holiday, generally without regard to how long the employee has been employed.



2. EPTO = Employee Paid Time Off
   

   This is Paid Time Off that the company gives to individual employees that they may take at their discretion for vacations, sick days, personal days, and other similar events. It is given to employees on an individual basis, generally as part of a compensation package, and is typically awarded on a formula related to the employee's length of employment.

In TimeTrax, we distinguished between these two types of PTO only as a practical matter to help you track the EPTO for each employee. HPTO, by it's nature, is not tracked for each employee because it's generally given to all employees on the holidays as they occur. HPTO & EPTO cost the company exactly the same, a paid day off is a paid day off, regardless of the reason. Therefor, both types of PTO are added together in TimeTrax for the purpose of calculating PTO costs. Nevertheless, you need to understand the difference between HPTO and EPTO in order to properly set up your employees in TimeTrax.

BOOKKEEPING SETUP

TimeTrax includes several pre-installed cost code systems you may utilize with in the program, including an empty cost code system you can completely customize. You are also able to completely re-name and re-organize the existing lists if you choose. About the only thing you can't do in a cost code list is to delete the PTO codes we have pre-installed in every list.

Every TimeTrax Cost Code system has two "built-in" cost codes. You can re-number them but you cannot re-name or delete them. The two cost codes are"

1. HPTO = Holiday Paid Time Off
2. EPTO = Employee Paid Time Off

You do not have to use these codes, you may add your own codes instead. Which ones you choose are entirely up to you, however, by using these codes TimeTrax will also track such things as the number of PTO hours each employee has taken and has remaining in the year.

These special PTO cost codes are only for use with the Distributed PTO strategy. They have a unique purpose in that when they are used in a time sheet, the employee's pay is correct, but his payroll costs for that time will calculate as zero. This is because the payroll roster must reflect the actual pay the employee is expecting in their paycheck. However, the payroll cost for that entry needs to be zero because the costs to fund the employee's paycheck for the PTO has already been funded through the previous weekly calculations that factored the PTO in the cost. In other words, the PTO costs have already been funded by the company, but they're just now being paid to the employee.

With the Undistributed PTO strategy, you would code the employee PTO time to an overhead code of your choice. Here are some suggestions for such codes:

1. Vacation Pay
2. Company Holidays
3. Paid Holidays
4. Employee Vacations
5. Paid Time Off
6. Sick Time

Or you can simply apply the PTO time to the same code you regularly use for the employee, in which case the PTO cost would be included along with their other payroll costs. Some examples of these codes would be:

1. Office Personnel
2. Office Salaries
3. Staff Salaries
4. Bookkeeping Salaries
5. Staff Estimator
6. Staff Draftspersons
7. Sales Personnel
8. Owner's Salary
9. Officer's Salary
10. Project Manager Salary
11. Project Manager
12. Supervisory Personnel
13. Supervisors Salary
14. Undistributed Direct Labor

I think this gives you the idea, which is that the PTO cost is going to be calculated and posted to an overhead code of your choosing, but it is a cost separate from the direct costs.

EMPLOYEE SETUP

In order to properly setup your employees to calculate PTO, you need to be aware that in TimeTrax PTO is expressed in hours because using hours in the calculations provides more accuracy than using days, especially when calculating PTO costs for part time employees. In addition, many employers award or set EPTO by a formula related to the length of time that an employee is employed. For example, a common award level for vacation pay would be 2 hours for each week worked, with some sort of maximum cap.

There are only three settings in TimeTrax that effect PTO calculaltions. All three are on the Employee Dialog Box under PTO Settings, as follows:

1. Avg. Hrs/wk
   

   This is where you would enter the average number of hours you would expect this employee to work each week. It's purpose is to establish a reasonably accurate base line for TimeTrax to use when calculating employment hours for the year. Essentially, it allows the calculations to account for employees that work part-time, otherwise the only assumption we could make was that everyone worked full time at forty hours, which just isn't always the situation. The number is not critical, just make a reasonable guess. If you're not entirely sure of the number of hours a specific employee would be averaging, then use 40 hours.



2. HPTO Hrs/yr
   

   This is where you would enter the anticipated number of paid holidays you would expect to give the employee in the next year. For example, if you generally give your employees a paid holiday on News Years Day, Memorial Day, July 4th, Labor Day, Thanksgiving Day and Christmas Day, then the total would be 6 days at 8 hours per day, then your HPTO hours per year would be 48 hours.

   
   

   When entering a part-time employee's settings, be careful of how you enter the HPTO hours. A full HPTO holiday for the part time employee is 4 hours, not 8 hours. Thus if you normally give your employees 6 paid holidays, the regular full time employee would get 48 Annual HPTO hours (5 days x 8 hrs), but the part time employee would get 24 Annual HPTO hours (6 days x 4 hrs). Of course, if you want to give a part time employee who works 4 hours a day a full 8 hours of pay on a holiday, then go right head.

   
   

   If you don't give paid holidays, or if you have a new employee who hasn't worked for the company long enough to qualify for paid holidays, then you would set HPTO for that employee at zero until such time as you wanted to change it.



3. EPTO Hrs/yr
   

   This is where you would enter the the number of paid personal hours you give to the employee each year. Remember, EPTO includes vacations, sick days, personal days, etc. This setting is entirely dependent on the compensation package you give to each individual employee, and may be changed at any time to reflect any changes in the employee's status.

   
   

   When entering a part-time employee's settings, be careful of how you enter the EPTO hours. A "full week" of EPTO for a vacation for an employee who works an average of 20 hours a week during the year is 20 hours, not 40 hours, unless you specifically want to pay them a vacation paycheck that is twice their usual paycheck.

UNDISTRIBUTED PTO PROCEDURES

DISTRIBUTED PTO PROCEDURES

GENERAL DISCUSSION

Like all calculated costs in TimeTrax, a change in any underlying factor will have an effect on an employee's payroll cost, including their PTO cost. However, in addition to the usual factors such as payroll tax or insurance percentages, there are a couple of additional factors that are unique to PTO, and you should understand how changing them effects past cost calculations. The following chart illustrates some typical scenarios and their effects:

ADJUSTMENT SCENARIOS

The following chart will describe some fairly typical situations that will effect your PTO costs, regardless of the accuracy of you data entry efforts.

ADJUSTMENT STRATEGIES

As you can see, there are certainly foreseeable circumstances where there would be some deviation between the calculated PTO costs and the actual PTO costs. The question becomes what do you do about it? The answer is easy: Nothing. As a practical matter, these numbers will be relatively small, and I can tell you that it simply isn't worth your time to create and post a PTO variance report. Sure, you could change the data (PTO hours, etc.) and TimeTrax will perform the function and produce the report, but changing a PTO number affects every single entry for that employee in every TimeTrax record, thus the variance report will have an entry for every project and every cost code on the project that the employee worked, and a lot of the variances will be perhaps just a few pennies.

If you're still not convinced that it isn't worth the time, consider what you will need to do to effect the change. You would need to run a report in TimeTrax to establish how much PTO cost you had calculated for the employee for the past year, then compare it to the actual cost of the employee's vacation, calculate the difference between the two amounts, then divide it by the number of hours worked in the past year to derive at the additional cost per hour, then do a general journal entry to increase the cost for each project and cost code the employee work on by a couple of pennies each.

It the end, it makes a lot more sense to congratulate yourself for having successfully distributed 99% of your PTO costs and to write off the difference, either a positive or negative, as simply "Uncategorized Payroll Costs".

GENERAL DISCUSSION

PTO cost is by it's nature somewhat more difficult to calculate because, unlike all the other payroll costs, the cost of PTO must also include the other payroll burdens and benefits.

Think about this for a minute. The payroll burdens (taxes, insurance, etc.) are expressed as a percentage of the employee's compensation, which is a relatively straight forward computation. The employee benefits are calculated as a lump cost divided by the number of hours worked each week. A little more complex, but easy to understand.

However, calculating PTO cost is more complicated because you also have to pay all the payroll burdens (including WC) and employee benefits when an employee takes PTO. The PTO costs include all other payroll costs, which, as we already know, can change anytime due to many factors and thus get quite complicated themselves. And, of course, we have to keep track of the PTO costs by both WC methods.

In TimeTrax, PTO is calculated as follows:

Each week, TimeTrax calculates what it costs to pay the employee for that week, essentially adding up the employee's compensation, payroll burden, and benefits costs. This total costs is divided by the number of hours worked by the employee to yield a cost-per-hour that includes everything except PTO.

Next, TimeTrax calculates the number of hours of PTO earned by the employee that week by adding up the total number of PTO hours for the year, and then dividing by the sum of 2080 (hours per year) minus the total number of PTO hours. Remember, PTO is spread across the productive time, so you must subtract the number of PTO hours from a possible 2,080 (40 hours per week x 52 weeks per year) total hours for the year.

This number of hours is then multiplied by the employee's per-hour cost for that week, and the resulting number is added to the employee other costs (already calculated) to yield the actual cost of that employee for that week, including compensation, payroll burden, employee benefits and PTO. This number is then divided by the number of hours worked to yield the actual cost-per-hour (with everything including PTO). This final cost-per-hour is then used for all cost calculations and cost records in TimeTrax for that employee for that week.

SAMPLE CALCULATIONS

The following chart illustrates how TimeTrax calculates the PTO cost for a typical employee.

Calculate Compensation
Hourly Rate	from Employee Settings	$12.00
Regular Hours	from Time Sheet	40.0
OverTime Hours	from Time Sheet over 40 hrs	6.0
Regular Pay	40.0 hrs x $12.00 per	$ 480.00
Overtime Pay	6 hrs x $12.00 x 1.5	$ 108.00
TOTAL	none	$ 588.00
Calculate Employee Base Costs
Employee Earnings	As calculated above	$588.00
WC	$588.00 x 32.50%	$191.10
FICA	$588.00 x 7.65%	$44.98
FUTA	$588.00 x 0.8%	$ 4.70
SUTA	$588.00x 2.4%	$ 14.11
Health Insurance	$125.00 x 12 / 52	$28.84
TOTAL COSTS		$871.73
Calculate PTO Hours per Week
Paid Hours per Year	40 hrs x 52 weeks	2,080.0
Total PTO Hours / Year	Per Employee Settings	80.0
Productive Hours per Year	(2,080 - 80)	2,000.0
Productive Weeks per Year	(2,000 hrs / 40 hrs per wk)	50.0
PTO Hours per Week	80 hours / 50 weeks	1.60
Calculate PTO Costs for this Payweek
Employee cost / hour	As calculated above	$18.95/hr
PTO Costs	$18.95 x 1.6 hrs	$30.32/wk
Calculate Employee Cost per Hour
Employee Base Cost	As calculated above	$871.73
PTO Cost	As calculated above	$30.32
TOTAL Employee Cost	Base Costs + PTO	$902.05
COST per Hour	$902.25 / 46 hrs	$19.61

GENERAL DISCUSSION

This article examines the mathematics behind the various methods of calculating the weekly cost of Paid Time Off, and the strength and weaknesses of each method. The research materials here are purely academic in nature, and are intended for those persons who are interested in the methodology behind the TimeTrax calculations. If your only interest is on getting TimeTrax setup properly, then you can skip this section.

CALCULATING PTO

Of all payroll costs you can incur, PTO calculations are unquestionably the most complicated, largely because you must add into today's payroll cost the cost of a future payroll that has all the same costs as today's payroll, but who's number of hours can only be estimated.

The basic formula is as follows: You estimate how many PTO hours an employee will be paid for in the next year, then calculate the total PTO cost for the year, which is then divided by the hours that the employee will actually be working, and then added to each of those working hours.

The difficulty is in projecting the number of actual hours worked per year vs the actual PTO hours given in a year. You can estimate these numbers with some degree of accuracy because you can assume, for example, that a full time employee is going to work for 2,000 hours and receive 80 hours of PTO in the next year, and you can make your PTO calculations based upon that presumption, but any resulting inaccuracies will throw off the calculations.

There are three possible methods for using the number working hours in a given week to calculate the PTO cost for that week, as follows:

1. The STRAIGHT LINE method in which you assume a fixed number of hours worked in a year, which is then used to calculate an annual PTO cost, which is then divided by 52 to establish a fixed PTO cost per week, which is then spread across the hours actually worked in each specific week.
2. The VARIABLE method in which you multiply the hours worked in each specific week times 52 to project the annual number of hours worked, which is then used to calculate an annual PTO cost, which is then divided by 52 to establish a floating PTO cost for each specific week, which is then spread across the hours actually worked in each specific week.
3. The RATIO method in which you assume a fixed number of hours worked in a year which is then used to calculate an annual PTO cost, which is then divided by the projected working hours in the year to establish a fixed PTO cost per hour, which is then added to each hour actually worked in each specific week.

TimeTrax uses the RATIO method, largely because it does not distort the PTO per hour cost in weeks where the hours worked varies from the expected average. The following graph illustrates the results of each method for a typical employee, followed by more discussion of the pros and cons of each of the three methods.

There are several observations to be made from this chart:

1. The horizontal BLACK LINE represents the Straight Method of calculating PTO. As you can see, the PTO cost is exactly the same for the week (in this case approximately $18.50), regardless of the number of hours worked by the employee. This will distort the per hour cost of employees in short work weeks.
2. The GREEN LINE represents the Variable Method of calculating PTO, which as you can see become somewhat distorted in the short work weeks, thus it was rejected as a viable means of projecting PTO costs.
3. The slanted RED LINE represents the Ratio Method of calculating PTO. This example uses an employee who works 40 hours a week and receives 80 PTO hours a year. As you can see, the PTO costs decline in direct proportion to the number of hours worked, which is why we adopted this method in TimeTrax.
4. The sharply slanted BLUE LINE represents the Ratio Method of calculating PTO for an employee who works an average of 20 hours per week but received the same 80 PTO hours per year as the RED line employee. Obviously, the PTO cost for the employee is twice that of the RED line employee: same cost per year, half the number of working hours to pay for them. The point here is to illustrate the role in the PTO hours setting in TimeTrax. Had this 20 hour per week employee been set at 40 hours of PTO, their line would have exactly matched the RED line employee.
5. Notice how all of the lines (except the BLUE line) converge at exactly the same cost per week for a 40 hour week. This is because they are all calculated based upon a full time employee working 40 hours a week. The diffculity with all the calculation is in figuring how to handle the short or long weeks without distorting the average hourly cost for those weeks, and that's why we use the Ration Method.
6. The chart also illustrates the role of the Average Hours per Week setting in TimeTrax. This setting effectively moves the baseline for the Ration Method, thus greatly increasing the accuracy of the calculations. Changing the Average Hours per Week baseline will not effect the shape of the graph line, it will only move it from left to right along the baseline, but that's the entire point, to start the calculations off with a reasonably accurate baseline.

STRAIGHT PTO METHOD

Annual Employed Hours is constant at 2,080 per/yr or 40 per/wk.

Formula is: Weekly PTO hours x Avg Cost per hour

Methodology: PTO is calculated as a fixed cost per week and then divided by the number of hours worked in the specific week. The PTO calculation is to subtract the number of Annual PTO hours from a fixed total number of Annual Employed Hours of 2,080 to yield the number of Annual Productive Hours which are converted to Annual Productive Weeks, after which the number of Annual PTO Hours are divided across the Annual Productive Weeks to yield the Weekly PTO Hours, which are than multiplied by the Avg Cost per hour (without OT) to yield the PTO cost for that week, which is then added to the other payroll costs and subsequently divided by the number of working hours in that week to yield the Avg Cost per Hour used to distribute the payroll cost.

Advantages: Simplest to understand because it calculates the same fixed PTO cost for each week, which is then added to the other costs and divided by the number of hours worked that week to establish the Average Cost per Hour for that week.

Disadvantages: The constant PTO cost distorts the cost per hour in weeks with a small number of hours. This phenomenon is similar to the method used to distribute the benefits costs. However, benefits costs are the same every week regardless of the number of hours the employee works.

VARIABLE PTO METHOD

Annual Employed Hours is: Hours worked that week x 52

Formula is: (Annual PTO hours / # Productive Weeks) x Avg Cost/hr

Methodology: Annual Employed Hours are re-calculated each week by multiplying the hours for each individual workweek by 52 to establish a "floating" number of Annual Employed Hours as the starting point for the subsequent calculations.

Advantages: This method is somewhat more accurate that using Fixed Annual Employed Hours because it averages the numbers of hours worked for the year, thus automatically factoring the difference in the fluctuations between the work weeks.

Disadvantages: Using the Variable Method causes distortion in the calculated Weekly PTO costs in relatively short work weeks because the formula will project the small number of hours for that week into a small Annual Employed Hours, which will then be compared to the Fixed Annual PTO hours in the program. Consider a situation where the employee only worked one hour in the week, with an Annual PTO setting of 80 hours. The formula would then calculate 52 Annual employed hours that would then need to pay for 80 PTO hours, resulting in a distorted weekly PTO.

Although the idea of having the calculations automatically adjust based upon the varying hours from week to week, we have decided not to use the Variable Method largely due to the distortion in short weeks. It is possible to use the Estimated Weekly Hours setting to make up for some of this distortion by moving the baseline, but we ultimately determined that possibility of the distortion from the occasional short work week was unacceptable.

RATIO PTO METHOD

Annual Employed Hours is set in TimeTrax for each employee.

Formula is: (Annual PTO hrs / Annual Employed hrs) x Avg Cost/hr

Methodology: PTO costs are calculated as an average cost per hour for the year, multiplied by the number of hours worked for the specific week and added to the other payroll costs to yield the Avg Cost per Hour for payroll cost distribution.

Advantages: The Ratio Method does not distort the PTO cost in short workweeks because the PTO cost is calculated as a per/hour cost instead of a per week cost, thus you don't have a situation where a fixed Weekly PTO cost is being divided by varying numbers of hours in a given workweek.

Disadvantages: The ratio used to project the PTO cost is based upon a fixed number of Annual Employed Hours. If this "baseline" is wrong, the calculated amount will also be wrong, although admittedly by only a small and probably tolerable percentage. Part of utilizing this method would require that the user input an estimated number of Annual Employed Hours for each employee so that the baseline could be more accurate for part-time employees.

METHODS SUMMARY

All three methods produce the same weekly PTO cost when the actual weekly hours equal the Average Hours per Week. The difference is in how each of the methods handle work weeks that are less than or greater than exactly 40 hours.

TimeTrax uses the Ratio Method to calculate the Weekly PTO costs because it provides the most accurate method of calculating the costs without distortion based upon the fluctuating hours between work weeks. In addition, it's the only method that adds more cost for longer work weeks, thus continuing to spread the PTO costs proportionally. The only caveat is that the user needs to enter a reasonably accurate Average Hours per Week setting to provide an accurate baseline for the calculations.

Although we discourage the practice except in rate circumstances, if you find that your PTO settings were completely off, you can use TimeTrax's Modify Records function at the end of the year to adjust the PTO hours settings to reflect the actual number of PTO hours awarded and post the difference with a GL variance report.

WORKERS COMPENSATION

As with every other calculation in TimeTrax, the program is simultaneously calculating and tracking the WC cost by both the WC by Employee AND the WC by Cost Code methods. The same practice holds true with the PTO costs.

The above example of the PTO calculations was for the WC by Employee method, with the WC rate coming from the Employee's WC Classification setting.

When TimeTrax calculates PTO costs for WC by Cost Code, TimeTrax uses whatever rate you have associated with the PTO cost code. Note: This is expected to be a lower rate such as office personnel to reflect that the employee is on vacation.

OVERTIME

PTO is not effected by overtime costs, and in fact overtime is not included in the weekly PTO cost calculations because you don't pay overtime on vacation, holidays, etc., so the increased overtime earnings would distort the PTO cost upward.

TimeTrax does not incorporate the overtime premium into the PTO cost calculations as noted above, but it does include the additional hours in calculating the Average Cost per Hour without overtime because it is correct to have the program calculate the PTO costs with the additional hours in the long weeks to balance the weeks when the employee may work a short week.

MISCELLANEOUS NOTES

There are a few optional methods for calculating some of the payroll costs that I considered and rejected when writing TimeTrax. I've decided to include some discussion of these issues for those who want to understand the pros and cons of some of the options.

I cannot set the programming to reflect the PTO hours for each week based upon the hours worked that week. For example, I considered the possibility of having the Total Annual Hours be based on the number of hours worked that week times 52 weeks, as opposed to simply assuming 2,080 hours a year as a base line. The idea was to use the number of hours worked each week to obtain a Total Annual Hours that was an average of all the weeks, not simply the 2,080 hours we assume.

It was a nice idea in theory, but as a practical matter it distorted the PTO costs on all low or zero hour work weeks out of proportion. For example, in a week where the employee worked only one hour, then these calculations would set the Total Annual hours at 52, which when divided by an ANNUAL PTO of 80 hours, would grossly distort the PTO cost for that week.

Although it was a nice idea to have the PTO calculations adjust according to the employee's hours, thus hoping to achieve greater annual accuracy by using an average of the weekly hours, an especially enticing prospect if you award PTO hours by the number of actual hours worked instead of a fixed amount per year. Many company's vacation PTO awards are directly calculated by the number of hours worked, 1 or 2 vacation hours per every 40 hours worked is a typical example. Of course, as discussed herein, this is mathematically impractical, although TimeTrax does achieve almost the same effect with it's normal procedures.

In any event, the current TimeTrax procedure does a relatively accurate job of handling and disparity between the Annual PTO hours and the situation wherein an employee leave the company during a partially-completed award period. For example, if an employee who is setup for 80 PTO hours quits halfway into the annual award period, then only 1/2 of the originally anticipated PTO costs have been calculated into the posted costs to that point. Thus, even if you set up an employee for a estimated annual PTO hours, the shortened year will only have calculated the correct PTO costs.

In this situation, it's quite typical for the employer to pay the departing employee for any unused Vacation PTO time, although it's not mandatory. It's not typical to pay the employee for accumulated sick time, and rarely do you pay for unused holiday PTO because unused holidays haven't arrived. However, it's all your decision.

If you want to pay an employee for accumulated PTO time, simply add the time to the last payweek. By virtue of the special PTO cost codes, the employee will receive the increase pay without Overtime and without effecting any costs.

Important Note: The special PTO Cost Codes must not add to the hours worked by the employee in any given pay week BECAUSE that might send the weekly hours over 40 and into overtime, which would inadvertently increase the employee's pay with the overtime factor. Remember, you don't pay overtime on PTO hours.