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How to account for PTO in payroll

A guide for factoring PTO into your payroll schedule.
July 18, 2022
Oyster Team
Calendar with a day off marked

What does PTO mean, and how does it affect payroll? The answer is something that every business owner and People Ops professional needs to understand. PTO, or paid time off, refers to hours or days an employee can use to cover time away from work for planned vacations, medical appointments, sick days, and more. As the name indicates, it’s a benefit that results in the employee being paid even though they’re not working. There’s no distinction between vacation days, sick days, and personal days. Instead, any time off—regardless of the reason—fits into this category. Here’s what you need to know about implementing a PTO policy and accounting for it.

How does PTO factor into payroll?

It’s one thing to provide each employee with a certain amount of PTO, but doing so means you also need to understand the impact this has on your organization and payroll process. Before calculating the impact of PTO on payroll, you must first define how employees receive paid time off. There are three options:

  • Accrued PTO: Employees accumulate days off over time, such as a set number of hours per pay period.
  • Unlimited PTO: A growing trend where employees can take off as much time as they want as long as it doesn’t interfere with their work.
  • PTO bank: Employees receive a set number of PTO hours, which resets on a predetermined day every year .

In addition to PTO, there are other types of time off companies offer. Some are required by law, such as leave taken under the Family and Medical Leave Act. Others, like jury duty and bereavement, are voluntarily provided by employers and may be counted separately from PTO. No matter how you arrange these benefits, you must create a system that accounts for them to ensure adequate coverage. 

How does PTO affect the bottom line?

It’s easy to believe that too much paid time off will harm an employee’s performance and the company as a whole. While this may be true in some cases, there’s a fine line. Employees sometimes need an extended break to rest, recharge, and come back energized and ready to reach their peak performance. 

PTO doesn’t have to affect your company’s bottom line. With the right processes in place, everything can continue to run smoothly in an employees’ absence. Some of the best ways to prepare include:

  • Asking employees to notify you of PTO requests as far in advance as possible. 
  • Having employees collaborate with colleagues to ensure coverage before taking time off. 
  • Discussing any potential challenges that may arise during an employee’s absence and expectations around communication.

PTO processes to be aware of

As a People Ops professional, you can take steps to make your time-off process easier for everyone, including:

  • Pre-loading holidays: Schedule holiday pay in advance so you don’t have to do this multiple times throughout the year. 
  • Being mindful of floating holidays: If your company provides floating holidays, be aware that these can be used by employees at different times.
  • Communicating blackout dates: There may be times throughout the year when you don’t want certain teams or individual employees taking PTO. For instance, the end of the fiscal year is not a good time for a key accounting employee to request time off. 
  • Having a system for tracking PTO: A PTO spreadsheet helps reduce friction when requesting, approving, and managing paid time off. 

Implementing the right PTO processes upfront will save you time, money, and headaches down the road. 

Get the help you need to manage PTO in your payroll system

There’s no room for error when managing employees’ time off. One slip-up can impact a team and an employee’s plans and morale. Fortunately, there’s plenty of help available. 

At Oyster, our global employment platform allows you to efficiently manage payroll for your entire team. Pay team members, manage paid time off, and maintain compliance no matter where your employees are located.

Other features include:

  • Managing invoicing and global payments.
  • Paying team members in their local currencies.
  • Automatically managing taxes, local deductions, and contributions for all team members.

Are you ready to take full advantage of these features? Register for an account today. It won’t be long before you have everything you need to manage the ins and outs of PTO, and all other aspects of payroll.

About the Author

Oyster is a global employment platform designed to enable visionary HR leaders to find, hire, pay, manage, develop, and take care of a thriving distributed workforce.

About the Author

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