How do I prorate PTO payouts in California?

Your company front-loads PTO. You want to prorate payouts when they leave. How do you do that without breaking the law?

Most people talk about time off as “accrued” or “front-loaded” as if it’s an either/or proposition. It’s not. 

• All time off is accrued unless it’s unlimited/flexible. 

• Front-loaded PTO is just “accrued” on an annual basis. 

Which puts companies in a tough spot if they don’t want to pay out a full year of PTO in February. 

So what do you do?

If state law requires that “accrued” PTO be paid out at termination, you need to find a way to accrue time throughout the year, but make it all available at the beginning of the year. 

This is where your HRIS settings and the sentences people skip in the written policy become important.

Here’s how it works:

Let’s say a company offers 3 weeks/15 days of vacation per year and pays semimonthly.

👉 Accrual rate:

If it’s a flat amount per year, divide the number of vacation days by the accrual basis. For example:

(15 days of vacation) ÷ (24 semimonthly pay periods) = 0.625 days of vacation per pay period

👉 Allow a negative balance: 

Set the negative balances up to the annual limit. This lets people “borrow against” their “front-loaded” balance. The approval flow will serve as a check to make sure negative balances aren't being abused.

👉 Tenure-based milestones:

By calculating PTO on a partial-year basis, this lets people “switch tracks” and accrue at a higher rate when they hit a milestone mid-year.

💵👉 Payouts:

Using this method, most payroll providers will pay out the correct partial-year amount automatically without you having to do the math. 

Unless they're in California.

If a California-based employee leaves, check that your provider calculates the accrual on a calendar day basis.

If the employee has used some of their balance, this can get tricky. 

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Let’s say Elmer, who makes a $100,000 salary, quits on August 27, 2025 after using 5 vacation days with 3 carried over from 2024. 

15 days of vacation ÷ 365 days per year = 0.041 vacation days accrued per calendar day

August 27 is the 239th day of the year

239 days x 0.041 vacation days = 9.8 days accrued on August 27

9.8 days accrued in 2025 + 3 days rolled over in 2024 = 12.8 days available for use in 2025

12.8 days available – 5 days used = 7.8 days paid out

Calendar day rate = $100,000 per year ÷ 365 calendar days = $273.97 per day

Payout = $273.97 per day x 7.8 days = $2,136.99

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