2080 hours and 52 weeks per year? What about PTO? 49 weeks and 1960 hours per year more realistic?

Practice Management
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I have been using 40 hours per week x 52 weeks per year to get 2080 hours per year, and this seems to make the calcs work on BS test questions. However - in reality - no employer would run a firm that way. They would offer some amount of PTO - probably two or more weeks per year minimum.

Will the ARE be set up to pretend that the 52 week / 2080hour year is the real year - or is it sophisticated enough to take PTO into consideration? if the latter - I would hope there would be some way to know before I miscalculate based on a fictional NO-PTO employee work year.

Ideas anyone?

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You are paid for those PTO, it’s part of benefits which adds to employee direct so as a full-time worker, even when you are off on vacation you are still part of Direct Personnel Expense. That’s why I assume 2080 and 52 weeks. I understand where you’re going with this though.

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From an EMPLOYERS perspective it’s 2080 hours and 52 weeks. From an EMPLOYEES perspective it’s 1960 hours and 49 weeks. Every single employer who offers PTO runs their firm that way.

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Good point. When we consider utilization rate on a yearly basis, I would think we’d use the 1960 hours, otherwise we’d be showing lower utilization rate than is really the case.
I’ll bet though, for the purposes of the exam it will be treated as 2080hrs.
What do you think?

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Thanks Lucas- that makes sense.

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I wonder. That is also a good point. I wonder what Black Spectacles has to say about this. The utilization rate is direct labor / total labor. The lecture videos don’t make it clear how ‘total labor’ is calculated. That said, on p.440 of the AHPP they use 2,080 hours for the ‘total number of direct labor hours’ when calculating the projected billing amounts in an example. @coachthomasmasino

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P.S. I did find a Black Spectacles lecture video that uses 2,080 hours per year to calculate the hourly billing rate. It can be found in the video called Firm Financials: Profit Plan + Annual Budget at the 1:50 mark.

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The more I think about, the more it makes sense. Someone has to pay for employees time off. The employer would probably pass on that expense to the client. So you would charge the client for the employee’s PTO hours. That would be factored into the billing rate by using 2,080 hours per year.

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OK - I think I see it now. Thanks!

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Hi @coachthomasmasino Can you weigh in on whether or not there may be a case for using 1960 hours and 50 weeks per year?

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@Citrillion For ARE purposes, you should always assume 40 hours per week x 52 weeks = 2,080 hours per year. Remember, the ARE tests the competency of candidates across the entire country in a consistent manner. PTO and other factors vary across the country and by firm, so we can’t assume a specific amount of PTO. Unless it is specified in the scenario or prompt on the ARE - keep it simple and assume 2,080.

@avatarlucas also brought up a great point that justifies this, with PTO still being an expense that would need to be factored into a firm’s finances so you wouldn’t exclude it regardless.

Thanks for starting this discussion @aidenjh, as it’s a great example of a logical assumption that you’d need to make on the ARE even though it is not explicitly stated.

Kiara Galicinao, AIA, NCARB
Product Coordinator
Black Spectacles

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Thanks for your response @kiaragalicinao

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