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Shouldn’t You Make It Easier for Your Employees to Cash Out Their Unused Vacation Time?

By August 27, 2019No Comments

(This post originally appeared on Inc.)

Americans work too hard, and we don’t take enough time off. As a result, many of us leave money on the table in the form of unpaid vacation. Some companies have use-it-or-lose-it policies. Others allow vacation to be carried over. But just about every company I work with — particularly small companies — pay out unused paid time off only when an employee leaves.

That’s kind of silly, isn’t it? Vacation time is compensation. People should be allowed to spend it as they please. When they don’t use it, one can make a strong case that they’re denied other benefits, the government loses tax revenue, and even the economy is hurt.

Actually, one company does make that case. It’s called PTO Exchange and it’s just raised $3 million from a group of venture capital firms and investors to prove its point.

The 11-person company, which was founded in 2013, provides a platform that enables employees at participating customers to bank their vacation and then cash out their unused time for … well … cash. Or, if so chosen, use that unpaid time to give to a charity, buy more health benefits, book travel, pay down a student loan, or put more money away for retirement.

“We are firm believers that [PTO] is an earned wage and individuals should be able to self-direct it for what matters most to them, instead of having to wait for companies to pay out the benefits during transition or termination periods,” the company’s founder and CEO, Rob Whalen, told GeekWire. “Taking time away from your job may be more stressful if you are living paycheck to paycheck, are overwhelmed with student loan debt, or have health and medical bills. Relieving stress is not just about taking days off.”

Allowing an employee to cash out their unpaid PTO anytime does have its drawbacks. As a CPA, I’m a strong believer in requiring workers to take time off because it’s a critical internal control against theft and embezzlement, and this type of platform may discourage that practice. Also, vacation time is — sometimes naively — considered by some business owners to be a “cashless” benefit above normal compensation, and having employees cash out their unused vacation requires the employers to make payments that otherwise would not have been budgeted. And there is an added cost — PTO Exchange charges a $3 monthly fee per employee as well as a 5 percent transaction fee.

Even so, I think the benefits outweigh the costs — and for a few reasons.

Just because an employer uses a platform like PTO Exchange, it doesn’t mean they can’t require employees — particularly those doing financial functions — to take time off. And, yes, making a payment instead of utilizing accrued vacation will impact a company’s cash flow.

But for those companies that allow vacation to carry over, those unused amounts create a balance sheet liability that can be a growing concern to bankers and future investors. More important, if an employee uses that money to buy better health benefits or put more away for retirement, isn’t that an added perk that will not only make your people happier but also differentiate your company from competitors looking for talent in these days of tight labor? Imagine telling a prospective employee that your company does something unique with its PTO: You can use it or take the cash anytime you want. Sign me up.

PTO has become one of the most requested (and expected) employee benefits as more and more Millennials — who are increasingly becoming the dominant worker population — are demanding more independence, mobility, and personal time. But the data is showing that those same employees who want all that time off are simply not taking it. In 2018 alone, there were more than 768 million unused vacation days in the U.S.!

Although a relatively new concept, platforms like PTO Exchange I expect will inevitably become commonplace. Vacation is compensation, and your employees will increasingly demand that they have more control over how it’s ultimately used.

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