It’s Time For A New Approach To Paid Time Off

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PTO is a powerful tool in the war to attract and retain talent. But current PTO structures are inflexible, inefficient and increasingly obsolete.

Over the past two years, there has been a fundamental shift in the relationship between employees and employers. The Great Resignation has led to worker shortages across industries, and HR departments need to offer greater flexibility and more robust benefits if they want to retain staff and remain competitive. This will require them to think creatively about how they structure their compensation and benefits packages, and one critical component of that effort is paid time off (PTO).

American workers leave hundreds of millions of unused vacation days on the table every year, despite the fact that PTO is a major part of their compensation. This doesn’t just harm employees—it can also lead to lower morale, feelings of frustration and higher turnover, while creating significant liabilities for companies on their balance sheets.

This number has grown due to Covid. In the last two years, employees put off taking PTO due to travel restrictions, staffing requirements and worker shortages, among other reasons, leading to a ballooning PTO balance on corporate balance sheets.

Even more alarming, “forfeited” PTO represents over $65 billion in lost compensation each year. How can this be? Most companies have PTO accrual caps—so when an employee reaches the limit, he or she stops accruing vacation and forfeits this compensation. To be clear, this “lost” means money earned but not received by employees.

This just doesn’t seem right to us.

Let’s take a look at why HR pros should revise their approach to PTO in a way that will help employees make the most of their hard-earned time off while improving employee engagement, loyalty and workplace culture.

Why is so much PTO not taken?

We’re firm believers in the benefits and value of paid time off. It helps employees recharge, provides work/life balance and mitigates burnout. That being said, our research shows that only four out of 10 employees use all their vacation each year, with the average employee leaving a week unused. This is due to a variety of reasons, including concerns about job security, excessive workload, manager perceptions and financial situations, among other factors.

So if employees are building up accrued PTO—or in some cases, losing it—what can be done to improve this situation?

In a tight talent market with surging turnover rates, forward-looking HR managers should be thinking how they can leverage an existing, funded benefit—PTO—and use it more strategically in the compensation mix to address diverse priorities and reinforce an employee-first culture.

Building more employee-centric benefits

This is why we created PTO Exchange, a benefits platform which allows employees to self-direct the value of their unused vacation into retirement, student loan payments, charitable donations, cash and many other priorities.

The benefits of self-directing the value of unused PTO go beyond convenience. By allowing employees to use the funds to support needs and causes they care about, companies are creating an ethos around the importance of financial wellness.

This leads to company culture. Almost two-thirds of employees say company culture is one of the main reasons they stay at a job. It isn’t a good sign for the health of a culture when employees don’t feel like they can take well-deserved time off without upsetting their managers and colleagues. Nor is it fair to employees when they have no alternatives to vacation if they prefer to use their PTO in some other way.

Employee expectations will never be the same

I have two more fascinating employee sentiments revealed in our research:

  • Over 80% of workers would be very interested in converting some of their PTO into other financial resources; and
  • Nine out of 10 employees agree that this type of benefit would make them more likely to stay with their employer (loyalty!)

At a time when talent retention and recruitment has never been more intense, it’s more important than ever for HR professionals to implement a flexible PTO benefits program.

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