PTO is a staple of benefits packages across industries, but for too many companies, it has become an unnecessary financial drain. PTO is underused, it doesn’t provide the flexibility employees are increasingly demanding, and it can create significant financial issues for companies in the form of unfunded liabilities that must be paid out at some future date. These are all reasons why CFOs should work with HR teams to determine whether their PTO programs are providing a sufficient return on the company’s investment.
CFOs should view every employee benefit through the lens of ROI. They must always ask if benefits are increasing employee engagement, reducing turnover, improving the company culture, and ultimately having a positive impact on the bottom line. When benefits address employees’ unique needs and goals, this will improve well-being and productivity across the workforce. CFOs should be particularly focused on PTO — not only because it’s such a widely deployed benefit, but also because employees’ failure to take advantage of their time off has created a heavy financial burden for many companies.
As the CFO’s role becomes increasingly comprehensive and strategic, it’s vital to consider the company’s finances more holistically. This means working with other departments like HR to ensure that every dollar of the budget is being spent wisely. PTO should be a central aspect of this evaluation, as it is a key driver of employee well-being and a major balance sheet item that has become increasingly costly.
For many companies, PTO is an inflexible benefit. Employees receive a certain amount of PTO each year, and the value of any time off they don’t use either builds up or gets eliminated. These outcomes depend on the specific PTO requirements companies face and the policies they adopt. Companies in states such as California, North Carolina, and Colorado must pay employees the value of unused PTO upon separation, and they’re liable to confront fines and legal action if they do not meet this requirement.
Companies in states that allow “use it or lose it” policies don’t face these obstacles, but they can alienate employees by implicitly pressuring them to take unwanted time off. Employees often feel like they can’t take PTO due to their workloads or concerns about the perceptions of colleagues and managers. At a time when over three-quarters of American workers don’t use all the vacation time available to them, “use it or lose it” simply means that the vast majority of employees are forced to sacrifice the value of PTO they have earned.
Whether companies are accruing large unfunded liabilities on their balance sheets or frustrating employees with restrictive and unfair PTO policies, it’s clear that the status quo isn’t working. This is why CFOs must coordinate with HR teams on a full assessment of the company’s PTO policies to ensure that they’re maximizing the value of one of the most essential benefits.
It’s the CFO’s job to monitor spending, identify potential efficiencies and strategic opportunities, address risks, and put the company in a stronger financial position. Considering that paid leave accounts for over a quarter of total benefit costs (according to the Bureau of Labor Statistics), the policies companies adopt around PTO will have an outsized effect on the budget. But the financial consequences of PTO policies go beyond direct costs — these policies also have sweeping implications for employee engagement, retention, and productivity.
The right PTO policy is among the most important human capital investments a company can make. A recent global survey of 26,000 employees found that 86 percent of employees regard work-life balance as the top motivator at their jobs, which means the measure ranks even higher than compensation. However, paid leave — a major aspect of a healthy work-life balance for many employees — only accounts for 7.4 percent of total compensation costs. This gap presents an opportunity for CFOs to put the company’s resources to much greater use.
The PTO status quo is too costly, and not just due to the financial encumbrance of unpaid time off on the balance sheet. Because many PTO programs are rigid and underused, they’re a source of dissatisfaction for employees — but these programs should have the opposite effect. By making PTO more flexible, companies will simultaneously address the direct cost of balance sheet liabilities and the indirect cost of employee disengagement and stress. This is why CFOs should be pushing for paid leave policies that drive greater ROI across the board.
For companies that offer traditional PTO, there’s only one way for companies to reduce the balance sheet liabilities associated with accrued time off — by urging employees to take more of it. But it’s difficult to see how companies will suddenly convince employees that their serious concerns about taking time off — such as anxiety about falling behind, concern for colleagues’ workloads, and the fear of missing opportunities — will suddenly evaporate. However, there are alternative PTO policies that can simultaneously reduce the financial risk of unused time off and provide more robust support for employees.
For example, convertible PTO enables employees to allocate the value of their huge quantities of unused time off toward other financial priorities, such as investments, student loan payments, emergency savings funds, and charitable contributions. At a time when 70 percent of employees say they’re interested in customizable benefits, this flexibility will have a powerful positive impact on morale, engagement, and retention.
A recent report published by BNFT outlines the benefits of a more flexible approach to PTO, such as greater financial stability and predictability. When CFOs don’t have to wonder when large payouts will suddenly be due, they can plan for the future and deploy resources more effectively. Companies can also generate increased cash flow with service charges for using tools like convertible PTO.
However, the financial value of the right PTO policies can extend far beyond these immediate benefits. By joining forces with HR teams to implement PTO programs that reduce risk while providing employees with far greater flexibility, CFOs will ensure that the company’s benefits are building a stronger workforce — a shift that will lead to far greater productivity and financial growth over the long term.