Paid time off (PTO) is a staple benefit in most companies, but it can also be a significant financial burden. Our new ebook, “The Hidden Cost of PTO (and the Hidden Savings You Might Find),” explores these hidden costs and reveals how companies can find substantial savings by addressing this issue.
Understanding PTO Liability
PTO liability refers to the amount of PTO an employer owes employees. As employees accrue PTO hours, the employer becomes liable for those hours. Many companies must offer PTO and pay employees for unused days off, which can become an unpredictable liability, negatively impacting cash flow and balance sheets. With PTO requests down 20 percent since 2020, this liability has grown to over $1 trillion annually for U.S. companies, equating to about $7,600 per full-time worker.
The Impact of PTO Liability
PTO liability poses several challenges for employers:
- Financial burden: Accounting requires employers to accrue a liability for unused PTO, affecting financial health and credit. For instance, if an employee with a $50 hourly rate has 32 hours of unused PTO, the liability is $1,600. In a company with 500 employees, this adds up to $800,000.
- Increasing costs: As employees get promoted or receive salary increases, the cost of their accrued PTO rises. Additionally, employees are using less of their allocated PTO, leading to higher accumulated liabilities.
Reducing PTO Liability
Reducing PTO liability is crucial for maintaining a company's financial health. Here are some strategies:
- PTO conversion programs: Companies can implement PTO conversion programs allowing employees to convert unused PTO into cash, 401(k) or HSA contributions, student loan payments, or charitable contributions. This reduces the PTO liability on the balance sheet and offers flexible benefits to employees.
- Encouraging PTO usage: Promoting the use of PTO can help reduce liability and prevent employee burnout. Engaged and rested employees are more productive and less likely to leave, reducing turnover costs.
- Utilization rates and policies: Setting minimum balances for eligibility and maximum annual limits for PTO exchange can manage utilization and maintain compliance with sick leave laws. Understanding utilization rates can help predict potential savings.
Benefits of PTO Conversion Programs
PTO conversion programs offer several benefits:
- Financial savings: These programs can significantly reduce PTO liability. For example, if employees convert 15 hours of PTO, reducing liability from $800,000 to $425,000, a 4% salary increase would result in savings of $15,000.
- Employee engagement: Offering convertible benefits can increase employee satisfaction and engagement. A more engaged workforce is 17-22% more productive and has a 54.7% lower turnover rate.
- Flexibility and personalization: Employees can tailor their benefits to their needs, such as contributing to retirement funds, paying off student loans, or donating to charitable causes.
Client Case Study
One of our healthcare clients implemented a PTO conversion program, which saved it $11.3 million and reduced turnover by over 60%. This demonstrates the significant impact of flexible benefits on reducing liabilities and improving employee retention.
Reduce PTO liability
Addressing PTO liability through conversion programs and encouraging PTO usage can lead to substantial savings and a more engaged workforce. Companies can reduce financial burdens, enhance their benefits offerings, and improve overall financial health by adopting these strategies.
Download our ebook, “The Hidden Cost of PTO (and the Hidden Savings You Might Find)” to learn how PTO might be costing your company more money than you think and the potential savings you can find by addressing this problem.
Published on Jul 09, 2024 by Josh Reinhard
