How to Reduce PTO Liability by Calculating Utilization

When it comes to paid time off (PTO), the most significant cost for companies is their liability--of all the expenses associated with benefits, PTO comprises 24% of the total cost. 

If you recall, PTO liability refers to the amount of PTO an employer owes employees. As employees accrue PTO hours, the employer becomes liable for those hours. That said, accrued PTO becomes an unpredictable liability for companies, negatively impacting cash flow, weighing down balance sheets, and having a negative effect on credit.   

PTO liability has grown to over $1 trillion sitting on the books of both public and private companies and organizations (about $7,600 per full-time worker in the US) per year. These costs increase each year as fewer people use their PTO. 

Finance departments have been tasked with finding a cost-effective solution to reduce PTO liability. One way to combat growing PTO liability is to focus on increasing employees’ PTO utilization.  

Reduce PTO liability with PTO utilization 

PTO liability and utilization rates on our platform typically go hand-in-hand. By understanding your company's projected utilization rate, you can have a better idea of the impact PTO Exchange can have on your overall PTO liability. The more your employees utilize PTO, the more you can reduce your liability.   

Utilization rates are typically dependent on the PTO conversion plans that our clients enable. While other factors (minimum balance to exchange, required use of PTO before becoming eligible, etc.) can impact utilization, the most significant factor is the plan options.    

We see the typical utilization structure from our clients:  

• Cash Out + Other Plans: ~22% utilization of available PTO   

• Financial/Social Wellness Plans but No Cash Out: 12-16% utilization of available PTO   

• Social Wellness (Giving and Leave Sharing) Only: <4% utilization of available PTO  

There are two things to keep in mind when it comes to PTO utilization:   

1. Minimum Balance for Eligibility. Most clients require employees to maintain certain protected hours to be eligible for exchange. This eliminates concerns about employees burning through their balance and helps maintain compliance in states that have mandatory sick leave laws. The most common policy setting is 40 protected hours.   

1. Maximum Annual Limit. Most clients set a limit on the number of hours that employees can exchange in a given year. This can apply to an aggregate amount across all plans, or clients can structure individual limits for select plans. The most common policy setting is 80-120 hours per year.  

Here's an example of how PTO utilization and liability work together in our Liability Reduction Calculator. We designed the Utilization Calculator to estimate the potential savings a company might achieve using PTO Exchange.     

An advanced calculation can show the potential liability reduction as it correlates with PTO utilization. As this calculation indicated, the more PTO that gets utilized, the more the company's PTO liability is reduced over time.    

Advanced calculation of liability reduction as it relates to utilization  

Enhance your total rewards 

Finance departments are tasked with finding additional savings and solutions to reduce liabilities each year. PTO Exchange can help address these concerns with a flexible benefits platform that can convert their unused PTO meet individual financial wellness and social well-being needs while employers can reduce their benefits costs.  

Interested in trying out this calculator for your own organization? Schedule a quick 15-min call with one of our experts and they’ll show you how PTO Exchange can start reducing your PTO liability today.