How PTO conversion programs work
If a company wants to implement a PTO conversion program like PTO Exchange, it should partner with a third party to manage and administer it. Typically, these platforms integrate with a company’s payroll software and can be customized to a company’s preferences. Once implemented, employees can log into the platform, make an election, and see their updated balances and transactions in real time. In-house conversion programs can be costly and often don’t meet IRS compliance standards.
Depending on how a company sets up its PTO conversion program, employees can make conversions throughout the year or during specific time windows, such as just before the summer or winter holidays. It’s up to the client to set up and customize the platform in a way that’s best for their organization and employees. Any type of time off policy is eligible, although most companies do not make sick time suitable for conversion. The specific setup is up to the company as to what buckets of time they want to make available for conversion.
Companies can customize the PTO conversion program to drive certain employee behaviors. Standard policy settings require employees to maintain a minimum PTO balance before converting or limiting the number of hours employees can exchange each calendar year. These third-party platforms also have policy settings that require employees to take a certain amount of “traditional” PTO before they are eligible to exchange.
PTO Exchange is entirely customizable to fit your organization's standards and needs. Our team works directly with you to put in PTO policies and plan selections to make sure the solutions are perfectly aligned with your company’s benefits goals.
PTO conversion in practice
For an employee who makes $25/hour and exchanges 8 hours for a 401(k) contribution, the exchange would look like this:
8 hours * $25/hour = $200
$200 minus a 7.5% service charge = $185
The employee would see a $185 earning and corresponding deduction on their next paycheck. $185 will flow into their 401(k) account, and 8 hours will be deducted from their PTO balance.
If the exchange were a PTO cash out, the exchange would look like this:
8 hours * $25/hour - $200
$200 minus the 7.5% service charge = $185
The employee would see an additional $185 in gross wages on their next paycheck. The cashout amount would be treated like normal W-2 wages and taxed appropriately, and the net amount would fall into their earnings.
How companies benefit from a PTO conversion program
PTO conversions can satisfy employees’ needs for flexible benefits, increase productivity, and reduce the reliance on overtime for industries where this is challenging. Additionally, it also saves the company money in annual PTO payouts.
Reduce balance sheet liabilities
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. Moreover, 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. PTO conversion programs reduce this liability, as the more PTO is utilized, the less the company accrues.
Meet a wide range of workplace generations
With up to five generations in the workplace, HR teams must provide benefits packages catering to their diverse workforce’s needs. To offer an inclusive workplace, HR leaders need to address the individual concerns of their employees. This means offering flexible benefits that appeal to all generations. Flexible benefits show an organization’s commitment to diversity, equity, and inclusion (DEI) as they cater to the individualized needs of diverse workforces.
Attract and retain employees
PTO conversion programs allow companies to provide choice and flexibility with an already accounted-for benefit. From a retention perspective, most employees can only get value from their unused PTO when they leave their employer. Since most companies pay out PTO upon termination, you write an employee a check to leave the organization and work elsewhere. PTO conversion programs allow employees to gain incremental access to the value of their excess PTO without walking out the door.
Reduce turnover
PTO conversions can help drive employee engagement and loyalty. Offering non-traditional benefits like PTO conversions can give organizations a competitive advantage and reduce turnover. Turnover is not only a morale killer but also costly for organizations. Many organizations know that their top-tier talent, often the same subset of employees who don’t take all their PTO, is at risk. PTO conversion programs can help companies save millions annually in replacement costs, and studies have shown they decrease employee turnover by as much as 50%.
Higher employee satisfaction
If employees treat PTO like a currency with a value attached to it, employees are more likely to feel satisfied because they can use it in a way that benefits them. Nine out of 10 employees agree that having the ability to exchange their PTO would make them more likely to stay with their employers. Additionally, 7 out of 10 employees say having a flexible leave benefit would make them feel like their company values and appreciates them.
More positive PTO culture and culture around giving
PTO conversion programs create a positive culture of giving and community engagement. By allowing employees to donate their unused PTO to a charity or a colleague, employers can create a culture of giving within the workplace. This encourages employees to think about how they can positively impact their community and colleagues, which can generate support and teamwork within the workplace. Furthermore, when companies demonstrate a commitment to corporate social responsibility and community engagement, they can enhance their reputation and attract top talent.
What employees can use a PTO conversion program for
PTO conversion programs allow employees to convert their PTO into benefits they find valuable and can use immediately. This will enable them to craft personalized benefits packages that meet their and their families’ needs. PTO conversion programs can help support an employee’s financial wellness and social well-being goals.
Financial wellness
A PTO conversion program can help employees meet their top financial goals and priorities:
- Retirement planning and savings
- Increasing emergency savings
- Paying off credit card debt
- Paying healthcare expenses
- Financial planning and education
Here are just a few ways employees can use PTO conversions to support their financial wellness:
- Retirement: Employees can catch up or make additional contributions to their 401(k), 403(b), or 457 retirement plans.
- Education: Employees can convert unused PTO to help pay off their student loans, pay for tuition, or contribute to their 529 college plans.
- Cash Out: Employees can get emergency cash to help pay for unexpected expenses and reduce loans from retirement plans or predatory lenders.
- Healthcare: Employees can make additional pre-tax contributions to health savings accounts (HSAs) or flexible spending accounts (FSAs).
- Voluntary benefits: Increase participation and offer an alternative way to cover the cost of monthly premiums
Social wellbeing
In addition to financial wellness, employees can use PTO conversions to support social wellbeing through charitable contributions, donating days to co-workers in need, travel, and life planning accounts (LPAs).
Leave sharing
Another way employees can donate their unused PTO is through a leave-sharing program. A leave-sharing program allows employees to give their unused PTO to a fellow employee in need who may need extra time off.
Employers can set up a shared pool or leave bank of donated PTO days from employees. Then, employees can request additional time off that is pulled from the share pool. Once approved, the hours are added to the employee’s leave balance and reflected on the pay stub, eliminating the need to take unpaid leave.
Travel
Employees can use their accrued unused PTO to help them save money and take the vacation of their dreams. They can use PTO to take their vacation and convert unused days to purchase discounted hotels, car rentals, and airfare.
Charitable contributions
Employees can donate the value of their unused PTO to over 1.7 million charitable causes and non-profits. Companies can also match these donations and offer employees volunteer time on behalf of community organizations.
Life planning accounts (LPAs)
PTO conversions can also support a third type of employee spending accounts, life planning accounts (LPAs). LPAs are a means for companies to help employees support their employees by offering benefits around the four pillars of wellbeing: physical, emotional, social, and financial. These accounts are funded by employers with money taxable as income to employees when they spend it, unlike HSAs and FSAs.
Typically, companies use LPAs to provide additional health and wellness services, such as gym memberships, nutrition coaching, etc. Employers can decide how employees can spend their LPA funds with acceptable product and service categories. Still, these can be customized based on the company to include anything its employees might benefit from.
LPAs are a great solution for employers who offer unlimited PTO to give employees an additional benefit that can only be used for wellness initiatives.
Emergency relief funds
PTO conversions give companies another method for donating to emergency relief funds that can help employees cope with unexpected hardships that place financial stress on them or their families, such as natural disasters or personal difficulties.
How to measure the success of a PTO conversion program
There are several ways organizations can measure the success of their PTO conversion program, including:
- Turnover rate: The rate at which employees leave the company before versus after implementing the program. This can help gauge how well the program is helping retain employees.
- PTO utilization: Track PTO days before and after implementing the conversion program. Higher utilization rates indicate that employees are taking advantage of the program.
- Balance sheet liability: See how much money the company saves in PTO payouts before versus after implementing a PTO conversion program.
- Employee replacement costs: Track how much it costs to replace employees before and after implementing the program.
- Employee satisfaction: Conduct regular surveys to gather employee feedback on the PTO conversion program to see how employees use it and if they find it beneficial.
- Employee productivity: Assess the impact on attendance and productivity by comparing data before and after the implementation of the PTO conversion program. Analyze whether there are noticeable changes in absenteeism or presenteeism.
- Employee health and well-being: Consider employee health and well-being factors, such as reduced stress levels and improved mental health. Encourage employees to share their experiences regarding stress reduction or improved work-life balance.
As employees continue to accumulate PTO days, companies are looking for unique solutions to combat the surplus that benefits both the company’s bottom line and employee wellbeing. PTO conversion programs are a non-traditional benefit that companies can implement to attract and retain employees while reducing balance sheet liability. It’s a low-cost solution that uses a benefit already allocated.
