How To Reduce Turnover and Boost Employee Engagement

Companies are hyper-focused on attracting and retaining top talent while avoiding the T word: turnover. Turnover costs companies their good talent and millions of dollars in unforeseen costs. However, more engaged employees are more likely to stay with their companies and less prone to turnover. And convertible benefits can help companies do just that.

Why is employee engagement important?

Employee engagement drives businesses forward. An engaged workforce is more productive, creative, and committed than one whose employees are disengaged. Research consistently shows that highly engaged companies experience lower absenteeism, higher productivity, and lower turnover rates.

In fact, organizations with a highly engaged workforce report up to 21% higher profitability. Engaged workers also produce better quality work with fewer defects, quality issues, and safety incidents, creating a more streamlined and cost-efficient operation.

Moreover, engaged employees act as brand ambassadors, fostering stronger customer relationships. This translates into higher customer retention, improved customer success metrics, and increased sales, all of which directly drive business growth. High employee engagement is not just a morale booster—it’s a powerful tool for business success.

However, not every organization has highly engaged employees. According to a recent Gallup study, only 23% of the workforce is actively engaged at work, meaning most employees disengaged, costing companies significant amounts in lost productivity and replacement costs.

The cost of turnover

The financial implications of low engagement are staggering—disengaged employees cost the global economy an estimated $8.8 trillion annually.

The more disengaged employees are, the more likely a company is to lose them, resulting in replacement costs. It costs a company anywhere from 1.5-2 times the employee’s salary to replace them, not to mention the time and resources to train and onboard employees so they can perform up to speed.

Moreover, employee turnover can damage a company’s employee brand and give it a reputation for being a high-turnover organization. Companies with high turnover are more likely to see a reduction in employee morale and satisfaction from the additional workload and loss of a colleague.

How does PTO liability impact employee turnover and retention?

PTO liability refers to the amount of PTO an employer owes employees. As employees accrue PTO hours, the employer becomes liable for those hours. With many policies, companies must offer PTO and pay employees for unused days off. There are currently 20 states that require companies to pay out the value of an employee’s unused earned time off at termination or separation. As a result, accrued PTO becomes an unpredictable liability for companies, negatively impacting cash flow, weighing down balance sheets, and hurting credit.

Accounting often views PTO as a benefit you would have to pay, even if the company were to close—hence, why it is seen as a liability. Unlike other plans where sick leave and time off are separated, PTO often rolls these two into one lump sum of hours.

PTO liability represents a financial obligation that the company owes to its employees. If this liability grows too large, it can have significant financial implications, affecting the company’s balance sheet and overall financial health.

When employees take their accrued PTO or are paid out for unused PTO upon leaving the company, it results in an immediate cash outflow. Large PTO liabilities can also lead to increased costs, especially if the payouts are made at a higher rate than when the time was accrued.

PTO liability increases with time. As employees are promoted or receive salary increases, their associated PTO cost increases too. The longer an employee is tenured, their PTO costs skyrocket as accrued PTO adds up in addition to their pay increases.

Large PTO balances can also indicate that employees are not taking enough time off, which can lead to burnout, reduced productivity, and higher turnover rates. Encouraging employees to use their PTO can enhance overall workforce well-being and productivity.

How reducing PTO liability benefits employee turnover

As an employee-paid benefit, companies can reduce their PTO liability and pay it at a discounted rate (per IRS requirements) without incurring ongoing expenses. Reducing that liability before promotions and year-over-year salary increases kick in reduces the PTO payout when employees are ultimately paid out at termination. This offers a win for the finance department while providing unprecedented benefits and flexibility for employees.

Rather than waiting until employees leave a company to cash out their unused PTO, they can get value from this already-accounted-for benefit while they're still there by converting it to benefits they can use in real-time. When employees don't use their hard-earned time—whether taking it off or converting it—they leave hard-earned money on the table.

When employees can use their PTO instead of losing it or granting a payout, it reduces the liability of PTO on the balance sheet. Additionally, it allows employers to enhance their total rewards offering without introducing additional costs or benefits.

Beyond just the hard dollar savings, there are several additional benefits for reducing PTO liability with a PTO conversion program, including employee engagement, reduced turnover, and cost savings.

Employees can use their unused PTO to their advantage, creating more personalized benefits packages that meet their current needs, resulting in a more engaged and satisfied workforce.

A recent Gallup poll shows that an engaged workflow is 17-22% more productive than one that’s not engaged. The more engaged employees are, the lower the turnover rate—engaged employees can lower turnover by up to 59%.

We've seen this with our clients. On average – regardless of size or industry type – we're seeing a decrease in the turnover rate of 54.7% for employees using a PTO conversion program.

One notable client in the healthcare industry has already experienced savings of $11.3 million by implementing a PTO conversion program through PTO Exchange. Turnover has decreased by over 60% from employees who have used PTO Exchange in one calendar year. As you can see, these are huge savings and turnover reduction numbers that can come about by implementing a total rewards strategy that considers flexibility and financial well-being.

How flexible benefits combat employee turnover

A flexible benefit like convertible PTO helps mitigate the turnover ratio and increase employee engagement by offering flexibility and choice that allows personalized benefits packages by exchanging unused PTO.

Employees of all generations and socioeconomic classes can put their unused PTO toward financial wellness and social well-being benefits. Offering a convertible PTO benefit like PTO Exchange distinguishes a company’s benefits package and helps them become the employer of choice in their industry. It gives companies an edge with a non-traditional benefit not everyone offers.

Flexible benefits have been proven to increase efficiency and drive profit through engaged employees and less turnover. Employees experience the full value of their PTO by using it to reach their financial goals, achieve better work-life balance, or donate to charity.

When companies give employees flexible and customized benefits, they are more productive and engaged. Moreover, companies experience less turnover and save money on employee replacement costs. A flexible benefits solution like convertible PTO can help maximize employees’ PTO to increase employee engagement while reducing turnover.

Cumulatively, PTO Exchange has helped reduce turnover by 54% across some of our largest clients and saved companies $25.2 million in employee replacement costs.