How much is one day of vacation worth to you?
More companies are asking workers to make that calculation with programs that allow them to cash in paid time off (PTO) for other types of benefits, such as a contribution to a retirement or education savings plan. In some cases, employees can donate their PTO to a colleague who needs it.
The popularity of so-called PTO “conversion” or “purchase” programs is growing, according to a recent report, but experts said HR teams should be thoughtful about how they implement such offerings. Employers typically put guardrails in place to ensure workers still continue to take some PTO, even if they decide not to use all of the time they’re offered.
Favoring flexibility. Ayco, a financial planning and wealth management arm of Goldman Sachs, reports that just over one-quarter of its corporate partners have a PTO purchase program allowing workers to buy and sell vacation days. The prevalence of PTO purchase programs is higher than 2021, when 21% of Ayco’s corporate partners surveyed offered this benefit. Such programs are also more popular than unlimited PTO, which is offered by 15% of Ayco’s corporate partners.
The ultimate goal of structuring PTO programs this way is to provide more flexibility to employees, according to Ayco compensation and benefits leaders. To that end, some companies also are designing programs that let employees convert funds from their unused PTO into cash or redirect the funds to help pay down student loans; contribute to a 401(k), HSA, or 529 plan; or make a charitable donation.
Employers have experimented with different ways of making their benefits programs more flexible, said Jonathan Barber, Ayco’s VP and head of compensation and benefits solutions.
A recently enacted provision in the Secure 2.0 Act allows employees to make student loan payments in lieu of a 401(k) contribution to receive an employer match, for example. Global advisory, broking, and solutions firm WTW received permission from the IRS last year to allow employees to redirect employer contributions from their retirement accounts toward other financial perks, such as student loan repayments or health savings accounts.
Paid time off is a prime target for this type of flexibility because it’s already paid for, Barber said. “If I’m thinking from a company standpoint, where we basically already outlaid the dollars, right? It’s an accrued expense,” he explained. What’s more, employees are taking less vacation since the Covid-19 pandemic, due in part to “the explosion of hybrid remote working situations” and the rise of “workcations,” which makes conversion or purchase programs even more attractive, Barber added.
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Trusting your employees. PTO conversion or purchase programs can be tricky to offer from a regulatory perspective, Ayco’s experts noted. If an employee wants to convert their unused PTO into cash or emergency savings, those are taxable events, Barber said. HR teams have to ensure employees aren’t exceeding contribution limits if they choose to donate to a 401(k) or HSA, and they must comply with state and local laws mandating workers are offered a certain amount of leave, he noted.
Additionally, HR may need to consider whether such programs could dissuade employees from taking time off. “It’s a balancing act,” said Kris Battistoni, VP, compensation and benefits solutions with Ayco. “There’s always some type of guardrail in what you can actually purchase.” He noted, for instance, that many companies cap the number of PTO days workers can cash in at five.
“Like any new benefit, nobody really knows how your employees are going to use it,” said Rob Whalen, co-founder and CEO of PTO Exchange, which designs these programs for employers. Limiting the amount of PTO workers are allowed to cash out not only ensures they still have time off in the bank if they get sick or have a family emergency, but also protects the company from a financial standpoint.
“CFOs don’t want everyone just cashing out and have a run on the bank,” Whalen said. “So they put these limitations in there just to make sure the cash flow doesn’t hurt the bottom line.”
Flexible PTO programs like these are promising, provided employers trust their workforce to make strategic, thoughtful decisions, said Jennifer Deal, a senior research scientist with USC’s Marshall Center for Effective Organizations. She noted financial stress can impede workers’ ability to function effectively, and these types of benefits may help alleviate those anxieties.
“What I like about this is it lets the individual….say, okay, ‘as much as I’d like a vacation, is it better for me to add an extra day onto a three-day weekend and take the other four days in cash, or toward my student loan payments, or to my 401(k)? Which is actually going to make me feel more relaxed,’” she theorized.
