Is Cashing Out PTO Right for Your Organization?

The roller coaster of the past few years has been challenging, and burnout rates are higher than ever as workplace stress often isn’t managed effectively. The key to combating burnout is rest, and most professionals recommend taking breaks—including time off work—as a crucial preventative measure. 

The problem is, workers just aren’t taking time off. Read on to learn why, what’s happening instead, and how HR can respond.

Why Aren’t Employees Using Their PTO?

According to a recent survey by Eagle Hill Consulting, 42% of U.S. workers have not taken a vacation in the past year, and nearly half say they’re also feeling burnt out. Several factors are contributing to this trend:

• Economic hardship. Millions of Americans lost income during the pandemic, and with inflation soaring, many don’t feel they can afford the cost of a vacation, even if they have the PTO available to take one.
• Understaffing. With a tight labor market and many positions sitting unfilled for extended periods, it can be difficult for current employees to find coworkers to cover their responsibilities while they’re out.
• Heavy workload. Understaffing also contributes to increased workloads, and many employees feel pressure to maintain high levels of productivity, which makes them less likely to use their PTO.

What Is Happening to Unused PTO?

With so much PTO going unused, some companies are looking for creative ways to address this oversupply of days off. One trending strategy is to implement a cashout PTO program that allows employees to trade their unused time off for cash or other rewards—without leaving the organization.

For example, Israeli tech startup Sorbet allows organizations to treat PTO like money, letting employees either use their time off or “spend it” on prepaid cards or other deals. Similarly, PTO Exchange allows users to convert their PTO into other benefits, such as contributions to retirement accounts, student loan payments, or charities.

Pros and Cons of PTO Cashout Programs

If your organization is searching for ways to improve benefits without breaking the bank, a PTO cashout program may be a good option, but there are some challenges to consider. Let’s take a look at the pros and cons.

Pros:

• A tool for recruitment and retention. In today’s labor market, organizations have to pull out all the stops to recruit and keep top talent. An option to cash out unused PTO—rather than just forfeiting it—may be attractive to those more motivated by financial incentives than vacation days.
• Decreased liability for payouts. If your organization offers accruing PTO, you likely owe the cash value of that time to employees who don’t use it, but you never know when a worker is going to leave and be due all that money at once. Trading that uncertainty for a cashout policy that resets PTO days each year can reduce your liability and help keep your budget more balanced. 
• Diversified benefits offerings. As a small or midsize business, you may not have the budget to offer dozens of different benefits to try to attract candidates with various preferences. A cashout program gives employees the flexibility to choose which benefits they want to trade days for.

Cons:

• A threat to work-life balance. The option to trade time off for more work can be tempting to high-achieving employees and anyone who feels like they can’t catch up on work, but rest is crucial to keeping your workforce productive. The less time employees take for rest, the more likely they are to burn out.
• Not a substitute for fair wages. If employees are trading PTO for prepaid cards to cover basic necessities like groceries and gas, it may be a sign of a larger problem with compensation. Take an honest look at your compensation policy to make sure you’re paying employees a liveable wage, or cashout programs may be less of a perk and more of a survival kit. 
• Tax implications. If you give employees the option to cash out on PTO and they don’t take it, they could still be liable for taxes on the amount they were offered. Work with your accountant to make sure your policies stay compliant and employees don’t get stuck with a surprise bill come tax season.
  
  

Whether cashout platforms are right for your organization or not, it’s crucial to ensure your employees are getting the compensation, rest, and benefits they need to stay productive, avoid burnout, and maintain a healthy work-life balance, for their own sake and yours.

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