The Rising Cost of Unused Paid Time Off

Paid time off (PTO) is reaching a crisis point for U.S. businesses—and those that carry PTO liability are feeling it most.

According to a 2019 study by the U.S. Travel Association, American workers left 768 million PTO days unused in 2018. That is a staggering number representing $65.5 billion in lost benefits to the employee, and over $200 billion in company liability and costs, the study found. The pandemic has only exacerbated this issue. In 2019, unused PTO days accounted for 29% of the total allocated, and in 2022, it increased to 55%¹.

Employees are not only taking less PTO days, but they are also receiving more days off now than in 2019. The average number of days allocated per employee jumped from 13 in 2019 to 14.2 in 2022 (an increase of 9%).

More PTO days given and less days taken is a bad recipe for businesses. According to the Sorbet Report, the average employee currently holds over $3,000 in unused PTO, which represents over $318 billion in liabilities for employers.

PTO Liability Calculator

What is PTO Liability

PTO liability refers to the amount of paid time off that an employer owes to their employees. PTO, or paid time off, is a benefit that many employers offer, allowing employees to take time off from work for various reasons while still being paid their regular salary or wages.

As employees accrue PTO hours, the employer becomes liable for these hours. With many policies, companies must offer paid time off and then pay the employee for any unused days off. This makes accrued PTO an unpredictable liability that negatively impacts cash flow and weighs down balance sheets.

Why is PTO liability increasing

As previously noted, the reason why PTO liabilities are increasing is pretty simple: employees are allocated more days off but taking fewer than before. But why is PTO utilization decreasing, and why are companies giving more days off? 

“Economic uncertainty, fear of job cuts and rising pressure to return to in-office work have added to workplace malaise”
–Matthew Boyle, Bloomberg

Burnout has reached a pre-pandemic high with more than 40% of workers saying they are exhausted and need a break now². But fear of a recession and mass layoffs in the tech industry have put employees in a bind: when they most need to take a vacation, they fear falling behind at work and putting their job security in jeopardy.

Employers recognize the need for their employees to have better work life balance to combat burnout³. During the pandemic, 34% of companies increased the number of PTO days they allocated in a direct response to employee burnout and turnover. However, adding more days to PTO plans failed to address the root problems standing in the way of employees taking their vacation days.

“On its surface, PTO usage (or lack thereof) may seem like an employee issue, but from a business perspective, it's smart business to support a policy and a culture that allows employees to stay productive, energized, and engaged,” says Debra Squyres, a senior professional in human resources and the Vice President of Client Success at Namely.

Rethinking PTO Policies

“While 97% of companies offer paid time off, few companies are tapping into its full potential.” –SHRM

In order to get employees to actually take their PTO days, we need to rethink our PTO policies and how we talk about them, to both potential employees and the existing workforce.

1. It's not about quantity

Employees value the amount of PTO days offered as part of your plan when they evaluate your company as a potential place to work, but the appeal quickly turns to disappointment if they never get to use the majority of days offered. Instead of adding more days to your policy, focus on initiatives that drive healthy usage of PTO. Encourage and celebrate employees for taking regular breaks away from work. Celebrate when your employees average above 50% PTO utilization for the year.

2. Show, not tell

One of the top reasons employees don’t take their time off is feeling like they don't have permission. A majority of employees say that the behavior of their managers heavily influences their own behavior. If managers don’t take PTO it is very likely that their team won’t. Encourage your leadership to take time off, and make their time off visible to employees to set a company precedent. A good place to start: create an out-of-office email reply for managers to use that clearly states they are on vacation.

3. Make disconnecting mandatory

The pandemic era workforce saw the lines blur dramatically between time “on” and “off.” This has carried over to their days off, where employees say they feel obligated to respond to emails or virtual meetings at least once a day during their vacation. Employees soon regret the cost of taking vacation if they don’t truly get to disconnect and recharge. Create a work culture that respects the boundary of time on and time off, where disconnecting is not only allowed, but respected and mandatory.

4. Help with cost

80% of employees want to use their PTO to travel, but most say that cost is the biggest barrier. A reward program that helps employees with the cost of vacation aligns company’s values with your workforce. Additionally, a reward program that encourages employees to take PTO is an  investment with measurable ROI: Ernst & Young found that performance increased by 8 percent for every 10 hours of vacation taken.

PTO is a powerful benefit that has a massive impact on your company. When neglected, it can create financial liabilities and negative workplace culture. If it’s optimized, PTO can decrease the burden on your balance sheet, reduce burnout, and increase the productivity and satisfaction of your workforce.

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