How Much Can Unused Vacation Time Possibly Cost an Employer?
A lot! The City of Jacksonville recently learned the hard way, when an executive staffer—who hadn’t taken a vacation in five years—announced his retirement and sought payment for unused vacation days. If he gets the cash-out, he will receive $521,798 in unused vacation since 2011. There are a couple ways to avoid situations like these entirely by Understanding vacation and PTO and unlimited vacation policies. As per a study from SkyNova, companies with mandatory PTO are reaping great rewards for employers and employees both, in terms of less liability on employers, increased productivity (44%) and happier employees (42%). Moreover, around two-thirds of the employees with a mandatory PTO rated their at-work happiness as excellent, compared to those with no mandatory PTO policies. Design “use it or lose it” PTO programs the right way with our tips below:
The Jacksonville story was an extreme, isolated case. Before 2020, the US companies were carrying the liability of $224 billion in unused vacation time, which has grown to $300 billion now after the pandemic.: Employers are troubled by the idea of having to dole out potentially hefty payouts when their employees leave the company, so they’re redesigning benefits to avoid the liability.
More employers are implementing the “use it or lose it” rule, which requires the employee to forfeit any unused vacation days they’ve accrued at the end of the year. They can’t cash out or roll it over to the following year. Over 26 percent of all U.S. employers have implemented this policy, according to the Oxford Economics analysis.
Encourage Time Off
Some states like California, Nebraska, and Montana prohibit employers from implementing “use it or lose it”. However, there are more states that allow the policy than those with restrictions. (Look up your state’s vacation leave law here.)
The pros are obvious:
- Employees are more likely to take advantage of all their vacation time, compared to employees who have the option to roll it over to the next year
- Companies are free of their unused vacation liability
- Companies don’t worry about employees rolling over unused vacation year after year, then taking an extensive leave all at once
Experts, however, argue that employees are the biggest losers of “use it or lose it” policies if companies fail to encourage time off. Employees have to feel comfortable enough to assert themselves and ask for the time off when they need it. They have to know that their managers and coworkers will support them.
“We act like everybody has choice and control—we don’t,” said Kenneth Matos, Vice President of Research at Life Meets Work, a workforce strategy consulting firm.
“Employers need to manage the culture of their organizations so that policies are used without jeopardy, retaliation or being sidelined because people think you are no longer interested in advancement,” says Matos. “Policies [should] merge seamlessly into a productive culture, rather than being add-ons that everyone knows they are not supposed to use.”
Unlimited PTO Pitfalls
Unlimited vacation time has attracted a lot of media attention in the last couple of years, as forward-thinking companies like Virgin Group, Hubspot, and Netflix have adopted the policy. Here is a list of 11 companies that have adopted the unlimited PTO scheme. According to a survey conducted by MetLife, around 72% of employees expressed interest in having unlimited PTO. However, only 2 percent of U.S. companies offer unlimited paid time off, according to the Society for Human Resource Management.
The problem with unlimited vacation time is the same as with “use it or lose it:”. Without a strong organizational culture supporting time off or helping in Understanding vacation and PTO, employees may be hesitant to take it when they need it. In fact, with unlimited PTO employees can end up taking less time off – a result of “choice overload.” Therefore, to tune out such scenarios, CallRail, an Atlanta-based business communications software company adopted a policy that strongly motivates every employee to take at least one continuous week of vacation every year that will help them unplug from their work.
As per the report from USTravelAssociation, American employees left an average of 33% of their paid time off in the year 2020. Time Off. Most of their organization’s focus groups have not responded favorably to unlimited vacation policies.
Foster the Right Culture
Company leaders need to develop initiatives that clearly illustrate the expectation that everybody takes time off, says Matos. From there, they need to analyze the side effects, address them explicitly, and continue to assess the policies regularly every few months.
“The key is to be honest about what you’re trying to achieve,” he explains. Even simple ideas can nudge employees in the right direction.
Tech company FullContact gives each employee $7,500 to go on vacation, as long as they follow these rules:
- Every employee has to go on vacation
- They must disconnect
- They can’t work while on vacation
Just to hammer down the point, the CEO hung a photo of himself at headquarters vacationing all wrong. In the photo, he’s riding a camel near the pyramids while checking his phone. His caption: “Me completely #failing at going off the grid.”
Companies like FullContact get it. Forced vacation policies can benefit companies only if the organization—from the top down—truly believes in the value of time off. Without a supportive culture or initiatives explicitly aimed at promoting vacation time, employees will always have that nagging thought that job security trump’s vacation.