How Lingering PTO is a Liability…

And What to do About it

It’s no secret that America is far behind the pack on supporting employees with paid vacation. In fact, the US Fair Labor Standards Act (FLSA) does not require employers to provide even a single day of paid vacation leave to workers. Because there is no minimum, it would make sense that employees take advantage of the days they do, so preciously, receive. However, workers left 705 million vacation days on the table last year. PTO and rollover policies will vary widely between companies, but the result is the same. When unused vacation days are left lingering, they form a liability to your bottom line. The solution? Change your workplace culture to one that supports travel for employees.
Benefits of PTO
Paid time off is beneficial to both employees and employers. Taking extended time off work to travel can make employees happier and healthier. Vacations combat burnout and allow workers to disconnect from the stressors of work. Time off is also good for productivity. Sixty-four percent of workers say they come back from vacation feeling rested and with a renewed sense of purpose and energy.

Generous PTO policies can also be used as a tool to recruit and retain top talent for your organization. Employees who feel their company supports a healthy work/life balance report increased loyalty to their employers. This reduces employee turnover, another high cost to businesses.
Liability of PTO
Unfortunately, with all the benefits of PTO also come the liabilities. Accrued PTO can build up within your company and threaten your bottom line. Unused PTO is paid out at the employee’s current rate of pay, so if an employee started out making $20 per hour and now makes $25 per hour, your liability just increased by twenty-five percent. An Oxford Economics study calculated the average liability per employee at $1,898. As a whole, American companies have over $224 billion of unused PTO liability on their books.

Companies in California, Montana, and Nebraska suffer increased effects from unused vacation since “use it or lose it” policies are heavily regulated in these states. In other cases, employers can choose a specific date past which unused vacation cannot be carried over.
Reducing Your Liability
Unused PTO is a liability on your balance sheet that can be corrected by creating a workplace culture that encourages employees to take their vacation time. Employees may be reluctant because they believe taking time off shows a lack of dedication or won’t get them promoted. A majority of workers claim they have too many tasks to take a break and many report feeling pressured by managers and coworkers to avoid taking a vacation.

Releasing a company-wide memo that reminds employees of their PTO benefits just won’t cut it. You need to put programs and policies in place that actively encourage vacationing and help employees plan and afford their time off. Consider switching to an unlimited or even minimum vacation policy or use one of the many independent services offering travel as a benefit.

Seventy-two percent of employees at companies that support PTO usage reported being happy with their jobs as compared to only forty-two percent at companies that take a negative view of vacation time. If you want to reduce your accrued PTO liability, the best way is to change your workplace culture to encourage taking time off.