Best Practices in Managing Employees' Unused PTO Balances

 
 

 

American workers leave nearly half of their paid time off (PTO) unused each year. Additionally, with unprecedented travel disruptions due to the pandemic leading to canceled vacations in 2020 and well into 2021, excess PTO remains a big problem. 

 

A recent survey revealed that 57% of respondents had unused vacation time at the end of last year. While this may be an interesting stat, the effects are important to note. Unused PTO can have a significant impact on employee wellness as well as your organization's bottom line. 

 

Here’s a look at how to encourage employees to take more of their time off for their own good — and the company’s. 

 

PTO 101

PTO is a bank of hours that employees can use for planned and unplanned out-of-office hours. Some policies break time off into vacation days, sick leave, or personal days off, while others lump it into one big pool of hours to be used at the employee's discretion, often with approval.

 

How quickly you earn those hours is based on an employee’s wages, employment status, and company policy. PTO banks in U.S.-based companies usually provide for 10 paid days off per year over the first three to five years and go up based on years of service.

 

Surprising to many, there are no federal laws governing PTO — it is strictly a contract between the employee and employer. That means there’s neither a legal requirement to offer PTO in the first place nor one to use all available time off, though each state may have different policies regarding PTO payout and rollover. 

 

The result is that in most years — especially the most recent two — it can be difficult to use all available PTO. Hopefully, it’s because your employees didn’t get sick, but is likely due to them just taking fewer vacation days overall, continuing a trend that started in the early 2000s. Some companies allow employees to carry some or all of their unused hours into the next year, but it is often capped at a certain balance. 

 

Unused PTO and the impact on morale and profitability

A robust PTO offering can certainly help employers acquire and retain top talent. But more than just offering PTO, employers can encourage employees to use their hours rather than banking them. Some employers have begun mandating time off, while others are getting creative with PTO banks — offering unlimited PTO — to circumvent the effects of unused time off.

 

In particular, unused PTO comes with the potential of having to payout balances when an employee leaves. Some states have even codified PTO payouts into law and with employees leaving their jobs at unprecedented rates, these PTO payouts can add up quickly into a bottom-line-impacting expense.

 

But there are other, non-monetary risks with unused PTO, too. Specifically, working without taking any time off to recharge and relax can have a dramatic impact on worker productivity and business profitability. In fact, a German study found that companies with shorter workweeks actually gained productivity, suggesting that encouraging employees to take their earned time off may give bigger returns to your company's bottom line overall. 

 

It’s also important to think about how working without time off affects staff stress levels and performance. A recent report from Indeed found that employee burnout is on the rise: 52% of all workers are feeling burned out, a 9% increase from a pre-pandemic survey. 

 

Burnout is a leading cause of employee churn and has a ripple effect across the organization. One estimate suggests that three-quarters of voluntary departures are preventable simply by encouraging full use of employment benefits. Employers know — and the data show — that companies with a culture that promotes self-care and time off retain more loyal and more productive team members, helping to avoid replacement recruiting cycles that can cost the equivalent of 50-60% of a departing employee’s salary.

 

Supporting time off with technology

Having a clear and well-defined PTO policy is the first step in helping to manage and mitigate unused PTO. Clearly defined policies and deadlines, communicated appropriately, are essential to keeping employers and their employees on the same page.


However, policies alone may not stem the tide of unused PTO. Next-generation human capital management (HCM) software can be a valuable tool in helping companies create a culture of self-care without sacrificing productivity, morale, or incurring unnecessary costs.

 

These solutions can automate capturing employee time entries that feed into accrual calculations. On-demand reporting and analytics make it easy to access the latest PTO information, giving managers the opportunity to proactively encourage employee time off and to better plan around it. 

 

At the same time, more advanced HCM solutions can even automate time-off requests, streamlining a typically manual process and alleviating uncomfortable communication gaps that lead to missed requests or the employee opting to not take their time off after all. 

 

Although PTO is one of the most important benefits a company can offer employees, the benefit doesn’t have much value when it’s sitting idle on the digital shelf. Using purpose-built human resources (HR) technologies can help enforce your company’s PTO policy, improve transparency and communication with employees, and encourage employees to use their full allocation of time off to help keep them sharp, productive, happy, and healthy.  

 

 

The end of the year can be challenging. SyncHR is here to support you with efficient, accurate, and cost-effective workforce management solutions. To learn more about SyncHR, click here. 

 

 

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John Cuellar

John Cuellar

John is responsible for SyncHR’s product, engineering, and system operations teams. He is focused on streamlining the business processes related to HCM and finance by distributing SyncHR to all members of the workforce and by using patented security and workflow to control these developments. John is also responsible for delivering SyncHR as a cloud based application with “extreme ratio” financial metrics.

He has a background in engineering, workplace applications, and business administration, bringing over 25 years of experience deploying strategic HCM applications. Prior to co-founding SyncHR, John was the CEO of Harbor Technologies, since acquired by Mellon Financial Corporation. Previous to Harbor Technology Group, he spent an internship with the Swiss Bank Corporation in their derivatives pricing and trading group and also worked as a senior manager for the US Navy. John received his Bachelor of Science degree in Electrical Engineering from the University of California at Santa Barbara, and his Master of Business Administration from the Haas School of Business at the University of California at Berkeley.

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