Identifying and eliminating the hidden costs of PTO
When HR teams implement alternatives like convertible PTO, they will improve the financial health of the company and provide employees with the support they need.
Unused PTO can also be harmful to a company’s culture. It’s an indicator that employees don’t feel able to take time off — frequently due to pressure from deadlines or concerns about colleagues’ perceptions — and many employees are losing the value of the PTO they’ve earned. Companies in states that don’t require unused PTO payouts may avoid excess balance sheet liabilities, but one of their employees’ core benefits is going to waste. This is no way to treat your workforce, particularly when burnout and turnover are major company concerns.
HR and financial teams have powerful incentives to reevaluate their PTO programs. By adopting more flexible programs like convertible PTO, companies will not only reward employees with benefits they will actually use but also improve retention and build a healthier workplace culture. They will also reduce the financial burden imposed by the hidden costs of PTO.
Companies are paying a premium for unused benefits
Traditional PTO has created a worst-of-both-worlds scenario for many companies. First, 78% of employees aren’t using all their time off — a proportion that jumps even higher for younger employees. Three-fifths of Americans report that they’re feeling burned out at work and 81% say they have an increasingly strong urge to take time off when work becomes stressful. It’s clear that there’s a gap between what employees need and what they’re getting with current PTO programs.
A recent BNFT report notes that PTO accounts for nearly one-quarter of the total cost of expenses associated with benefits. There are many states that require companies to compensate employees for unused PTO at termination or separation, including California, Colorado, Illinois, and New York. In some states, the failure to pay employees in a timely manner can result in fines on top of the financial blow of the required payout. What makes this status quo particularly problematic is that companies are paying extra for a substandard PTO program that leaves employees feeling frustrated and cheated.
This is why HR and financial teams must work together to chart a new path forward. Instead of sticking with PTO programs that create unnecessary financial burdens and don’t provide the flexibility and support employees need, it’s time for companies to explore alternatives.
HR teams must provide greater flexibility
A key source of financial and cultural problems caused by conventional PTO is the lack of flexibility it provides. Companies in states that require PTO payouts confront large and unnecessary financial liabilities. Employees in states that don’t require PTO payouts simply lose all the vacation time they don’t use. This is why it’s no surprise that BNFT research has found that three-quarters of employees have taken “unneeded” vacation days to avoid losing the PTO balance they have accumulated.
Some companies believe “unlimited PTO” is a solution to these problems, but it often exacerbates the cultural issues they already face. There are many reasons employees refuse to take time off: heavy workloads, guilt about creating extra work for colleagues, fear about missing opportunities, and pressure to be available even when they’re away from the office. None of these anxieties will be alleviated by unlimited PTO, and considering that the vast majority of employees don’t use the time they already have, it doesn’t address the core problem.
While HR teams must focus on addressing the culture of overwork at their companies — which is contributing to employee stress and turnover — they also have to provide options for employees who don’t feel like they can take all their PTO. This won’t just give employees a way to fully leverage the value of their PTO; it will also reduce or even eliminate a substantial financial liability hanging over too many companies.
Related: Mercer study: Paid leave benefits expand amid compliance challenges
Supporting employees and reducing costs at the same time
Unpaid PTO balances grow larger over time, as average wages are constantly increasing (and have even outpaced inflation for a year and a half). These balances also mean employees aren’t getting enough use out of their benefits, which can contribute to burnout, turnover, and a wide range of cultural problems. HR teams can address all these issues at once by rethinking their PTO policies. For example, they can consider a PTO conversion program that will allow them to direct the value of their unused time off toward other priorities: retirement accounts, charitable contributions, or even donations of PTO to colleagues in need.
With higher PTO usage rates, companies’ unfunded liabilities will fall. Meanwhile, convertible benefits will help HR teams address urgent issues like employee engagement and retention. Our research has found that flexible benefits like convertible PTO would make 90% of employees more likely to stay with their current companies. We have also found that the use of a PTO conversion plan decreases turnover by nearly 55%. Convertible PTO is consistent with broader trends — according to a 2024 Metlife survey, 78% of employees say the personalization of benefits is important to them. When employees are able to redirect the PTO they have earned toward other financial programs, they are no longer stuck with a one-size-fits-all benefit that many fail to use.
Traditional PTO programs are far too costly. Not only do they leave companies with looming financial liabilities, but they also lead to cultural problems that can cause disengagement, burnout, and turnover. When HR teams implement alternatives like convertible PTO, they will improve the financial health of the company and provide employees with the support they need.
Rob Whalen, co-founder & CEO of BNFT