How CFOs can eliminate the hidden costs of PTO

While PTO is a mainstay of benefits packages, it is also widely underused by employees. This can create significant financial liabilities, as many states require companies to pay out the full value of unused PTO when employees leave. There’s also an element of unpredictability, as CFOs don’t know how long employees will stay with the company. The longer employees stick around, the larger their PTO liabilities can become.

There’s no reason CFOs allow PTO liabilities to balloon out of control, nor should employees be forced to settle for benefits they don’t use. Instead of staying with this costly and unpredictable status quo, CFOs and HR teams should consider benefits that employees will embrace — and which will strengthen the balance sheet instead of weakening it. For example, convertible PTO allows employees to repurpose unused time off by allocating its value toward other financial priorities, such as retirement contributions or health savings accounts. This gives employees the flexibility they need while reducing financial risk and improving the company’s bottom line.

CFOs and other company leaders can’t let their benefits work against them. Instead of continuing to rely on outmoded benefits like traditional PTO—which fail to meet employees’ needs and impose unnecessary financial risks—companies should explore a more innovative and financially responsible approach to supporting employees.

Why traditional PTO poses financial risks for companies

Companies that use traditional PTO plans are in a difficult position. A recent Harris Poll survey found that 78 percent of American employees don’t use all their time off, which means many companies are building up increasingly large unfunded liabilities year after year. In states that don’t require companies to pay out unused PTO, some companies have “use it or lose it” policies. While this limits liabilities, it’s also unfair to employees — three-quarters of whom say they wish they could use all the time off they’ve earned.

Twenty states (including California, Colorado, and Illinois) require companies to pay employees for unused vacation time. Some states don’t just require these payouts; they also penalize companies for failing to promptly pay employees the money they’re owed. For example, in Colorado, employers are liable for double the amount of unpaid wages if they fail to make the required payment within 14 days. If the lack of payment is intentional, the penalty is increased by 50 percent. Many other requirements and penalties across the country can create significant financial burdens for companies.

CFOs aren’t just responsible for avoiding unnecessary costs like these — they’re also responsible for accurate financial planning, and the sudden payout requirements resulting from unused PTO make this process more volatile. However the direct financial impact of unfunded liabilities is only one of the hidden costs that traditional PTO imposes on companies.

Traditional PTO can be a drag on workplace culture

A recent BNFT report shows that nearly a quarter of total benefit expenses are allocated toward PTO. Given the widespread under-utilization of time off and the financial risks created by unfunded liabilities, it’s clear that companies aren’t receiving a sufficient return on investment from their PTO policies. Many aspects of traditional PTO are actively hindering productivity, employee well-being, and retention. This is particularly salient for CFOs, as these problems can greatly impact the bottom line.

Recall that three-quarters of employees wish they could take all their PTO. The top reasons they refuse to do so are the pressure to be available, heavy workloads, feelings of guilt about increasing colleagues’ workloads, and the fear of missing opportunities at work. When employees finally manage to escape the office, 60 percent say they struggle to fully disconnect, 56 percent have taken work-related calls or meetings during their time off. A remarkable 86 percent say they would check an email from their boss. Burnout has been experienced by three-fifths of American workers, and it is exacerbated by employees’ failure to take time off. This can lead to a lack of engagement and even turnover.

It’s no wonder that employees are reluctant to take all the time they’ve earned — they’re petrified of falling behind on work, alienating colleagues, and upsetting the boss. This status quo isn’t sustainable, as it doesn’t just lead to diminished performance and an unhealthy culture — it can also lead to significant turnover costs, including the payouts of unused PTO.

A cost-effective alternative to traditional PTO

CFOs and other company leaders don’t have to tolerate PTO policies that burden their companies with exorbitant costs and fail to meet employees’ needs. The latest BNFT report presents an alternative: convertible PTO which allows employees to redirect the value of their unused time off toward other financial goals — from student loan payments to charitable donations. Convertible PTO solves multiple problems: it ensures that employees’ unused vacation time doesn’t go to waste, improves employee well-being and workplace culture, and eliminates unfunded liabilities that significantly strain company budgets.

With convertible PTO, companies can reduce their liability and pay it at a discounted rate while avoiding penalties and other expenses. Because convertible benefits are already accounted for, HR teams can offer a broader range of benefits with pre-allocated funds — a shift that provides greater transparency and consistency for the finance department. Convertible benefits are significant at a time when employees increasingly value flexibility. A recent MetLife survey reports that 70 percent of employees want customizable benefits. At the same time, our research has found that such benefits would make 90 percent of employees more likely to stay with their current company.

Traditional PTO causes headaches for HR and finance teams. Every year, employees leave a massive amount of PTO on the table, which means they aren’t taking advantage of a hard-earned benefit and creating unnecessary financial risks. CFOs and HR teams should work together to adopt a new approach to benefits that will give employees the flexibility they need while improving the company’s financial health.

Rob Whalen is the Co-founder and CEO of BNFT , formerly PTO Inc. BNFT works with customers like Fairway Mortgage, Howard Brown Health, Agile Defense, UCare, Praxis Engineering, Dayton Children’s Hospital, STRATACACHE, and others.