Business Group Blog

What can employers do to help their employees take a break?

Encouraging employees to take all of their allotted time-off (PTO) each year is a cost effective way to improve overall employee well-being.

According to a recent report by Project: Time Off, 55% of surveyed American workers did not use all of their vacation or PTO days in 2015. This translates to 658 million unused days.1 While the impact this has on employees and their stress level, job satisfaction and overall well-being has been widely publicized, employers are also negatively affected by PTO/vacation carryover. According to Project: Time Off, 222 million of the 658 unused PTO/vacation days were forfeited which leaves 436 million days that were either rolled over or paid out. According to a recent National Business Group on Health quick survey, 93% of survey respondents allow at least some leave to be rolled over at the end of the year.2

PTO Rollover Policies

This leave carryover impacts employers in multiple ways: 

  1. The Balance Sheet: Unused PTO which is carried over to the next year will stay on the balance sheet for the company as a liability until the leave is used. This is typically kept in an account called “Accrued Vacation Liabilities” or “Accrued Leave Liabilities.”
  1. Employee Wage Increases: When employees carry over unused leave, the value of that leave will increase at the same rate as any salary increases that the employee receives. This increase will be reflected as a liability in the organization’s balance sheet as described above.
  1. Unused Leave and Separation/Termination: Many employers pay employees the cash equivalent of their unused leave upon separation/termination.2 Although employees have earned this vacation and the associated value of the leave, these payouts amount to a “departure bonus” for individuals who will no longer be adding value to the organization.

Unused PTO at Separation

Encouraging employees to take all of their PTO or vacation can have a positive impact on both the employee and the employer.

To help increase PTO utilization at your company, consider the following strategies:

  1. Culture: Train your managers on the importance of being supportive of employees taking their leave. Make sure there are no repercussions or roadblocks when employees attempt to use their leave in a reasonable way.
  2. “Use it or lose it”: Employees may be upset at the notion of losing their earned leave at the end of each year; therefore, a communication strategy should be implemented which focuses on the importance of leave and employee well-being. To work effectively, this strategy should be combined with an organizational culture that encourages employees to take vacation.
  3. Permissive or Unlimited PTO: A few large companies use this strategy to eliminate the need to track leave utilization and remove leave accruals from the balance sheet. Since no PTO is actually earned, employees do not receive a payout upon separation/termination. Employers considering this strategy will need to train their managers on appropriate leave usage. Employers will also need to closely monitor leave equity across the organization to ensure that certain departments or teams are not using too much or allowing too little employee leave.

For more information on effective leave management and employee well-being, visit the Business Group’s disability and absence management and well-being pages.