The coronavirus pandemic has led to employees submitting fewer Paid Time Off (PTO) requests than just a year ago.  A recent study states vacation requests are down 34% in April through July of 2020 versus a year ago.  This lack of PTO requests means employees are banking a massive surplus of unused PTO.  Employees who skipped their spring and summer vacations may be scrambling to use their accrued PTO before they lose the time at the end of the year or reach their accrual cap.  Many travel plans are on hold due to current state lockdown mandates.  In addition, employees are hoarding days off in case they come down with COVID-19, creating a unique challenge for organizations as PTO balances balloon.

Employers also have financial skin in the game as unused PTO is considered an accounting liability, which continues to grow in 2020.  In a study by WorldatWork.org, across all industries, if current trends continue, companies will exit 2020 with an increase of about $60 Billion in PTO Liabilities.

How do companies handle employees’ unused vacation balances or competing requests to take time off before December 31st?

Review Your Policies

An employer’s existing PTO accruals should be reviewed immediately to see if there is a potential problem.  Depending on the research study, 30-40% of employers are making changes to their current PTO policies.  This includes increasing the amount of PTO which may be carried over to the next year or offering one-time PTO payouts.  These policies and procedures for requesting and scheduling employee vacations can be modified based on business needs and anticipated challenges, which should be done in consultation with legal counsel.

Cashing out PTO balances do require companies to be cashflow solvent in order to pay this out.  Other options may include converting their unused leave into other things they value – retirement contributions, student loan and tuition payments, healthcare savings accounts (HSAs), donations, charitable causes, and more.  Again, contact your attorney and financial advisor before making these offerings as there may be complex IRS rules which may apply. In addition, there are several states and municipalities which have laws surrounding PTO rollover or payouts.  Furthermore, some jurisdictions mandate paid sick leave, and each state or local law has different requirements for how that time must be accrued, used, and rolled over to the next year.

Managing Requests

Companies who want employees to take their PTO before the end of the year may need to adjust business operations so they can honor multiple employee’s requests.

Set up and distribute a vacation calendar indicating the days people have already reserved for PTO. Seeing that other people are requesting PTO may encourage other employees to make such requests.

Remind employees how much accrued PTO they have left. Sometimes this reminder alone can trigger employees to think about using their vacation days.

Review the company’s handbook and the laws of the applicable state. Some states prevent or restrict an employer from requiring that employees take vacation days. Likewise, the handbook may include certain protections for vacation days beyond those found in the state laws.

Contact the Appropriate Business Partners

If there are any changes to PTO policies, providers of time and attendance systems as well as payroll need to be notified as soon as possible.  Accrual banks may need to be modified, carryover amounts altered, or systems put in place to manage a PTO payout.  These partners should also be able to provide reports on PTO still available for your employees and highlight those with an excess to use.  In addition, HR manuals may need an addendum or be permanently modified to accommodate these changes.

Planning in your organization for the potential PTO bomb will help defuse this challenge and provide guidance and communication for everyone under the current circumstances.

Did you know Time Equipment Company can provide an Integrated Payroll System to help with PTO?

While Time Equipment Company has provided Time and Attendance solutions for nearly 100 years, many are unaware that we also offer fully integrated Payroll Processing as well.  We offer the personal approach of a small company while offering the products and services of the ‘big box’ company.  Time Equipment Company’s experience allows us to offer an Integrated Payroll System which works seamlessly with our Time and Attendance solutions including Leave Management.  We pride ourselves on delivering our clients exemplary and personalize customer service providing peace of mind you will not find in most all-in-one solutions.

For more information or a demo on our Integrated Payroll System, contact Time Equipment Company at (800) 997-8463 or sales@timeequipment.com.