Do you have a lot of young employees who wish they had more vacation days so they could travel or, on the other end of the spectrum, a group of older employees who don’t use all their vacation days and need to boost their retirement savings?
Designing a paid-time-off (PTO) program that allows employees to buy or sell their PTO may be a relatively easy way to meet the varying needs of your employees and boost morale along the way, writes attorney Caroline E. Nelsen.
Nelsen, an attorney at McGrath North in Omaha, Nebraska, explains how buy/sell PTO plans work in her article “Turning Vacation Days Into Cash and Other In-Demand Benefits” in the June issue of Benefits Magazine.
Depending on the design, buy/sell PTO plans allow employees to purchase additional days off or trade vacation days for cash or extra health care or retirement benefits. If the program is designed correctly, it can generate certain tax advantages.
Here’s how it works: The employer establishes a set number of days of elective PTO awarded to its employees. The elective PTO is separate from the PTO provided by the company through its general vacation/leave policy (nonelective PTO). Employees elect to participate in the buy/sell PTO plan during open enrollment.
Here’s one design example: If an employer offers both PTO buying and PTO selling, an employee has three options at open enrollment: (1) Elect not to participate and retain only nonelective PTO; (2) elect to participate and purchase the elective PTO, which must be used before the end of the plan year or either cashed out or forfeited; or (3) elect to participate and sell the elective PTO in exchange for cash equal to the stated value of the PTO over the course of the upcoming plan year (usually distributed evenly across paychecks).
This is the most basic buy/sell PTO plan.
However, Nelsen writes that employers can design their buy/sell plans to satisfy other needs as well:
- If an employer offers major medical care or health flexible spending account (FSA) benefits through its cafeteria plan, an employee participating in the plan could elect to use the value of the sold PTO to purchase major medical benefits or contribute to his or her health FSA.
- Some employers help their employees save for retirement health benefits by allowing the sale of unused PTO to be used for contributions to retiree health plan coverage, health reimbursement arrangements (HRAs) or even voluntary employees’ beneficiary association (VEBA) plans.
Employers should pay attention to tax implications as well as state laws when designing a buy/sell PTO program. It’s also important to consider the employer’s goals and culture when designing the program. The whole idea of PTO is to provide employees with an opportunity to reduce stress and spend time with family, Nelsen writes. Having too many employees consistently sell their vacation time can lead to poor mental, physical and emotional health and harm work-life balance.
However, when properly used, a PTO buy/sell program is a tool that can give employees the flexibility they want while making them feel like their employer is responding to their needs.
Kathy Bergstrom, CEBS
Senior Editor, Publications, at the International Foundation
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