Story written by Anders Melin and Ben Steverman at Bloomberg
Many Americans are notoriously bad at taking all of their vacation time. Rob Whalen used to be one of them.
In less than five years working at Cisco Systems Inc., he piled up 240 hours of paid time off. That’s a month and a half Whalen could have used to rest at home or relax on a beach. Instead he chose the office, where there was just too much to do.
Shortly after leaving that job, he was talking to a friend with an equally backed-up vacation account: “Wouldn’t it be really cool,” his friend said, “if you could use some of it to buy a hotel and airfare, and then go on a big two-week vacation?”
That gave Whalen an idea. Three years later, he is pitching PTO Exchange, a company he co-founded with Todd Lucas as a way to let workers tap the cash value of their days, weeks, and months of unused time off. The Seattle-based startup, which recently signed its first employer client, lets workers trade unused, paid time off for travel or contributions to 401(k) plans and health savings accounts.
“With so much time going unused, we realized that this is a benefit that needs to be redefined,” Whalen said.
Work hard, don’t play
When it comes to time off, Americans are in a perverse situation. The U.S. is the only advanced nation that doesn’t mandate paid leave. Workers in most European countries are legally entitled to about 20 days of vacation or more each year, according to a reportfrom the Center for Economic and Policy Research. Swedes are entitled to five weeks, while French workers get as many as 30 days.
In the U.S., by contrast, almost a third of workers get no paid sick leave, and more than a quarter don’t get any vacation time, according to the Bureau of Labor Statistics, or BLS. That’s prompted states such as California and cities including New York to require that employers provide paid sick time.
Meanwhile, those lucky enough to get time off frequently don’t use it. Less than half of U.S. workers said they took all or most of their vacation days in the past year, and only 22 percent used the bulk of their paid sick time, according to a survey (PDF) of 1,600 employed adults by Harvard University, the Robert Wood Johnson Foundation, and National Public Radio. And it’s not just the worker bees—reluctance to be away from the office often stretches into the executive suite, too.
Instead, Americans come to work sick, spreading infection and making themselves and everyone around them miserable. Or they burn themselves out mentally by not taking vacation. As a result, millions of days intended to give people much-needed time off either get forfeited or end up on company balance sheets to be cashed out by workers sometime in the future.
“There is workplace peer pressure to minimize using” time off, said Lonnie Golden, a Penn State University economics professor who studies vacation. A company might officially offer a generous vacation package, but workers know that their bosses and colleagues depend on them to be present and productive. The tendency among companies to keep staffing lean means there isn’t always enough people to cover when someone goes on vacation.
“You get these mixed signals,” Golden said. If you leave your work for a week or two, “you feel like [work] will just pile up.”
Most employees are allowed to carry over at least some time off from year-to-year. According to the BLS, 57 percent of civilian workers can carry over sick time, and about one in five can carry over an unlimited amount of it. About 55 percent of American workers can roll over at least some vacation time, but employees still end up forfeiting about 222 million vacation days a year, according to a 2016 analysis by Project Time Off, an advocacy group. Another 436 million days are carried over to future years, which means they become a financial obligation for employers.
About nine out of 10 companies pay out cash for unused vacation time when workers quit or are fired, according a 2014 survey of benefit specialists by WorldatWork, a nonprofit association of human resources professionals.
Expensive for employers
Employees accumulating huge amounts of paid leave can create problems for both themselves and their employers. Untapped vacation can become a large financial obligation that businesses must carry on their balance sheets. If workers have banked hundreds of hours of leave time, they often have just two options to unlock its value immediately: Go on months-long vacations—something likely to displease their bosses if it’s even allowed—or quit.
Whalen said a problem with vacations is the one-size-fits-all model: PTO Exchange lets employees view online the dollar value of their untapped vacation time. That can be used to book flights and lodging through a partnership with Priceline Group Inc., deposited into a 401(k) or HSA, or donated to charitable organizations. Employees can also give their paid leave to colleagues suffering from medical issues. “The benefits someone wants in their twenties might be different than those someone wants if they’re 30 or 40,” Whalen said.
His company is currently working to implement the system at its first client—a health insurer with more than 2,000 employees—and is in talks with a large retailer and several big human resource firms.
But rather than providing an advantage for employees, Penn State’s Golden warns that services such as PTO Exchange may exacerbate the underlying problem. It will provide further incentive for overworked employees to cancel vacations or go to work sick, he said: “I don’t think that’s a real positive development for our performance and productivity.”
If PTO Exchange’s clients are worried about this, Whalen said, they can tweak the plan so that only part of paid leave can be converted to benefits, forcing workers to use the rest with their toes in the sand. Toward this end, converting some time off to pay for travel could be a way for cash-strapped people to “have a good experience” instead of doing a low cost staycation, according to Whalen, who stressed that taking time off is “hugely important.”
Lucas agreed, saying PTO Exchange is “a vacation-first company.”