From Home-Based To Hybrid: How Changing Work Models Affect PTO And Corporate Finances

The idea is to empower choice and allow each employee to create their own bespoke optimal time-off plan

Here is a surprising fact about paid vacation that not everyone knows: In the US, employees use only 72% of their Paid Time Off  (PTO) balances, even though it is one of the most sought-after benefits. This translates to a staggering 768 million unused days off in a year,  which has implications both on employee wellness and a company’s financials.  
 
Over the past year, as individuals began working from home (WFH) and travel became increasingly difficult, the problem of not taking PTO was further spotlighted across the business world. Now it is becoming a serious issue for HR managers to examine because not only is taking vacation essential for employees to recharge and avoid burnout, it is a growing concern for corporate finance and a headache for CFOs. 
 

As companies shift to alternative models from the traditional in-person, full-time workweek - whether it be full time from home or a hybrid design - employees maybe even more reticent about taking time off. This can be partially due to optics, with employees eager to prove to supervisors that they’re committed to their work and indispensable. 

For CFOs and accountants, this issue of unused PTO owed to an employee can be a corporate nightmare. Why? Because it creates balance sheet liabilities on the companies’ books (estimated at approximately $272 billion annually). However, it’s not just any liability, but a few unique characteristics make this one particularly painful. For starters, a company’s CFO has no real ability to plan, predict or prepare for this liability – it literally appears on the balance sheet whenever an employee doesn’t use up all of their eligible time.

Furthermore, they can never know when they’ll have to pay it back, because it solely depends on when the employee decides to leave (or when their manager decides to fire them). Lastly, they never know how much it’s going to cost them, because the payout occurs when the employee leaves the company according to their salary when they leave the company (likely higher than what they earn today, following several pay raises).
 
“Breaks can improve our moods, overall well-being and performance capacity, says Charlotte Fritz, Ph.D., an associate professor in industrial/organizational psychology at Portland State University in Oregon, in an interview with the American Psychological Association. “Taking regular breaks helps us to be more resilient when stressors arise, and they function as an intervention to help us deal with the daily grind.” Fritz is not alone as a mental health professional who asserts that there are multiple benefits to regular and frequent breaks sprinkled across the work year, rather than the traditional approach to what we think of as longer, more traditional vacations.
 
Of working from home rather than the daily grind of hours spent in a corporate office, family psychologist Dr. Jennifer Hartstein says: “We don’t have the commutes we normally have, or breaks we frequently have when working in the office. Mini-breaks can provide much needed stress relief to people and may feel ‘better’ than taking a string of days linked together." 
 
Based on the advice of psychologists, it may be in the best interest of HR departments to be proactive about employee mental wellness for efficiency and job satisfaction, and to incentivize employees to take their necessary breaks, especially when travel continues to be limited. By connecting with staff on a deeper level and finding out their preferences and limitations with regard to taking days off, employers and employees can work together in an unobtrusive manner and in a way that motivates and encourages productivity. This type of connectedness and culture that sees time off as optimal for mental wellness will also attract new hires, while retaining current employees.
 
In addition to the optics of taking vacation days as we adapt to new work models, there is also the challenge of logistics (i.e. prior to the pandemic, the fact that travel is expensive was a leading limiting factor when it came to taking a vacation). With the state of international travel still in flux due to the Covid variants, and added stressors of pets or family members (i.e. elderly parents, young children) to account for, some employees will put off vacation instead of dealing with the hassle of the details. 
 
If HR is able to work more closely with employees and incentivize them to take adequate breaks according to their lifestyles, preferences, needs and concerns, then they won’t have to carry this liability of an employee’s untaken PTO days - that accrues for the vast majority of US employers. This is why, as we adapt to new work models, businesses need to adjust their HR policies accordingly, and departments should be striving to recommend something that is healthier for both employees’ well-being and for the companies' financials. 
 
As employers look to revise and refresh older ways of doing business in favor of new paradigms, some, including companies in Finland, have decided that a shorter business week is optimal for workers. Other companies like Netflix have embraced an unlimited time off policy. 
 
All of this indicates a collective corporate reexamination of how employees can be productive, and a new open-mindedness regarding the way people work. 

The idea is to empower choice and allow each employee to create their own bespoke optimal time off plan, while cultivating a culture that incentivizes and legitimizes self care and wellness. Some employees are more productive during the day and some experience their best hours after dark. Some enjoy long vacations traveling to see family across the state, and some like to take short staycations. The idea is to enable, provide measurable data, incentivize and change the culture around taking time off. 
 
As we reconsider how employees can be both productive and happy in this new work environment, businesses need to also reconsider vacation policies and their implications on the company’s financials. This new reality is an actual opportunity to improve employees’ work/life balance while also rebalancing employers’ balance sheets. 

Now is the time for companies to step up to the plate and offer creative incentives for employees to take more time, but also provide them with the ability to unlock a portion of their compensation and reinvest it in their wellness while optimizing the financials of the company. This will result in motivated employees who are retainable, and it will allow companies to attract the right new hires, while also setting up the business to be better structured financially in the long run. 

Veetahl Eilat-Raichel is the Co-Founder and CEO of Sorbet. Prior to founding Sorbet, she served as Head of Retail Marketing at Bank Hapoalim, and Head of Marketing and Customer Experience at Isracard.   Connect Veetahl Eilat-Raichel