A new start-up offers employees a way to trade in their unused vacation time for things like travel reimbursements or extra 401(k) contributions -- and employers a way to deal with a growing accounting liability on their books. (iStock)

It's late October, and you've been so overwhelmed at work you still have five vacation days you haven't used this year. You can: (a) try to squeeze it in amid all your crazy year-end deadlines; (b) carry it over to next year and use it then if you're allowed to do so; or (c) if you work at a place with a use-it-or-lose-it policy, pass it up, realizing you'd probably spend the whole time answering emails from your boss anyway.

For those who find none of those choices appealing, a new start-up wants to offer an option (d). PTO Exchange, which launched Oct. 4, plans to work with employers to let their workers trade in the value of their unused "paid time off" for other perks. These could include added contributions to a 401(k) account, money to put toward college tuition expenses, reimbursement for travel expenses or a donation to a favorite charity, depending on how the employer sets up the account and what it wants to encourage.

PTO Exchange has just begun working with its first client, health insurer Premera Blue Cross. Co-founder Rob Whalen says since the startup launched at a recent human resources technology conference, it has heard from 150 interested companies, including large retailers and pharmaceutical firms, and is in advanced discussions with several major human resources consulting firms. "They're trying to offer flexibility to their employees," Whalen says. "They currently have this benefit on the books, and it's budgeted -- they might as well find ways to use it." 

Why unlimited leave is basically a no-brainer for employers

But employers are also motivated to remove what has become a growing accounting burden: Employees' unused vacation time. When employees don't use all the time they're given each year, corporations have to carry that on their books, an accounting liability that isn't offset by assets and some firms pay out to employees when they decide to leave the company. "It's something CFOs worry about," says PTO Exchange co-founder Todd Lucas.

Solving that problem has been getting more attention from corporate finance executives for a few reasons. For one, some states have adopted laws that prohibit companies from having "use-it-or-lose-it policies" when it comes to employee vacation, meaning more workers are able to carry it over, increasing the liability. At the same time, paid leave laws are being adopted in a growing number of states, giving paid time off to more workers who previously never received it. The liability also tends to grow over time as employees' wages rise from one year to the next, making the value of unused time off more costly. A recent analysis of financial statements, conducted by Oxford Economics and commissioned by the U.S. Travel Association's Project:Time Off initiative, estimated that some $272 billion in accrued vacation time is sitting on corporate balance sheets.

The same report from the travel association found that in 2015, workers who did not use all of their paid time off had an average of 10.4 days of unused vacation. Its survey of 5,600 workers found that 59 percent of managers and 53 percent of non-managers said they did not use all of their allotted time.

Indeed, this helps explain why some companies have adopted "unlimited leave" policies when it comes to vacation. While the idea sounds like a generous move -- and it potentially can be it the right environment -- it also serves to help businesses eliminate that accounting liability. After all, if there's no set vacation allotment, there's no accrued time off to weigh down the books.

Stop touting the crazy hours you work. It helps no one

This is where PTO Exchange comes in: If employees feel like they can't take the unused time they've built up, and their employer works with the start-up, they can choose to trade in the value of the accrued time -- say, whatever an employee would have made over three unused days -- for another benefit, such as more money in their health savings account or a reimbursement toward travel bought on Priceline. A 50-year-old employee might prefer to put away the value of a few days of vacation toward retirement savings, while a younger employee might like to use it toward repaying student loans.

Craig Dolezal, a senior vice president at the human resources consultancy Aon Hewitt, says the start-up is an example of an increasing interest on the part of employers to offer more variation to employees in how benefits dollars are spent, especially as it copes with multiple generations in the workplace. "It's a really interesting approach that fits perfectly into [that] discussion," he says. "People want more flexibility."

Some companies have done this on their own for years, Lucas notes, so the idea isn't entirely new. But the logistics of managing the trade-in -- the laws in certain states, the tax rules that must be followed with certain transactions, the many transactions across a company that employs tens of thousands of workers -- can be complicated and messy, a problem PTO Exchange is aiming to solve by designing a technology platform. The start-up charges a 3 percent transaction fee -- which can be set up for either the employer or worker to pay -- as well as a per-employee fee charged to the company.

While there may be upsides for both workers and their bosses through such a system, it's also possible it could send the wrong signal. If an employer sets up a way to trade in unused time off for a charitable contribution or extra 401(k) contributions, some could interpret that as a not-so-subtle nudge that the company is offering them an alternative with the expectation they'll work more. After all, some workplaces that have offered so-called "unlimited leave" policies have found the lack of a defined expectation for time off means workers take less time off, not more.

"That's certainly not the goal of this," Lucas says. "We’ve put those constraints into place to create flexibility, but also to allow employers to encourage the types of behavior they’re after."

For example, the technology allows employers to set things up so the trade-in only kicks in after employees have taken a certain amount of actual vacation. PTO Exchange is also building in more features that could unlock additional rewards, such as additional time off, after employees take a certain amount of vacation.

One particular area of interest from employers, Whalen and Lucas say, is the idea of using the platform to make it easier for employees to donate a few hours or days to their co-workers who are in need of more time off, due to lengthy treatment for illnesses, deaths in the family or other personal hardships. "We're getting a lot of interest just on that feature alone," says Lucas. For some companies, the other trade-in perks are "just icing on the cake."

Read also:

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