Implement a PTO conversion program to boost employee morale while reducing balance sheet liability
High inflation, stagnant wage growth, and increased living costs have severely impacted employees’ financial wellness over the last few years. This has caused financial stress for employees, affecting their productivity, morale, and overall wellbeing.
Employees increasingly look to their employers to offer financial wellness support. At the same time, employers are looking for unique ways to provide financial wellness support that is cost-effective while meeting evolving employee needs.
One strategy gaining traction is implementing paid time off (PTO) conversion programs. These programs allow employees to personalize their benefits to address their top financial needs and concerns without adding extra costs to the organization.
This comprehensive guide delves into how HR teams can use PTO conversion programs as a proactive approach to address the financial needs of employees.
Unsteady economic conditions over the last year have made financial wellness a top concern for employees. In recent studies, only 44% of employees feel financially well, and 50% report taking action due to financial strain. This includes tapping into
emergency savings (21%), working additional hours (21%), looking for higher paying jobs (20%), and taking 401(k) hardships withdrawals (6%).
According to a recent Lending Club report, 63% of Americans live paycheck to paycheck, with nearly four in ten US households saying they can’t cover an unexpected $400 expense. Even for those earning more than six figures ($100,000), nearly 50
percent are reportedly living paycheck to paycheck.
According to a new survey published by Talent LMS, only 5% of employees have met their financial goals. Inflation and insufficient income are the main obstacles preventing employees from achieving financial stability.
This inability to meet financial goals has resulted in an increase in mental health issues and higher stress across all generations, with the most affected generation being Millennials (66%), followed by Gen Z (59%), Gen X (47%), and Baby Boomers (24%).
According to a recent survey from Schwab Retirement Plan Services, workers rank inflation (45%) ahead of other obstacles, including keeping up with monthly expenses (35%), navigating stock market volatility (33%), and covering the cost of unexpected expenses (33%).
As a result, inflation has caused workers to change their saving and spending habits, including altering 401(k) investments. Inflation is at a historic high and is not going away soon, affecting everything from utilities to travel to consumer goods. Inflation also impacts employees’ ability to retire on time.
Because of the financial hardships caused initially by the pandemic and now being influenced by higher inflation, nearly one-quarter of workers say they plan to retire later than expected. Additionally, one-third of plan participants need clarification about how long their savings will likely last in retirement.
According to an employee survey from Quicken, 48% of those who planned to retire in 2022 are reconsidering or putting their plans on hold. Even those not planning on retiring are considering delaying their retirement even further; one-fourth of 58- to 74-year-olds are considering pushing their retirement out further.
Workers cited several reasons for the retirement delay, including inflation, the decline in the stock market, and increased interest rates, all leading to the need to work longer. Another factor is the impact on a partner’s job or compensation, which workers feel they need to help fill the gap.
This financial strain has employees seeking financial wellness support from many sources, including employers. According to the Bank of America Workplace Benefits Report, 80% of employees think employers should support financial wellness.
The top three benefits they’re seeking support for? Retirement planning, investment programs, and emergency savings.
Employees also want guidance on other financial wellness initiatives they might struggle with, such as student loan repayments, emergency expenses, and healthcare assistance. Additional financial wellness benefits include legal cost assistance, disability insurance, long-term care, and more.
Employers want to help their employees with their top financial wellness challenges; 62% of employers feel they need to offer support to their employees.
However, alarmingly few employers offer financial wellness programs, and employees underutilize those that do.
According to survey data from Plan Sponsor’s 2022 Participant Survey, 46% said their employer offers a financial literacy/wellness program, while 13% do not know whether their employer offers this benefit option.
Offering financial wellness support benefits employees and employers; employees get the help they need, while companies see more satisfied employees. Additionally, companies see greater employee productivity, increased loyalty, and stronger employee performance.
It’s a win-win situation for employers and employees, as it can lead to greater job satisfaction and retention. Sixty-eight percent of employees state that they are more likely to stay at their current job if their employer offers financial wellness benefits. In addition, more than half (61%) are more likely to stay at an employer if they provide financial training and resources.
Don’t just take our word for it—96% of employees recently surveyed found their employer’s financial literacy or wellness program to be somewhat, very, or extremely helpful in improving their financial status and reducing financial stress.
For companies, financial training and support are low investment and high output benefits, and when combined with financial wellness products (FSAs, investment options, retirement contribution matching, student loan repayment, etc.), they create more stability and peace of mind for employees.
But since the beginning of 2020, PTO requests have been down more than 34%. While some of this was due to the lingering effects of the pandemic, remote and hybrid work has led to a backlog of accrued PTO on the books. Over $1 trillion of accrued PTO goes to waste every year in the United States, with 75% of employees taking an unneeded vacation to use the time they’ve accrued.
PTO conversion programs address the underutilization of PTO, allowing employees to convert accrued time into benefits that support their financial and social well-being goals, including getting emergency cash, 401(k) contributions, student loan payments, and charitable donations.
It’s important to note that a PTO conversion program does not replace employees taking PTO. Employers should encourage employees to utilize their allotted vacation time to prevent stress and loss of productivity due to emotional burnout.
Beyond empowering employees to craft personalized benefits packages, these programs help organizations reduce balance sheet liabilities, cater to diverse generational needs, attract and retain talent, and enhance employee satisfaction. So, instead of accruing PTO and letting it go to waste at the end of the year or rolling it into the next, PTO conversion programs allow employees to extract more value from their PTO to meet their diverse needs.
PTO conversions will certainly satisfy employees’ needs for flexible benefits, increase productivity, and reduce the reliance on overtime for industries where it’s challenging. But there are also several other downstream benefits to the HR and finance departments that are worth noting.
Each year, finance departments are tasked with finding solutions to reduce PTO liabilities before year-over-year salary increases and promotions kick in, making PTO more expensive. When employees can use their PTO instead of losing it or granting a payout, it reduces the liability of PTO on the balance sheet. Additionally, it allows employers to enhance their total rewards offering without introducing additional costs or benefits.
With up to five generations in the workplace, HR teams must provide benefits packages catering to its diverse workforce’s needs. To offer an inclusive workplace, HR leaders need to address the individual concerns of their employees. This means offering flexible benefits that appeal to all generations.
Flexible benefits show an organization’s commitment to diversity, equity, and inclusion (DEI) as they cater to the individualized needs of diverse workforces. A Lighthouse Research & Advisory survey asked employees of different demographic groups how they would prefer to use the value of their PTO:
PTO conversions can help drive employee engagement and loyalty. Nine out of 10 employees agree that having the ability to exchange their PTO would make them more likely to stay with their employers. Offering non-traditional benefits like PTO conversions can give organizations a competitive advantage and reduce turnover.
Turnover is not only a morale killer but also costly for organizations. Many organizations know that their top-tier talent, often the same subset of employees who don’t take all their PTO, is at risk. PTO conversion programs can help companies save millions annually in replacement costs, and studies have shown they decrease employee turnover by as much as 50%.
If employees treat PTO like a currency with a value attached to it, employees are more likely to feel satisfied because they can use it in a way that benefits them. In fact, 70% of employees say that having a flexible leave benefit would make them feel like their company values and appreciates them.
HR teams can take the following steps to set up a successful financial wellness program for their employees:
Gather demographic data on your workforce and survey them to determine what financial wellness benefits they would leverage the most.
Create a personalized financial wellness program to meet the needs of each generation in your workforce.
Develop a strong communication strategy to share information with employees and put all of the information in one centralized location for easy access.
Financial wellness is just one part of a broad-based wellbeing strategy, so consider expanding your programs to help support other areas like social, emotional and physical well-being.
Provide the latest tools and support, such as financial literacy, coaching, and mentoring.
Be flexible with your program and change it as economic conditions and employee demands change and respond accordingly.
Implement a flexible benefits solution, such as a PTO conversion program, to enable employees to craft personalized benefits packages.
PTO Exchange is the first benefits platform that allows employees to self-direct the value of their unused PTO for personal needs and causes. Employees can self-direct the value of their unused PTO toward options that are meaningful to them personally, such as life planning (retirement funds), education (student loans), philanthropy (offering days to a co-worker or nonprofits), and more.
PTO Exchange helps companies increase employee engagement, staff retention, and loyalty while reducing balance sheet liabilities and reinforcing a positive culture. PTO Exchange is SOC 2-certified and trusted by STRATACACHE, Howard Brown Health, UCare, Centre College, Griffin Capital, 4 Wall Entertainment, and others. Request a demo today at ptoexchange.com.
The demand for financial wellness isn’t going anywhere in 2024. If anything, there will be more pressure on employers to provide financial wellness support for their employees.
The PTO Exchange platform enables employees to self-direct their unused PTO into causes and activities that contribute to overall financial wellness. This includes exchanging unused PTO for 401(k) contributions, helping pay off student loans, and cash withdrawals to use in an emergency.
Unused vacation doesn’t have to go to waste. With PTO Exchange, you can turn unused PTO into a strategic benefit—helping employees support their families, reduce debt, save for retirement, or simply gain peace of mind.
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