“Use It or Lose It” Paid Time Off vs. Flex Time

August 25, 2022
“Use It or Lose It” Paid Time Off vs. Flex Time

Most private industry workers in the United States receive some form of paid time off as part of their compensation plan. Giving employees free days where they can take time off and still receive payment can help improve their work-life balance and improve retention for your company. But not all PTO provides the same type of benefits. Some companies have a “use it or lose” it policy. Others offer flex time for sick days, personal time off, and vacations. Here’s what to consider with your paid time off policies to make them provide the most benefits to your workers.

What does "use it or lose it" mean?

"Use it or lose it" works just like the name implies: If employees don’t use their PTO within a specified time frame, they forfeit those benefits. Each year, workers accrue a new paid time off allotment. They need to use those days, or they’ll lose the time off they’ve earned. A use-it-or-lose-it policy could apply to all kinds of time off, from vacation time to sick days. Businesses in most states may institute this kind of policy, but some states prohibit it. Currently, these states include California, Nebraska, and Montana. No federal or state law requires mandatory paid time off, but each state has laws regarding paid time off policies once they’re offered.

Pros and cons of use-it-or-lose-it vacation time

1,500 full-time U.S. workers found generous paid time off was the most important benefit, cited by 37% of workers.

Even when employees have access to paid time off, they’re not always likely to use it. Demanding work responsibilities and a feeling of obligation to a team could cause some of your workers to neglect their PTO benefits. One survey of 1,000 U.S. adults found more than 1 in 3 people typically leave at least half of their PTO days unused each year. That leads to a potential benefit of a use-it-or-lose-it policy: it could motivate employees to actually take time off. Vacation days help employees maintain a work-life balance, giving workers time to relax or take care of personal responsibilities so they’re rejuvenated and more productive at work. An August 2021 survey of 1,500 full-time U.S. workers found generous paid time off was the most important benefit, cited by 37% of workers. When employees neglect time off, that can damage their mental health. A 2021 survey of 5,000 employees by Mental Health America found that 83% felt emotionally drained from work, while 71% agreed the workplace affects their mental health. Using paid time off can help employees avoid burnout.

Cons of use-it-or-lose-it PTO

There are some cons with use-it-or-lose-it vacation time, however, depending on the structure of the policy. For example, say a company defines paid time off by categories like sick days and vacation days. If a worker accrues a certain amount of sick days but rarely gets sick, they may lie about being sick in order to take advantage of the time off instead of losing it. That can create a culture of mistrust at your business and disengage employees, both the ones who are lying and the ones being lied to. Also, rigidity in use-it-or-lose-it policies could create other problems. For example, if an employee only has 3 sick days of paid time off left, they may feel forced to come into work on their fourth day of being sick. This could pose a danger to your entire workforce. There are also financial considerations with use-it-or-lose-it policies. Some states, like Colorado, require that businesses pay out any unused vacation time that’s been accrued at the end of a worker’s employment, even time in a use-it-or-lose-it policy. While flexible time-off policies can help a business avoid having to pay out for PTO when the company terminates an employee, use-it-or-lose-it policies could end up costing a business more.

What is flex time off at work?

Flex time off at work policies are as flexible as an employer determines them to be. They can include unlimited PTO, where an employee can take as much time off as needed, as long as they get management approval. In other cases, an employee may gain access to a certain amount of days to use, depending on how long they’ve been with a company. They can use those days for whatever needs they have, without having to “fake” being sick in order to take time off. Flex policies can also include unlimited unpaid time off, along with a certain amount of PTO. It's all up to the employer. With flex time, companies may not be legally bound to pay out benefits when employees leave a company. Considering many employees aren’t even likely to use all the vacation time they have access to, many companies could save money even when they offer unlimited PTO benefits.

Is flex time a good idea?

Flexible time-off policies can benefit companies for many reasons. One is that these policies support diversity, equity, and inclusion. One employee may want to take extra time off for a holiday their religion celebrates. Another may need time off for family responsibilities. With flex time, you don’t dictate how employees use their time off. Mental health days, staycations, and personal time for any other event are all covered. Having a flex policy in place can also help you build a better relationship with employees. You demonstrate you’re invested in work-life balance for your team. Your workers know they have your support when they truly need time off; that can benefit your recruitment and retention efforts. Of course, there may be cases where employees try to take advantage of flex time and abuse the policy. Businesses can prevent flex time risks by clearly outlining what an approval process looks like. This can help you avoid too many people taking the same time off at once, as well.

One employee may want to take extra time off for a holiday their religion celebrates. Another may need time off for family responsibilities.

Not sure where to start? Survey your employees

Each workforce is different. Yours may prefer a certain type of arrangement over another. For example, if you pay out accrued paid time off when employees leave, your workers may prefer this type of policy versus having an unlimited time off arrangement. You can survey your employees to gather their thoughts, then create a policy based on employee feedback. You can revisit your policy each year and incorporate employee feedback to ensure it continues to work for your team.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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