By In Do the Math, Financial Independence, Student Loan Debt

Could Your Paid Time Off (PTO) Help Fund Your Early Retirement?

There was a news item circulating around the benefits business this week about PTO Exchange, a company out of Seattle that raised $3 million in venture capital. The idea investors are buying into is that you can and should use your excess PTO (AKA “paid time off,” or vacation pay) for other things you might want or need, like paying down your student loan debt, or putting it toward gift cards, or all manner of other things.

If you’ve ever 1) not used your PTO and watched it either expire or roll over into a new year where you’ll just get more PTO you won’t use up, or 2) you’ve left a job and had all that unused PTO vanish into the ether, you may have gotten the same lightbulb I got when I first read about PTO Exchange. Here’s why…

Your benefits are income, and PTO is a benefit. That’s not just a not-so-catchy slogan — it’s the way PTO works in many states (see the sidenote below for more). For most companies, taking time off triggers a separate pay code than standard work. That’s why you accrue hours and many companies make you track your hours separately when you are not working but still want to get paid — which, duh, we all do.

But not only do you keep vigilant track of your PTO but so does your company’s accountants. See, in many states, companies can’t just offer you PTO and then take it away on a whim. It counts as income — your income — and it can only be forfeited under rules that they outline and share with you, things like quitting a job or being terminated, as well as losing it at the end of a fiscal year. Beyond that, any accrued PTO is like a cryptocurrency: your company has to count it as income for their bookkeeping. For this reason, a lot of companies don’t like keeping large amounts of PTO on their books. They would prefer you use it (or lose it), because then they don’t have to carry over this big and possibly growing line-item from year to year.

(Sidenote: Just to be clear, there are no federal laws that govern vacation pay/PTO. All such regulation, provided it doesn’t fall under national anti-discrimination rules, is applied at the state level. There are a handful of states (yay, California!) which make it very clear that PTO is wages and should be honored even upon termination, while there are many more that stipulate that employers that have established PTO policies are obliged to treat accrued PTO as wages. And, yes, there are a bunch of states for which you’re SOL on PTO. Here’s a helpful rundown of PTO compensation rules in each state, before you write up your proposal for your boss!)

That’s why PTO Exchange set off a lightbulb for me. Forget about gift cards, although that’s a great idea, too, for things like Christmas shopping or vacations (ah, the irony). But what about paying off a student loan, or maxing out an HSA more easily, or loading up your 401(k). This idea is literally like getting paid for 54 weeks per year!

And it’s not like PTO Exchange is trying to get employers to spend money that they don’t want to spend. They’re actually providing them with as much value as they’re providing you by convincing your employer to let you do things besides take a vacation with your accrued PTO, while they handle the administrative side of it.

Before you think this is a free ad, I’m not touting the company’s services so much as I’m touting the idea as worth considering with them or on your own, because chances are they’re not yet available through your employer.

Ask my employer to give me my PTO without taking time off, you say? Yeah, sure, why not? I’m constantly reminded of this brilliant piece by Ms. FI-ology on ChooseFI, where she talked her boss into changing up his health insurance deductible contribution so that she could get maximum HSA savings and he could save money on his health care costs on her behalf. She did the math and showed him that there was savings to be had, and he rewarded her by accepting her proposal.

In this scenario, the big case to be made is that you deserve what would amount to an extra week or more of pay per year — because you’re getting paid for the weeks you work and you want to collect on a PTO week without taking it off. It’s basically double-dipping on your salary. But that’s OK! When you’re working, you’re providing your employer with a full week’s worth of value. On the other hand, when you’re on PTO, you’re costing them money without earning them any money. Not elegant, but pretty simple to make a case.

(Another sidenote: I’m not advocating that you don’t actually take time off from work. On the contrary, I’m hugely supportive of taking time off. I haven’t always done so in my professional life and, when I don’t, it’s been a major drag on both my personal and professional lives. I’m with Tanja Hester and other’s in the FI community who write beautifully about seeing the forest for the trees, about not working so hard to get to early retirement that you miss out on all of the wonderful things about being young, independent and alive. But if you get three weeks of PTO and only ever use two weeks, do what you can to capitalize on that third week!)

Perhaps you are so committed to your FI goals that diverting a week of PTO per year (you still need to live in the moment and take some time off!) would purely be gravy. Or perhaps you could really use the money to get closer to paying off your student loan debt faster, or to filling your emergency fund, or to maxing out your HSA. Whatever the case may be, it might be worth approaching your boss with a well-thought-out approach to talk her or him into getting one extra check per year, in service of your FI goals.

And if that doesn’t work, slip them a brochure for PTO Exchange and let them talk him/her into it!

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