With only a few months remaining in the calendar year, many companies and employees find themselves carrying a significant amount of unused Paid Time Off (PTO). As with most things these days, the pandemic has been a factor. A recent study of 3000 companies found that between April and May this year there were about 57,000 fewer vacation requests than during the same period last year.1 Some workers are nervous about job security and reluctant to take time away from the job. Others have been delaying time off, hoping to eventually take the kind of vacation they planned at the beginning of the year.
But COVID-19 didn’t cause the glut of unused PTO. A CNBC survey in 2019 found that only 28% of Americans planned to use all of their available vacation days.2 Pre-pandemic, workers were already leaving hundreds of millions of vacation days on the table.3
Much has been written about the importance of time off and how it can boost worker satisfaction and productivity. The reality is that some workers are reluctant to use all of their PTO. Other than mandating use-it-or-lose-it PTO, what can employers do to keep from carrying hundreds or thousands of hours of unused vacation time on your books? Particularly, with the prospect of having to pay out those days if and when employees leave the company.
PTO Donations: An Underutilized Option
One solution is to create a PTO donation program. Employees who might not want or need to take all their PTO can make some of it available to fellow employees who desperately need extra paid time off for a life event or emergency.
The concept of PTO donation has been around since the 1980s, although its popularity has been primarily among public sector employers. A 2017 report found that, on the whole, 30% of American workers had the means to donate paid vacation days and 22% could donate paid sick days.4 But in the private sector, only 5.9 % of employees had the ability to donate sick days.5
Whatever your sector, you can probably create a PTO donation program of your own. In addition to keeping your company’s liability for unused PTO from getting out of hand, a donation program can help build a sense of employee community and satisfaction and give you a competitive hiring advantage.
How Does It Work?
Generally speaking, PTO donation programs give employees the option to donate some of their accrued time to a pool administered by the company. This is often with the assistance of a third-party administrator like TASC. The company determines who needs the extra PTO and distributes it accordingly. Depending on what kind of benefit program you adopt, the time could go to those affected by a crisis, a family medical emergency, or some other hardship or life event. The rules and tax ramifications depend on the situation.
COVID-19 and the Major Disaster Exception
Currently, the Families First Coronavirus Response Act (FFCRA) requires employers to provide additional paid sick leave through the end of 2020. But not every company is bound by its provisions. In fact, by one analysis, only about half of Americans working in the private sector are covered.6 Fortunately, there’s another option for helping out in a crisis. A “Major Disaster Leave Sharing Plan” allows PTO donations due to “a Presidentially declared major disaster.” In this case donors are not taxed on the money they donate, but the value of the time received by employee recipients is viewed as taxable income.
Medical Emergency Exception
Another way employees can donate PTO without paying taxes on the value of the time is called the “medical emergency exception.” It pertains to both employees and family members whose medical condition or other qualifying hardship necessitates a prolonged absence from the job.
Life Event PTO Donations
National disasters, medical emergencies, and other extreme hardships aren’t the only scenarios for PTO donations. You can provide donations for “life events” that can help employees take time off for things like extended maternity or paternity leave and adoptions. Employees should be aware, however, that in these cases, donated time is considered W-2 compensation for both the donor and the recipient.
Setting Up a Program in Your Company
Taking PTO is important for your employees’ morale and job satisfaction, but their ability to help out a colleague in need of time off might be the next best thing.
Editor’s Note: TASC offers a Crisis PTO Account and separately, a Life Event PTO Account, from more than 50 benefit offerings that can be instantly configured into custom plans that meet employee needs; where they are in life. https://www.tasclargemarkets.com/endless-aisle
- “Should Employers Rethink Their PTO Policies Under COVID-19?: Workest, July 2020: https://www.zenefits.com/workest/should-employers-rethink-their-pto-policies-under-covid-19/
- “Only 28% of Americans plan to max out their vacation days this year,” CNBC, April 2019: https://www.cnbc.com/2019/04/26/only-28percent-of-americans-plan-to-max-out-their-vacation-days-this-year.html
- “Encouraging employees to take PTO During the COVID-19 Pandemic,” Wallace Welch & Willingham: https://w3ins.com/wp-content/uploads/2020/09/Encouraging-Employees-to-Take-PTO-During-the-COVID-19-Pandemic.pdf
- “Donating sick days to a coworker….” MarketWatch, August 2018: https://www.marketwatch.com/story/donating-sick-days-to-a-coworker-isnt-a-cure-for-our-paid-leave-problem-2018-08-22-1788441
- Families First Coronavirus Response Act: Employee Paid Leave Rights,” U.S. Department of Labor: https://www.dol.gov/agencies/whd/pandemic/ffcra-employee-paid-leave