The Hidden Costs of Unused Leave

Executive Summary

There’s a hidden cost lurking on the balance sheets of American companies. It is nearly half the size of the current federal deficit, 24 times the annual revenue of the NFL, and larger than the Gross State Product of half of U.S. states.

The source may surprise many U.S. companies. In analysis conducted on behalf of Project: Time Off, Oxford Economics discovered $224 billion in liabilities sitting on the balance sheets of American companies due to unused vacation time. This liability has been amassed over years of employees rolling over unused paid time off and does not include sick or personal leave.

America’s vacation liability is massive—and it grew by $65.6 billion in the last year alone. 

Methodology

Oxford Economics completed a review of Form 10-K financial statements filed with the Securities and Exchange Commission (SEC) by 114 public companies employing 377,000 private sector workers. The financial statements reported the total cash value of accrued paid vacation time and the number of employees for each firm. These data were used to estimate a per-employee liability for the sample of public companies. 

Oxford Economics used additional survey work to extrapolate the 10-K analysis to the broader private sector economy. The additional research included a 2014 GfK-Oxford Economics survey of 1,303 respondents to assess the amount of vacation time earned, used, rolled over, or lost due to constraints such as caps or expiration of banked days. Oxford Economics conducted a second survey in 2014 to corroborate estimates of vacation earned, used, rolled over, and banked for later. 

Key Findings

America’s 24/7, always on, hard-charging culture has created a nation of work martyrs—the type that take few vacation days, come into the office sick, and pride themselves on being seen at a desk. But work martyrs are costing their companies—big time. According to Oxford’s analysis, the average vacation liability per employee totals $1,898, and in some companies studied is more than $12,000 per employee.Vacation liability is not a $224 billion bill coming due for American companies tomorrow. But in the near-term, it represents a potential and perhaps unnecessary burden on a business’ financial health and outlook. Beyond the vacation liability companies are shouldering, employees are also losing. While many unused days are carried over for future use or payout at the employee’s separation, about a third of paid vacation days are simply lost due to “Use it or Lose it” policies, caps on banked days, or expiration of those days. Project: Time Off also discovered that employees are forfeiting $52.4 billion in earned benefits each year.U.S. firms started this year with an average of 5.7 days of accrued vacation per employee, but there are interesting distinctions based on company size: 

 

While the average vacation liability per employee is $1,898, at large companies with more than 500 employees, the liability per employee is much higher: $2,609. Further, if looking exclusively at the 114 public companies reviewed for this report, the median liability is $3,023 per employee.

Reducing Vacation Liability

Employers are right to be concerned about their share of the American private sector’s $224 billion vacation liability. Beyond the financial implications, it shows how much time employees are giving up at the expense of their health, happiness, productivity, and creativity.

According to the Society for Human Resource Managers, a combined 98 percent of employers offer PTO or paid vacation. The details of policies vary widely, but according to Oxford Economics’ analysis, more than half of employees (53.5%) are able to roll over time, more than 18 percent can be paid for unused time, and another nearly 10 percent are able to bank time for things like parental leave or retirement.

Many companies are moving to “Use it or Lose it” policies—in fact, Oxford Economics found that it is now the policy for more than one-quarter (26%) of all U.S. employers. Under this policy, any unused vacation days are forfeited by the employee at the end of the year. Employees in these companies are dramatically more likely to use all their earned vacation time. Eighty-four percent of employees under a “Use it or Lose it” structure take all their earned time off, compared to just 48 percent of employees who have the option to roll over, bank, or be paid out for unused time.

Regardless of the policy, regular communication is essential to encourage employees to use more of their vacation time. Research by Project: Time Off found that 80 percent of workers said they would use more of their PTO if their boss encouraged them to do so. The same study also found that two-thirds of employees hear negative or mixed messages—and, most frequently, nothing at all—about using vacation time, despite 91 percent of senior business leaders agreeing that time off from work delivers benefits to their employees and companies.

Beyond “Use it or Lose it” policies, some employers are implementing innovative approaches to vacation policy and instilled company cultures that encourage employees to use their time. Read more about these policies on the Upside of Downtime blog.