In 2024, 73 state employees in California received over $250,000 each in payouts for vacation time they accrued over the years. One employee had $1.2 million in unused PTO, which he received as a lump sum upon retirement. The state of California has amassed $5.6 billion in unfunded PTO liabilities, a major budgetary problem that lawmakers are struggling to address given the political infeasibility of changing the payout laws. The total unfunded liability has surged from $3.5 billion in 2019.
While California is an extreme case, companies across the country face significant and growing pressure on their balance sheets due to mandatory PTO payout laws (which are on the books in many other states, such as Colorado and New York). Beyond the financial strain created by existing PTO policies, employees’ willingness to leave so much vacation time on the table exposes deeper problems. For example, at a time when many employees are feeling disengaged and stressed at work, a refusal to take time off can lead to cultural problems, lost productivity, and turnover. In states where companies aren’t required to pay out the value of unused PTO (or where it is capped), employees are simply losing a core benefit.
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As these problems become more urgent, HR teams should be exploring new approaches to PTO that allow employees to take full advantage of their well-deserved time off.
Why current PTO policies aren’t working
Considering that PTO accounts for nearly a quarter of all compensation tied to benefits, it’s striking that over three-quarters of employees fail to use all their time off. For the most part, employees choose not to take time off because they’re too concerned about their workloads, the perceptions of colleagues and managers, and the fear of missing opportunities if they’re absent. Even if they manage to break away, employees dread the pile of work that awaits them when they return and often continue to work while on vacation.
Some companies have attempted to solve this problem with “unlimited” PTO, but this often makes employees feel even more pressure to avoid the perception that they’re abusing the policy—which can lead employees to take even less time off. Traditional PTO plans also fail to account for increasingly diverse, multi-generational workforces. According to Pew, women are more likely than men to worry about imposing additional work on colleagues, while black employees are more likely than their white counterparts to worry about losing their jobs.
Traditional PTO creates problems for everyone—finance departments that are increasingly concerned about potentially crippling unfunded liabilities, HR teams that want to improve engagement and retention, and employees who have serious misgivings about taking the vacation time they have earned. It’s time for a new approach.
What are the alternatives to traditional PTO?
There are several ways for companies to address the pitfalls associated with conventional PTO programs and provide employees with options that will help them fully leverage their hard-earned time off. According to Goldman Sachs’ 2025 Benefits and Compensation Trends report, companies are increasingly focusing on “paid leave policies as a tool to address both mental health and caregiver needs.” The first trend listed in this section of the report is the adoption of convertible PTO programs.
Convertible PTO allows employees to redirect the value of their unused time off toward an array of other purposes, such as retirement contributions, student loan payments, charitable donations, or cash. Employees can even donate their PTO to a leave sharing pool, which enables colleagues in need to take time off for personal crises and emergencies. Convertible PTO helps HR teams account for the diverse needs and priorities of their employees—while employees close to retirement may want to allocate the value of PTO toward their 401(k)s, younger employees may be more interested in paying off their student loan debt.
While convertible PTO provides a simple and effective way for employees to take full advantage of their time off, it also enables companies to steadily reduce their financial liabilities. At a time when traditional PTO has proven incapable of meeting the needs of modern workforces, the HR teams that think about time off more creatively will have stronger workforces and healthier balance sheets than their peers.
Why HR teams must move beyond the PTO status quo
After the economic dislocation and disruption caused by the COVID-19 pandemic, employees faced surging inflation and other forms of economic insecurity. Employees are still struggling—according to Gallup, just over one-fifth report that they’re engaged at work, while 40 percent say they’re experiencing a lot of stress on a daily basis. The consequences of these declining measures of employee well-being are dire: half of employees say they’re watching for or actively seeking a new job.
HR teams must take immediate action to address these issues. One way to do so is by providing greater flexibility to help employees improve their work-life balance—an increasingly vital measure of well-being. A 2024 survey of 26,000 employees found that work-life balance is an even higher priority than pay. It’s clear that too many companies are failing to strike this balance, which means HR teams must lead an effort to create a workplace culture that encourages employees to take time off when they need it.
However, it’s also essential to give employees more options for how they use their PTO. Pew reports that 52 percent of employees don’t feel they need all their time off, and they shouldn’t be penalized for leaving PTO on the table. As the demand for flexibility surges, it’s no wonder that 70 percent of employees say customizable benefits would increase loyalty to their companies.
Employees are now able to immediately reallocate the value of their unused time off toward a wide range of individual goals with convertible PTO. The deployment of this tool will reduce the pressure employees feel about their PTO usage, provide more personalized benefits, and reduce the financial burden created by banked time off. It’s no wonder that HR teams are increasingly adopting this new approach—a trend that will likely continue to gain momentum in the years to come.
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