One question that comes up this time of year is how to handle accrued vacation/PTO for employees – roll it over, pay it out, or scrap it. 

Use It or Lose It

Under this policy, vacation days expire after a set amount of time or at the end of the year. Of the contractors we heard from using this policy, most cited the benefits to be simplicity, no risk of employees having and using large amounts of vacation at once, and no risk of employees burning out while hoarding vacation days. “Everyone needs to take time off and get away every now and then. I believe it makes for a more productive staff,” says Kathy Vacho. 

However, this strategy should be used cautiously. Keep in mind that many states have rules on unused vacation. Some states prohibit a “use it or lose it” policy; some require a written handbook or employee contract that clarifies a “use it or lose it” policy. Ensure your employees are aware and understand your vacation policy.

Roll Over

Garrett Martell of Two Day Painting has two policies: regular vacation days that roll over each year, as well as the opportunity to earn extra winter vacation days that expire in March.  

When creating a roll-over policy, consider how you will handle employees who accrue a significant backlog. The last thing you want is an employee announcing a six-week vacation in June. Some contractors have worked around this by limiting roll-overs to the annual accrual total, or less. Others limit the number of consecutive vacation days or the amount taken during the busy season.

Pay Out

Pay out is another option. It offers the simplicity of expiration without punishing your employees for working every day. Again, a clearly stated plan is key. Travis Dahlen of Northwind Painting has evolved his program over many years. “We like to work hard as a group, and sometimes that left a ton of vacation in December. Paying that out in a lump sum hit the P&L pretty hard in a typically slow month.” So now they pay out one day per week, beginning in October, until the days are taken or paid out. “That helps spread the costs over three months,” says Dahlen. 

Dahlen believes his new strategy has improved his hiring and retention. “As the cost of living goes up, everyone is looking for the value they get on their check in the form of pay per hour. Now more than ever, these benefits need to be highlighted and focused on as it does really hit their bottom line.”