As you weigh the merits of offering flexible vacation benefits, consider the possible savings as well as the expense. According to George R. Faulkner Jr., managing consultant at A. Foster Higgins & Co. Inc. in Philadelphia, employees don’t have to be the only winners. Employers actually can save money. When the option does increase costs, it still may be worth the time in administration-especially if it improves employee morale, recruitment, productivity and retention. You be the judge.
Assume the following:
- A company has 2,000 eligible employees who can buy or sell vacation time.
- Average salary is $37,500, increasing 4% each year.
- Approximately 30% of employees earn more than the FICA wage base maximum.
- On average, 15% sell a week of vacation and 25% buy a week (though percentage buying and selling depend on level of vacation entitlement).
- Employees receive full value for time sold and pay full value for time purchased.
Assuming no employees must be replaced during their leave:
| First Year | 5-Year Total |
Savings from time bought | $ 333,000 | $ 1,802,000 |
Expense from time sold | $-250,000 | $-1,354,000 |
Net savings | $ 83,000 | $ 448,000 |
Assuming 25% of employees must be replaced by temps or overtime help, at a rate of 140% of employee’s pay:
| First Year | 5-Year Total |
Savings from time bought | $ 186,000 | $ 1,008,000 |
Expense from time sold | $-208,000 | $-1,125,000 |
Net savings | $ -22,000 | $ -117,000 |
Personnel Journal, August 1996, Vol. 75, No. 8, p. 78.