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How Buy_Sell Vacation Options Can Save Money

August 1, 1996
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Related Topics: Benefit Design and Communication, Featured Article
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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.

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