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How Buy_Sell Vacation Options Can Save Money

By Staff Report

Aug. 1, 1996

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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