How Much Is Your Vacation Worth?

How many people really think about what their vacation time is worth and examine it from a financial perspective? (Yes, I realize many people would say they don’t care, it is vacation time!)  Do you plan your vacation time, or just burn it as needed?

I have an interesting dilemma.  I literally have the opportunity to trade my time for money.  In this case, it is vacation time.  Before you call me captain obvious, I know I already trade my time for money each day by working as a salaried professional.  Let me explain further.

A Working Vacation Accrual Example

I think it is best to illustrate my point using an example.  Let’s say Sally the Advertising Staffer gets paid $50,000 (to keep it simple this includes all bonuses). She also gets two weeks of vacation each year.  If she uses all of her time off, she gets paid $50,000 for the year.

If she takes zero days of vacation and lives in the right state, she actually made $51,923 (a 3.8% raise!).  Magic?  Nope, just by being in a state or by working for a company with a vacation accrual cash out policy, she actually has a $1,923 “savings” account in the form of accrued hours in the company payroll system.  According to Nolo.com about half of states mandate that any accrued vacation time be cashed out when an employee leaves.

If she were to leave the company, she would get that amount included on her final paycheck.  It gets taxed like regular wages, but it could also be used to fund 401k, 403b, or 457b plans!

Continuing that example, let’s say Sally works too much and only takes 1 week of vacation each year in years 2 through 4.  That is 3 more weeks of vacation added to the original 2 for a total of 5 weeks off.  At her hourly rate of $24.04, that accrual is now worth $4,808.  But what about any raises she received?

Because her annual pay has increased, each year her accrual increases by her raise percentage! If we assume Sally got a 3% raise each year, then the accrual is worth more than we thought.  The chart below shows that the accrual is actually worth $5,253 or 9.25% more than the $4,808 without raises.

End of Year

Salary

Time Off

Accrual $

1

        50,000

80

        1,923

2

        51,500

120

        2,971

3

        53,045

160

        4,080

4

        54,636

200

        5,253

To be clear, I am not promoting that people avoid taking vacation days.  I am only pointing out a hidden bonus program that you may have available to you.  I have many times explained this to employees at my company and I think they appreciated gaining the knowledge.

I think realizing you might be able to trade some time off for part of that 3.8% bonus of annual vacation pay might help some people travel more, pay off debt, or improve their financial situation.

Back to My Dilemma

In the last fifteen years, I have worked for four different companies.  None of them has been smaller than 700 employees.  The biggest was an international company with thousands of employees.  Two of those four companies offered some sort of vacation cash out program during your employment.  The same two cashed out your vacation hours upon termination.

I am currently allowed to cash out up to 40 vacation hours each year.  I would normally accrue 160 hours (4 weeks).  I don’t ever feel like I have enough time to take that much time off, so I elected to do a 40 hour cash out this year in December (in California you have to elect it before the calendar year starts and accrue that amount but not use it- very complicated).

I don’t want to spend more time away from my kids, but this is like a hidden bonus program that many people don’t think about.  I can not only get an extra week’s pay, I can push that into the company retirement accounts to help me max out for 2015!

My other options are to take more time off or to let the balance just get larger and larger.  Both are viable alternatives depending on your company.  Taking more time off is great, but can also be stressful as an executive to make sure things are still running smoothly in your absence.

At this point I am looking at using about 96 hours (12 days, which is 60% of a year’s accrual), cashing out 40 hours (5 days or 25%), and letting 24 hours accrue in my bank for the future (3 days or 15%).  I like being able to use the cash out at Christmas time to travel and for gifts (affiliate link).  12 days off is enough for a week long vacation (like Hawaii) and several 3 or 4 day weekends, and the other 3 days might be used if a good deal comes up or are there for an emergency.

kids pic

Have to leave time to spend with these little guys right?

If I end up using more time than I planned, the 40 hours of cash out just gets reduced (automatically) to the amount that that I accrued but did not use for the year (again a confusing sentence).  That is not a big deal to me since if I use more time off I probably had a good reason.  Besides, the cash out is helpful, but my family is not depending on it.

Other Considerations Around Vacation Time

Don’t forget that you can still have a vacation cap.  A typical one is 1.5 times your annual accrual.  For example, if you get 2 weeks of vacation each year, the most you can have accrued is 3 weeks (2 x 1.5 = 3 weeks maximum).

Some companies have an unlimited cap.  This makes the vacation accrual even MORE valuable.  If you only use half of your time off for several years, you may end up with a huge bonus when you leave, retire, or move on to other opportunities.  I don’t want to say what my current cap is, but it is high enough to not make me have to burn days each year to avoid missing out on further accruals. 

For some with unlimited or really high caps, this becomes an additional retirement account of sorts!  Just as an FYI, it is taxable and a huge balance could affect your taxes significantly so think about it!

If it was not obvious, if you have a cap, you need to monitor it!  Why give away vacation time because you didn’t plan ahead?  When you hit the maximum, you no longer get vacation hours added to your bank.  That is the equivalent of taking a pay cut!

I briefly mentioned keeping days for an emergency.  That is important too.  If I run out of sick time, have a family matter to attend to, or some other reason causes me to need extra hours, having some in reserve is important.  Currently, I have about 2 weeks in reserve.  If my plan works out, I would have closer to 3 weeks left at the end of the year.

Interesting Comparisons

So now that I have laid out my confusing, but enlightening take on accrued vacation time I thought I would mention some examples.  Your vacation definitely has a defined value!  Below are some examples:

  • If the US median salary in 2014 was $51,939, each 8 hour vacation day is worth $200 to the person making that wage
  • The average Walmart employee makes $8.81 an hour. That is $18,325 annually, making their vacation time worth about $70.50 per day off.
  • A college graduate with a bachelor’s degree is around $45,478 for 2014. This means their vacation time is worth about $175 a day to start.
  • Warren Buffett’s salary is technically $100,000. That means a vacation day for him is worth only $385.  Though in his case there is so much additional compensation, his time is probably worth much more!
  • The President of the United States makes $400,000 per year. That would make a presidential vacation day worth about $1,538.  Does the President really get time off?  I don’t think so.  Yes, he (or she) gets vacation days, but I think they are always on duty at some level.
  • The minimum salary for a Major League Baseball player is $500,000 per year. That is 20% more than the President and 5 times Warren Buffett’s salary!  They obviously don’t get vacation days, but I still thought it was interesting to add.  If they did get time off, each day would be worth $1,925.

So how much do you think your vacation time is worth?

I am not an expert on labor law, but this is just my musings on the subject.  Also, a paid time off or PTO model can work the same or a different way.  Much depends on the company policies and the state that you work in currently.  I hope you enjoyed my ramblings!

Even if you do not have the option to cash out vacation, be aware of it when negotiating a new job, looking at new opportunities, etc.  Those funds can be used to easily top off Roth IRAs or to get extra into 401k accounts each year!

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21 Responses

  1. We have joked before that, as our salaries go up, the cash-out value of our vacation days also goes up. But alas, we’re both capped, so we can’t actually just carry them all forward for the next two and a half years. (Not that we’d want to with all of them, but maybe a few.) Your suggestion on the cash-out is new info, though, and we’ll for sure have to look into that! We both get four weeks but of course can never use that much. Thanks for sharing!

    • vawt says:

      I have even built my expected balance into my retirement plan! One final bonus on my last paycheck. In fact, I could use it to help max out a 403b account that last year if I leave early (assuming I have enough hours saved).

      Ideally, I would like to use them up every year, but I agree that is usually not possible.

  2. I have had to cash out vacation time several times in the past when I left the company. Otherwise I try to use all my vacation time. I never feel like I have enough.

    I currently only have 3 weeks, but I plan to negotiate a 4th week during my next review (or sooner).

    In an ideal world I would have 5 weeks of vacation, that way I can take off 1 week a quarter and then have an extra week to use as needed.

    I totally feel like the time off is worth way more than the cash value based on my effective rate. People need R&R. Don’t get me wrong I think from a legal standpoint that everyone should get paid out vacation if they don’t use it.

    I don’t know how companies can get away with a use it or lose it policy.

    Cheers!

    • vawt says:

      I would definitely like to use more of it, it just becomes difficult to do so as an executive. I like taking a long vacation once a year and some 3 day weekends, but if I could get away with 2 1-week stints I would be ecstatic!

      Good luck negotiating for more. Each week is about a 2% raise!

  3. Hi vawt! I have been reading your blog for some time now, but thought I’d finally post a comment. I’m glad you brought this to our attention. We moved to California relatively recently and were aware of the vacation cash out option, but didn’t look too much into it. After reading your post I think this is something we should take advantage of. I get 22 days of vacation days, whereas, my husband only gets 15 days. As a result I don’t always have the opportunity to max out my vacation days. However, with the recent addition to our family I may find use for them now. Definitely want to look into cashing out some of my vacation days. Thanks!

  4. I’ve never had a cash-out option but I’ve only worked for two employers. In my current job I get 5 weeks of PTO a year. We can carry forward up to 5 weeks, anything more we lose at yearend. I’ve never lost any PTO because I value my personal life too much. People at work complain how they lose PTO every year and I sit back and ask how is that f’in possible? My personal time is way to valuable to give it all to my employer. I also have never gotten poor feedback for taking my allotted PTO, so why wouldn’t I? I usually probably average taking 4 weeks a year and carry the other week over. Since I’ve been here a few years my balance currently sits at 3-4 weeks which I like.

    • vawt says:

      PTO is a whole new ball game. I think when you have a lower cap to carry over you have to make sure to spread it out and make sure you don’t lose any days! I have a very high cap (by far the highest I have ever seen besides unlimited).

  5. Jason L. says:

    Because I work for a public company as part of several different sales teams, it’s hard for me to find time to take off that doesn’t negatively affect the end of a financial quarter or some big deal that one of the account executives is trying to close.

    I am already at the point where I’m accruing four weeks a year, and I can’t really even use that much, so my balance continues to grow. I’m up to 230 hours right now. I can carry over accrued hours at the end of the year, but I do have a cap at 320. If I start to get close to that, I will make sure to find a way to take more to ensure I’m not at the point where I’m not accruing anything, because then I’m just wasting it, as you noted.

    I really, really wish my company offered some ability to cash out some of it while still employed, because I would cash out a week or two every year and reinvest or at least re-purpose that money. As it is, I plan to just keep a fairly high balance knowing that it’ll turn into cash at some point if and when I am no longer with this company (even if it comes with a hefty tax bill).

    • vawt says:

      It can be a tough situation. Just remember if your balance keeps growing it will be hard to not lost any time to the cap. You should try to use more time now and maybe plan some short weeks or something outside of the week vacations. Right at the beginning of a quarter is a good time for sales people!

  6. Steve says:

    This is always an interesting topic. My first job out of college was for a 70,000+ person multi national corporation and we got to cash in our unused vacation days, similar to your company, 40 hours per year. As I was single, I did that every freaking year and took that cash and promptly spent it.

    Now, my company doesn’t officially meter your vacation, so I don’t really have that consideration any longer. But there is definitely financial wisdom in cashing that in if you’re not going to be using it. If you’re at the very top of your accrual limit anyway, then it probably becomes even easier to decide. 🙂

  7. SavvyJames says:

    It’s great that you make clear that you are not necessarily advocating that people not utilize their vacation days, only that they be aware of alternative uses of that resource. At the end of the day, those individuals with the best understanding of their options will be in a better position to support and advance their financial goals.

    • vawt says:

      Exactly. I want people to decide which they would rather have, vacation time or more money. I have shifted from more money to kids over the last few years, but still try to supplement my wages a small amount.

  8. Chella says:

    Am still looking at those figures and getting tempted not to take all my vacations. For me though, my work is so involving it would be unhealthy not to take those vacays. I strongly feel vacays will always help when it comes to productivity as a whole and are just healthy for everyone.

  9. That was an interesting read. I live in Northern Europe and I work as a full-time employee and I also run my own business. I can get 28 paid vacation days per year and additional paid 6 days off (because I have a kid). I cannot switch it to cash or anything, if I don’t use it, they expire during 2 years. But due to the flexibility of my job, I always travel and work wherever and therefore I always use my vacation days accordingly as well.

    • vawt says:

      I think the U.S. Has somehow made overwork the norm. I would gladly trade my cash out for the amount you get each year!

  10. Chella says:

    I actually never try to look at my vacations in terms of how much they are worth. I am ever busy and when it comes to vacations and short holidays, it never matters how much I will lose or spend. I love my family that much.

  11. Vacation is worth A LOT to me the first six weeks, and then diminishes every day after. I’ve found that 10 weeks off a year is the perfect amount. After that, and things get a little too much and I start feeling unproductive.

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