A lot of people are talking about employee benefits right now. They are deciding which medical plan to choose(the answer should be HSA!), reviewing their investment choices and maybe even increasing their 401k contribution. But I’m here to talk about a different type of benefit today: vacation days. You might not think of purchasing vacation as a benefit since it’s akin to taking unpaid time off. But there are some financial and even mental/spiritual benefits to purchasing extra vacation that you may not be aware of.
My company was taken over by a larger corporation this past year and 2013 will be our first full year under the new regime. It looks like most of our benefits will stay the same and we’ll actually be given the option to purchase up to 5 additional vacation days in 2013. I only get 10 days of vacation a year and I’m pretty good at using those up(I think I’m at 2.5 days right now) so this option definitely peaked my interest. Unfortunately though, there were some weird restrictions and rules that applied to the purchased vacation which made my decision a lot tougher.
My Employer’s Vacation Purchase Plan
The purchase plan is pretty simple, but using it and rolling days over can get quite complex. In a normal year, we accrue vacation once a month. So if we get 10 days a year, we’ll get 0.833 days(10 days/ 12 months) once a month. But with the purchased vacation, you receive all of your purchased vacation days up front while you continue to accrue normal vacation days.
Here are some more details of my specific plan:
- The cost of purchasing vacation days is deducted pre-tax from each paycheck. So if you get paid $100 for a full day’s work(8 hours) and you purchase only one additional day, your bi-weekly paycheck will be reduced by $3.84.
- You must use your normal accrued vacation first before you can take purchased vacation days.
- If you don’t use all your purchased vacation, it will not rollover.
- Regular accrued vacation will still rollover.
The thing that really stood out was the fact that purchased vacation would not rollover and you had to use your accrued vacation before taking your purchased vacation. What this basically means is that if I go into the new year with 3.5 days of accrued vacation and I buy 5 additional days of purchased vacation, now I have to take 3.5 days of vacation before I can even start using my purchased vacation. My vacation accrues at the beginning of every month, so if I don’t use all 3.5 days of my accrued vacation that number will jump up to 4.33(3.5 + .83) and I have to use 4.33 days before I can take my 5 days. You could see how this might become a problem as it gets later and later in the year.
Financial Gain or Financial Loss?
Although purchasing 5 days is the same as taking unpaid time off, it’s a lot easier for me to take vacation days. There have even been times when I’ve even e-mailed my boss the night before and let him know that I’ll be taking a vacation day(only if the snow’s good though!). On the other hand, taking unpaid vacation can be tricky. Depending on your boss, you may have to get it cleared through your manager or even HR.
But let’s say you have a great boss who lets you take unpaid vacation whenever you want. Does it still make sense to buy additional vacation if you know you’re going to use it? I could only think of one situation in which it would make good financial sense to do so. If you know that you’ll be getting a raise at any point in the year or if your company generally gives out merit raises(usually in the 1-5% range) it would definitely be worth it to buy additional days.
The reason is, buying additional vacation days allows you to lock in your current salary and divide the cost of your purchased days into each paycheck. Let’s look at an example to get a clearer picture of what I mean:
Bob makes 50k a year and starts 2013 with 0 accrued vacation days and 5 purchased vacation days. He gets 10 days a year in normal accrued vacation days or .833 of a day on the 15th of each month. On 7/1/2013, Bob has 10 days of vacation in his bank(5 accrued and 5 purchased). If he gets a 10% raise, that bumps his annual salary to 55k. His 10 days of vacation are now worth 10% more. To celebrate his raise, Bob takes two weeks off and goes to Mexico.
He’s now able to redeem those days and get paid at his new higher hourly rate. If he wouldn’t have bought any days, he would only have been able to redeem 5 days at his new rate, while he would have had to take 5 days unpaid at the higher rate. The former option will save him 10% of his weekly rate.
Although the savings won’t be huge, if you know that you’ll be taking the vacation there’s no reason not to go ahead and buy the days if you usually get some type of raise during the year
I Bought Some Vacation
Since this was the first year the plan has ever been offered, I ended up buying three extra days of vacation. I’m not sure what my schedule will be like next year but I do know that I will be taking at least two weeks of vacation, maybe more.
Financially speaking, it makes the most sense not to buy any vacation if you’re unsure of your schedule since you won’t be getting paid for those days(although you do still get paid you’re effectively paying for it with your paycheck contributions). This was the argument I heard most against buying days, but who decided that two weeks was the right amount of vacation? If you take this thinking further, why would one ever take vacation since you’re vacation days are credited to your last paycheck when you leave a company?
I think two weeks might be enough for some people but life is short and vacation is all that much better because you work. Vacation wouldn’t be nearly as relaxing if you were always doing it. Personally, I’m not the type that enjoys working crazy hours all in the pursuit of making more money so if my work gives me the option to buy a few extra days of vacation I’ll take it! Next year, in the worst case scenario that I don’t take as many vacation days as I thought I would, I’ll have to start my Christmas break early. There’s no way I’m going to let those vacation days expire
Readers, does your work offer you a vacation purchase plan like this? Do you think two weeks of vacation is too little, too much or just right? Isn’t that number kind of arbitrary, why shouldn’t it be changed to 3 weeks?
Track All Your Accounts With Personal CapitalPersonal Capital lets you see all of your accounts in one convenient place. Sign up now for free.
-Harry @ PF Pro
Latest posts by Harry Campbell (see all)
- Should I Cash Out Refi To Pay For My Wife’s Student Loans? - November 24, 2014
- 4 Online Degrees That Will Get You Out of Your Cubicle - November 23, 2014
- Feeling Overwhelmed By Debt? Implement these 5 Budgeting Tips to Regain Control - November 20, 2014