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 Capital
Personal Capital lets you see all of your accounts in one convenient place. Sign up now for free.-Harry @ PF Pro
Two weeks is tough – that’s what I started with in my current job, and you really need to count the days off.
This year I had two separate personal travels that were really important (weddings, etc), so I had to plan from the year prior to make sure I had plenty of days to get there and still have a few days off when Christmas comes around. =) In a scenario like that I might have bought vacation days if given the option, but we don’t have the option to buy more.
Yea 2 weeks is definitely tough. I would be happy if they gave me 3 weeks but then again, I would probably want 4 weeks once I got 3, haha.
They do give us a few extra days around Christmas time though b/c they shut everything down from Christmas eve to New Year’s Day so we don’t have to use vacation days during that time but we still get paid.
AT my workplace we only get the option to purchase more leave if we have kids.
We do however have the option of a 9 day fortnight, which I have taken up and love every bit of.
Wow I’ve never heard of the option to purchase more if you have more kids haha. Must be a non-US thing 🙂
I work for a company that is based in Germany, so one of the few perks we get is that we have 26 days per year of paid vacation. As such there is no vacation purchase plan but at previous jobs I wish there had been.
Wow 26 days is freakin’ awesome! Haha I don’t know if I could use that many days. I do like to travel though so I’m sure I’d be able to squeeze in a couple extra trips here and there. As it is now, I still travel a lot but I do a lot of short weekend 3 day type trips to closer destinations.
At my old employer you’d start with two weeks plus a week of sick time. Your number of days would go up every two years. I do think that two weeks is to low and really should be more. My brother’s employers allows him to buy up to two weeks extra, but they allow him to roll it over which is awesome.
Unfortunately I only get 2 weeks until I have 5 years + of service, then we get bumped up to 3 weeks. And I’ve heard rumors that the new company’s policy is 10+ years before you get 3 weeks so this could be my situation for a while.
My companies vacation plan is very similar to the one described. We also only get 10 days of vacation a year with the option to purchase 5 additional days. However, our plan states that employess will receive a refund at the end of the year for any unused optional vacation days. Does your plan not stipulate the same? I would think you don’t really end up losing if that’s the case.
I figured that the rollover policy would be just like what you describe but HR told me specifically the days would not roll over. I’m not sure if I believe them to be honest though, especially since we’re in California which has some pretty lenient vacation rollover laws(in favor of employees).
That’s why I only bought 3 days instead of 5 this year. I’ll try it out and see how it goes and probably bump it up to 5 next year. Like I stated above though, in the worst case scenario I’ll just have to use my vacation days 🙂
I get 3 weeks at my current job and got 4 weeks at the job before that. No matter how much you have you wish you had more! If I could I might buy some in a couple years but don’t have the need right now to.
I think it’s funny that most of the older employees who get 4-5 weeks of vacation a year never ever take it! I’m so jealous of them but I guess as you get older and have a family it’s a lot harder to take a bunch of vacation days. I wouldn’t mind having every other Monday off though, haha.
This is an interesting concept. I have never really worried about vacation time. I have a good amount of days and I use them every year. While we don’t rollover days like we used to, I am still happy with how my employer does vacation days. I am not sure about the purchasing days concept especially when you have to use the accrued first.
Yea it’s definitely a strange concept but I don’t think 2 weeks of vacation is quite enough. I know I have a couple 4 day trips this year so I went ahead and bought a few extra days.
That is a pretty cool scheme, because if you need the money, you can chose to work instead. I would buy the holidays, although I wish I could buy them with overtime and not money.
That’s a good point. Some managers at my company are pretty cool about flexing your time. I’ve actually done it once with my boss but don’t feel comfortable asking all the time.
Reading your post brings to mind the remark of Henry Ford II. Asked about an employee’s request to take a three week vacation, he said:
“Any guy I can do without for three weeks, I can do without!”
But seriously, I have one substantive issue to point out. This is re: your example of buying vacation days, now, to lock in a lower cost in anticipation of a raise later in the year. Your forgetting about interest costs. You have to pay for these vacation days in weekly installments – money that you do not earn interest on.
If your raise is expected to be 2% or 3%, you might do better by investing the money instead of buying vacation days.
That’s a good point, but your cost is divided by the entire year. So you would essentially be investing in a dollar cost averaging style as opposed to investing all the money up front. So your return would have to be greater than the 2 or 3% raise you get to make that the better option.
But that being said, 2-3% is more of a merit increase. If you have an anticipated raise(ie 10% after your 5 year anniversary like at my company) then you could make some money by using this strategy.
My company has an option to buy future vacation days though I have never used it. I must say that it is a very good benefit for the employees, especially when vacations don’t go to plan. A coworker went out of town and didn’t get to see everything they wanted because of a storm. However, a few months later they bought more vacation days and took a similar trip to make it worth it.
I’m happy to work for someone who will let us buy some days off.
Nice. Your work sounds a little more flexible than mine as we have to decide right now how many(if any) days we want to buy for next year.
I definitely like having the option though b/c as I said, it’s usually a lot easier to take vacation than to request unpaid time off or to ‘flex’ your schedule.
I’ve never worked at a place that lets you buy additional days! I had 4 weeks at my previous employer plus sick days, and three weeks + sick days at my current employer, so I generally have enough.
Wow that’s a lot. I think I’d be fine with 3 weeks off plus a few sick days here and there. Anything past that, you kind of start looking like a slacker, whether you are or not..