Imagine working for the same company for over a decade. You’ve never been one to take long vacations and your paid time off (PTO) balance has quietly climbed to more than 1,000 hours.
Then your employer announces a new PTO policy: From now on, only a limited amount of PTO can be rolled over, which means you’re facing the loss of a significant portion of your accumulated hours. Your employer has offered to pay out 800 hours of your PTO — but at just 35% of your regular salary. While this is a hypothetical scenario, it has real world resonance that many employees may face as they try to navigate the complexities of workplace compensation.
Many employees are offered “deals” like this: PTO is considered a liability for companies, since it’s an unpaid debt that accumulates on their balance sheet over time. When companies want to reduce their liabilities, they may offload PTO, often at their employees’ expense.
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What are your options if your company offers PTO buyouts?
Generally speaking, Canadian employers are required to pay employees out for unused PTO when they retire, quit or are terminated. Minimum vacation entitlement is typically two weeks per year, with a corresponding vacation pay of 4% on an employee’s gross earnings. After the employee’s tenure reaches five years, their minimum vacation entitlement increases to three weeks, with 6% corresponding vacation pay (1).
However, some employers may try to buy out your unused vacation time while you’re still fully employed — and they can. It’s crucial that you understand the details of the buyout as it pertains to the terms and language in your employment contract or collective agreement. Sit down and discuss it with your employer or representative, or even a lawyer to fully comprehend what you’re being offered in the PTO buyout, and if it’s in your best interest.
Just because the company isn’t required to offer a payout doesn’t mean you should accept their first offer — especially when you consider that the 800 hours they want to buy back are the equivalent of 20 weeks of full-time work.
So what are the pros and cons of accepting their first offer?
Pros of accepting the payout
Immediate cash in hand: Even at a reduced rate, a payout can help with bills, savings or investing. If you earn $100,000 a year, a 35% payout on 800 unused PTO still equates to over $13,000.
Better than losing it all: While employers in Canada aren’t required to cash out unused vacation during employment, accepting a PTO buyout while still employed can be better than watching the unused portion disappear.
Cons of accepting the payout
You lose time off: PTO is part of your compensation package. Accepting a partial payout means trading rest and recovery for less-than-fair pay.
You’re getting only a fraction of what you earned: A 35% payout means you’re being paid about one-third of your actual wage for hours you already worked to earn that PTO.
The good news is you do have options. If you find yourself in a similar situation, consider the following steps:
Start with negotiation
Ask your employer why they’re only offering 35% and (politely) express disappointment that the figure is less than your full compensation. Inquire whether the rate is flexible or if alternative options are available. If you’re an employee in good standing, they may be willing to work with you. Consider starting with a request of 60% pay, or a mix of cash and time off.
Use the time before it disappears
You’re not alone in struggling to take time off. Many Canadians are challenged when fully using their allotted vacation time. A 2023 survey by ADP Canada found that, while 31% of Canadian workers took their vacation allotment, 32% took less than half the time off owed to them (2).
But using the allotted time off is vital to our mental health. Research shows that taking time off for self-care and relaxation away from the office allows workers to return energized, and increase their productivity (3). If you have time before a new PTO policy takes effect, consider taking an extended vacation or temporarily adjusting your work hours to a three- or four-day workweek to use up those days. A reduced workweek has been shown to reduce anxiety and stress, improve sleep and allow time for beneficial activities like travel and exercise (4).
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Split the difference
If your employer is willing to negotiate, propose a compromise that works for both parties. That could mean taking a month-long vacation and receiving some paid out hours at the reduced rate, taking Fridays off for the next year or working half days for an extended period.
“We all have a point at which we get overwhelmed, we’re engaging in unhelpful behaviors, and our thought processes become very negative,” McLean Hospital’s Andrew M. Kuller, PsyD, ABPP, said in an article on Deconstructing Stigma (5).
“If you’re feeling stressed out and drifting away from a healthy set of behaviours, those are things you could think about and try to rectify by taking a mental health day.”
What to do if your employer wants to pay out your PTO
Here are some suggestions for how to make the most of your vacation benefits.
Know your rights: In Canada, PTO policies are governed by provincial or territorial employment standards, but employers may offer additional PTO perks. Make sure you’re familiar with your company’s policies — carefully review your employment contract, handbook or any onboarding agreements to fully understand your rights and your PTO benefits beyond the legal minimum entitlement.
Negotiate if you can: Even if the policy requires forfeiture, most companies are willing to negotiate with long-term employees. Contact your human resources team to ask about your options. Consider negotiating for a mix of time off and cash.
Take your PTO: Letting your PTO pile up to the point where you have to forfeit hours defeats the purpose of the benefit. Remember, compensation packages are about more than salary — you earned those days off, so take them.
Plan how to wisely use the payout: If you take the cash offer, treat it as a bonus. Use it to pay off debt, build your emergency fund or invest for the future. Also consider how much tax you’ll pay on this bonus, and if it will bump you into a new tax bracket. This can affect your decision-making on how to balance the payout versus the time you use as vacation.
In an always-on work culture, it’s easy to push PTO aside. But doing so may mean missing out on money, rest and recovery — but most importantly, creating memories with those you love. Make a habit of using your PTO entitlement, and don’t be afraid to push back if your employer tries to shortchange you.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Wagepoint (1); ADP (2); Indeed (3); TIME (4); Deconstructing Stigma (5)
This article originally appeared on Money.ca under the title: 1,000+ hours of PTO and an offer of 35% payout? What Canadians can do to protect their vacation entitlement
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.