Paid Time Off: More Than Just a Perk for Small Business Employees

This conversation has been edited and condensed for clarity.

Stefanie: Today, I'm chatting with Rilee, the CEO of Donde, about employee PTO. Let's dive in! First, Rilee, how should we even think about PTO, which stands for paid time off, in the world today? Like, what is it even?

Rilee: That is a great question. Paid time off, as you mentioned, is a valuable employee benefit. It has become a standard consideration for job seekers, alongside compensation and health insurance. As an employee, I have a vested interest in both my work and my personal time. Of course, I want to work here, and of course, I care about this business, but I also care about my own time. Therefore, PTO has evolved into an anticipated expectation, defining the relationship between employers and employees. It is now a fundamental component of an employee's benefits package, requiring ongoing negotiation to determine its terms and how it contributes to employee satisfaction.

Stef: That is such a good explanation. It's funny when I take a step back. I don't know that I've ever been like, well, what is PTO actually? And my only reference point is how it's evolved and this idea that many places used to have sick time versus paid time off. I know there are small businesses out there that still only have a week of PTO off a year. Now we hear about companies offering unlimited. So with that, I would love to hear your thoughts on kind of just the current state of PTO and what's going on out there with it.

Rilee: Exactly. PTO has evolved a lot. As I said, it's been a part of the conversation for years. It is standard today, but what it looks like differs greatly between different industries, verticals, companies, cultures, etc. 

Previously the concept of PTO (paid time off) involved earning a set number of hours to receive an equivalent amount of time off. This model was commonly used across industries. However, as companies evolved, they recognized the need to address overworking and provide more time off for employees. How do we start to incorporate better work-life balance for our team? This led to discussions about the different types of PTO, such as accrual, paid time off, and sick leave, with many companies currently negotiating their policies.

And then here comes Unlimited PTO. Unlimited PTO emerged primarily as a tool for tech companies that were like, hey, this will be a culture play for us. We will offer this look really sexy to applicants, and they will want to come to work for us because of it. However, its underlying purpose was to alleviate the liability of paying employees for unused time off. Normally, companies must compensate employees for accumulated PTO, which creates a significant financial liability. For example, if you offer 20 days off, and an employee only takes 10, you now have to pay out the 10 days they didn't take when they left the business. And that's a lot. Billions of dollars are in liability around PTO. By introducing the concept of unlimited PTO, meaning as an employee, you come in, and you have unlimited days to take off, companies aimed to eliminate this liability while still presenting PTO as an appealing benefit.

But what happened instead was that, yes, it did help companies attract really cool top talent, but instead, now this culture is built around it, around permission. Do I have permission to take time off? When it was an accrual-based policy, it was seen as a gift. I've now earned this right to take time off, or you've given me this time off, and I will take it. However, in the unlimited world, it's like employees base their time off on what other people are doing. Okay, what did my manager take in PTO? Did my coworker take time off? Who's taking time off, and when? So it really changed the culture around PTO for the worse. Although this was not how it was intended, we now are thinking and discussing how PTO may look in the modern future of work, and that is so interesting.

Stefanie: That was a lot. I think that all of us that introduced unlimited PTO were well-intentioned, like so many things in our world. I sometimes joke with my team that you really have to care about who the company's leader is when you have unlimited PTO because, I mean, I take a vacation all the time. I am passionate about travel, so it's a big part of my life. But sometimes you feel that like, oh, what if it wasn't? Would my team feel that freedom to take time off if I wasn't taking so much time off? And I don't know. It's a complicated topic, and we will come back to it. I'm also curious to hear your great knowledge of PTO pre-pandemic and post-pandemic. So we're now in this new world post-pandemic. We're in a very different world pre. How did all of that impact PTO?

Rilee: In 2019, there was 29% of the PTO days allotted that went unused. However, in 2022, that was 55%. That means more days were not used than were used. What's interesting is we see burnout is now a topic of the day, right? And that's because now, we have fewer days used, and we have more burnout. At some point in the month, in the year, every single employee almost is feeling this way. So it's widespread, and it impacts companies because now, all of a sudden, they're feeling burned out. And you know what happens? The employee leaves; in fact, most of the turnover is caused by burnout.

All of those things along that chain cost the company. So it's really interesting to show those connections like, hey, people not taking time off is not a good thing for business. When people are burned out, they leave. Now, you have recruiting costs and the loss of knowledge in that employee, as well as the delay in productivity during the three to six months it takes to get someone up to speed. This is all so interesting because it feels like PTO is at the heart of it. Employees come in and want work-life balance. You didn't give it to them. Now they're burned out, and now they've left. Of course, they left. It shouldn't be a surprise, but it is. People don't recognize that connection. So when we come in, we talk about that and try to emphasize that PTO is one of the greatest tools you have in an organization to keep your people happy, keep them effective and productive, and keep them there. That's what you want, so utilize it.

Stefanie: Yeah, that's so interesting - I never really thought about burnout and its connection to PTO, but one of the interesting things that came to mind is this idea that people are now feeling burnt out because they aren't taking their own time to go live their lives and their solution is to leave the company. My understanding is that this is an industry-wide problem, so there is a good chance that they are going to find themselves in a similar situation at the next company they work for because it's a hard topic to address. How are people using PTO? I've talked to you in the past about the quality of PTO. What are we seeing? I really care about this topic because I'm a working mom, and I feel like for a lot of working moms, we feel like, oh, my company's policy is just equivalent to the days off my kids have from school, so all they're really doing is freeing me up to be a parent those days. 

Rilee: Yeah, you're totally right. I think PTO has become synonymous with work-life balance, where it's this idea that, as an employee, I want to have that balance. People get all passionate about the term work-life balance and whether it is beneficial. Regardless of one's opinion, what remains true is that people need a balance between the two because we're humans, we have kids, we get sick, we have hobbies, and we have things that keep us motivated and engaged at work.

So, the way that we think about it at Donde is that it boils down to a relationship between our time on and our time off. Oftentimes companies aren't thinking about how impactful our time off is to how we show up at work, and so there's this separation between what we do at home and what we do at work. There is an assumption that when we show up to work, we should be these perfect robotic individuals that are efficient and effective. However, that's not the case, right? What do we do at home, how do we feel, how do we take breaks, how do we sleep, how do we take care of our health? All of these things impact how we work and how we show up to work, so these truly are interconnected.

As you mentioned, currently, most people value PTO because it allows them to go to the doctor, their kids play, take care of their pets, etc. However, PTO should provide someone the ability to truly take a break, a break from their everyday life. In the research that we see around rest, around productivity, we find that the human brain needs that separation. This is now more important than ever because what we found, especially post-pandemic, is that there is this new 'always on' or 'hustle culture' that is exacerbated by the fact that technically, anyone can work from anywhere at any time. So work has become a flood in our life that takes over everything.

Unfortunately, this means that the brain doesn't have that separation that it needs, it doesn't have that rest. Without this ability to take a break to give our mental capacity separation from work, we're just burned out. PTO was meant to be that break away from work, to give us that separation and to be able to create that space in our brain to be able to think, to think, to challenge ourselves, become innovative, to be creative, to become more confident. That's what a break does. I love this book by Alex Peng that primarily talks about rest. He says we're missing the huge part of the puzzle, and actually, less work produces more work, more efficient, more productive work. He focuses on the connection between rest and productivity. I love that because that connection has been lost in companies. We've forgotten the power of vacation. We've forgotten the power of 'yeah, I don't want to work on my yard this weekend. I actually need to go on a road biking trip, on a van expedition across the western United States, I need to go to a beach, etc.',  and we talk about that as a luxury, but it's not a luxury; it's a necessity. We need to get outside of our everyday lives to challenge ourselves and separate ourselves from work and personal duties to rest fully. 

Stefanie: Yeah, I totally hear what you're saying. We need to do both. That goes hand in hand with burnout. It seems like, more often, people are just trying to escape it all and decide not to work anymore,  live in a van off of $50 a week, and forget about it all because they never were able to have both. I know I've had periods of downtime, and I'm usually pretty mindful of my downtime, knowing that it typically leads to whatever my next company is, my next thing, my next project. I've never really thought of it as trying to escape this world. It's just a very challenging topic, but I love that idea.

Rilee: Yeah, I love that thought because you're right, Gen Z, millennials, there is this sense that there is no balance, so it's either all or nothing. Either I'm working, I'm in the grind, and I'm part of the corporate ladder, or I'm not; I've escaped, and I have this full freedom to be able to choose and direct my life. There's this quote that I love so much, I can't remember who it was by, so excuse me, but it says that we need recreation to have creation, we need breaks to have breakthroughs, and that is the connection between burnout and productivity. It is imperative for the human soul, for the human mind. But because we don't have that, we are seeing this rebellion against what corporate culture looks like, and to engage with it or not, it feels like you must only choose one. When we talk about the future of work, the problems that we're facing are, what does the up-and-coming work culture look like? As companies, we can solve it. We are a part of the solution. We are a part of that conversation. We must take our stance on it and say we will create something different. We will create an environment where people can come and feel like they can do great work but also step away. We need to figure it out, and it's totally possible.

Stefanie: Of course, it's definitely possible. That's a good segue in thinking about the companies that are small, big, all sizes. What are potential ideas on leveraging PTO as a tool instead of this negotiating chip or broken promise? How do we make PTO a tool?

Rilee: I love that, thank you. The stat is that PTO is the second most requested benefit, meaning that, yes, of course, I need health insurance; that's why I work, but the next thing I want is a break. But what happens, as we said, is that it's this broken promise, so when companies don't leverage PTO, they don't realize that it is a powerful tool in their toolbox to improve their relationship with their employees. Instead, it's just tossed aside like, well, we offer it. Isn't that good enough? No, it's actually not because you're not thinking about its potential.

There's this quote from Shurm that says 97% of companies offer PTO. It is widely underutilized, and no one is taking advantage of the potential. When I think about the potential of PTO, oftentimes, my first thought is the quantity. "I offered 10 days off; now I'm going to offer 11 days. Woohoo, am I not the best employer ever?" No, adding an extra day will not change your relationship with your employee. It's not going to improve burnout or increase productivity. It's not just about the number of days that you offer; it's about the quality. So we say, Okay if you're going to offer 10 days off, let's make those 10 days count. Let's make sure that when they're gone, they're actually able to take that break to rest and come back more productive. And so we make sure to facilitate a way for employees to take a break and to go on a vacation. That vacation can look different for each individual person, but let's try to make sure that they take a vacation. Quality of time off shouldn't be just time to work on your broken sprinkler system. That's not going to help your productivity. What could improve your productivity as an employee, your efficiency, your ability to make decisions quicker, etc? A vacation will do that; the data shows proves this 100%. So how can we actually enable people to do that? The problem is that it's hard to take a vacation. We can dive into that further, but ultimately, the main point is, when we think about PTO, let's not only think about the number of days that you offer, and the culture that surrounds it but also the quality of PTO. 

Stefanie: Yes, the quality time off is interesting to me. I've been a small business owner for 15 years, and I totally get it. I feel like another obstacle is added to the equation when you employ hourly wage workers like most small businesses do. Oftentimes, in my experience, hourly employees choose not to take time off because they would rather be paid out cash for the PTO they never took. While we would love for people to take a vacation and understand the quality of it, it becomes a tricky topic because how, as an employer, can I say, 'you need to take a vacation so you don't risk getting burned out' when an employee is worried about paying rent and needs the extra cash. And so there is a conflict of priorities because while we're trying to prevent burnout and improve quality of life, it's super easy to forget that there are a lot of people struggling financially. Our world is expensive, and some employees may see PTO as a tool to get some extra cash rather than take a vacation. I don't know if you've solved that problem yet, but it's really difficult. 

Rilee: I think so, too, and I'm glad you brought it up because it is a really tough topic. Ultimately, I think it comes down to the way you view compensation because it is, again, another tool. It's important to understand that benefits are not compensation. They are not what you pay your employees hourly. They are a way for you to give them access to something that they wouldn't have access to without your support, like healthcare. It's a way for you to create a culture. It's a way for you to attract and retain talent.

I have never been a small business owner outside of tech, so I understand that I'm coming in as an outsider, but my perspective on this is that the reason that the employee is expecting or planning on that PTO payout is because that's how it's always been done. They've always viewed the PTO payout as a part of their salary or cash income, so employers need to take a step back and ask what they are trying to accomplish with the benefit in question. I'm offering health insurance because I want my team not to feel stressed about how to pay for their baby in the emergency room. This benefit is intended to lower stress and improve physical health.

So, why do you offer PTO? While this is probably because you actually want them to take time off, they're thinking, no, I need to use this to increase my compensation. As an employer, you likely have a budget breakdown for each employee. This includes their wages, whatever benefits you offer, and likely a buffer for unused PTO in case you need to pay them for this. If the payout is already a part of your budget, why don't you apply that to their salary to give them a little bit of a bump and encourage them to actually use their time off instead of paying them not to take it? You're going to have less burnout, you're going to have grateful employees for the pay increase, and now they're actually going to take time off and come back and be more efficient. This is a financial conversation that the CFO needs to be thinking about. How do they break down and utilize each of the benefits and salary provided as a tool to attract and retain talent while also increasing productivity and efficiency? That's my outsider perspective. I know what the data shows around turnover and burn-out, as well as the cost associated with both of those, so I want to say to employers, let's think about this a bit deeper and get more strategic in the way that we solve these problems.

Stefanie: Yeah, you know, that makes me think of the book Drive, which talks a lot about how we tend to use bonus programs, along with other similar structures, solely because it's the way we've always done things, but that doesn't actually mean it's the right way. I'm putting my small business owner hat on. When you think about the super small business owner, which is the majority of our economy, that has, let's call it, five to eight employees, thinking about offering PTO is a really intimidating topic. It feels like a can of worms that, once open, you can't reverse. And so, as a small business owner, if I don't already have a PTO policy but am considering getting one, what should I be thinking of, like the downsides or potential risks of having a PTO policy?

Rilee: So, first off, you need to think about the type you would like to offer because if you offer an accrual-based program, you must have a payout policy when required in most states. You also need to consider your why; what is the purpose of offering this policy? Am I able to cover employees when they're gone? That is a cost of PTO that is often not discussed because it isn't a line item in the budget. Especially because if you offer them 10 days and they're gone 10 days, who will work, and can you afford to pay for both the person that's gone and the person that is covering?  This may help you divide how many days you want to offer.

However, it's important also to step away from the budget lens and look at it from a culture and productivity perspective. So what I would do is acknowledge, as a business owner, yes, I want time off to be a part of my company culture, but I am going to struggle when they leave. How can I offset the pain around this, and what will I do to create goodwill between me and my team as I offer this benefit? Am I going to take time off so that they see that and mirror that? Am I going to encourage them to take time off? Am I going to talk about it? Am I going also to encourage communication between my employees so that there's coverage and the workload remains balanced? Many things are very intricate about it. So be prepared to try to solve for them, think through them, strategize around them, and ensure you're listening to your employees. What do they want? What do they need? How do I actually leverage this as part of that conversation? It's a lot to take on, but I think businesses need to understand that it's a tool and not something to let sit there and go unused.

Stefanie: Yep, and that's such a good segue. I mean, you are so passionate about this topic. I've learned so much about it from you, so with that, we would just love to get to know that a little bit better. What are you up to? What is your company? How does your company participate in this topic? 

Rilee: I am really passionate about it from a personal and professional standpoint. I am the CEO and co-founder of a tech company called Donde, and ultimately, we help people take vacations. I know that sounds a little bit fluffy, but the data shows that this is actually very important, so we help facilitate this. Companies offer PTO. People want to take a vacation. The real question is, can they actually take that vacation? Do they have the permission, do they have the funds, and do they have the ability to actually plan for that vacation?

We came up with a product that solves each one of those three angles after we saw the research suggesting that most PTO goes unused. There are millions of days left on the table by employees, but why? Is the culture supporting it? Do they actually feel like they can take it? Can they disconnect? And if so, what are they doing with that time? Can they actually afford to take a vacation? Do they have the ability to plan it? So we built software to address the cost of taking a vacation because 74% of people go into debt to travel. There is this idea that vacations should be put on a credit card to earn points that will be beneficial. However, most people don't have the money to pay off that credit card, so they end up carrying a balance with interest, which ultimately increases the cost of that vacation.

At Donde, we said, let's give people the ability to save for a vacation, and let's give the company a way to reward their employees with vacation because they already offer a PTO. So, instead of giving your employee a Starbucks gift card or $25 to Amazon, let's help them have a massage at a hotel on the weekend, or let's help them go to Disneyland with their kids for the first time, let's help them go to their grandma's 90th birthday. A company can participate in those magical moments and help facilitate the power of taking a break through their Donde contributions and bonuses. In Donde, employees have a savings account that both the company and the employee can put money into.  We also have a marketplace with exclusive rates, deals, partnerships, itineraries, etc, that employees can access. Our team shows them the marketplace to book anything they want at great prices and access the concierge. This means they now have travel agents free of charge at their disposal to get assistance in the planning and any other questions about their trip.

Donde's goal is to unblock travel. Many people think that everyone travels, but that's actually not true. Travel is quite inaccessible because it's massively expensive and requires much time and energy to plan. We wanted to enable people to have access to travel. For example, an hourly employee can put $100 aside a month, and if the employer matches this, the employee now has $200 to spend on a flight to visit family in California. So a travel savings account, travel marketplace, and free concierge service are what we do at Donde. The real power and passion behind it is to create a way for employees and employers to utilize PTO to its full advantage. 

Stefanie: I love it. I mean, what you're doing is so important. It's such a cool company. We really appreciate you being here today. For everyone listening, thank you for tuning in to our fundid podcast. I hope you found this episode informative and helpful on your business journey.  Don't forget to subscribe and follow us on social media to get other great content. If you are a small business owner looking for funding, check out our Capital Marketplace for flexible and affordable financing options.