Posts Tagged cash flow

Photo by quaziefoto

It’s signup time for our annual benefits elections at work, and one of the options that we have is the ability to “purchase” additional vacation time.  What this means is that you can elect to have the company deduct from your paycheck the cost of this additional time off.  A percentage of the vacation cost is deducted each week from your paycheck, on a pre-tax basis, because it’s wages that you are voluntarily forfeiting.  It’s treated the same way tax-wise as your 401(k) contribution.

How it works

For instance, if you make $25 per hour, and would like an extra week’s vacation for next year, the company will multiply the $25 times 40 hours to arrive at $1,000.  The $1,000 will be divided by the number of weeks, 52, to arrive at a weekly deduction of $19.23.  Therefor, your weekly gross pay would be reduced by $19.23, resulting in $980.77, and lowering your gross wages for the year by $1,000.

Vacate now, pay later

You get to use this purchased vacation just like good-old regular vacation.  It gets added to your vacation “bank” on January 1st, so you get to use it right away, while you spread your “payments” out over the remainder of the year.  You could burn the entire 40 hours in January on an island vacation, and not make your last “payment” until December.  Sounds like a sweet deal, doesn’t it?

A public relations coup

Why does the company offer this benefit?  You could say that the company values healthy, rested, stress-free workers.  But I’m a realist, and see the financial benefit to the company.  You are, in effect, signing up for a voluntary furlough.  The company will save a week’s pay, albeit spread out over the entire year.  Multiply that by hundreds, if not thousands of employees who opt for the same deal, and voilà!  The company has improved its cash flow without inflicting any pain.  In fact, the company looks like a benevolent Big Brother, because it has given the employees the illusion of a benefit, improving corporate goodwill, while reducing your annual pay.  The employees think that they’re getting something for nothing.  Just like the Trojan Horse (or, if you’re a Monty Python fan, the Trojan Rabbit).  This is genius, I tell you!

Low man on the totem pole

Of course, most of the people that purchase vacation are probably newer, recently-hired employees, the low people on the totem pole, with little accrued time in their vacation banks.  For them, this looks like a good deal.  And by THEM, I mean ME, since I frequently change jobs, and many times can be considered a new employee.  But in my case, I also get a week’s worth of personal time, and two weeks’ worth of sick time.  That’s 6 weeks, counting my 3 weeks’ worth of regular vacation.  And I didn’t even include the 10 paid holidays that I get each year. If I’m out more than 6 weeks in a year, I probably should start looking for a new job, because I live in America, land of never-ending work.  Companies are more liberal with vacation time in other countries, like Lithuania and Brazil, where a minimum of 4 weeks vacation is mandated by law.

Trojan Horse

I’m not saying that you shouldn’t purchase vacation; you might have a valid reason for needing the extra time off.  I’m just saying that you should weigh the advantages (extra time off) against the disadvantages (less money in your pocket) before jumping on the bandwagon with the other lemmings.  You may feel it’s a gift from your company, while it’s really a Trojan Horse to your personal finances.  You’re really signing up for a pay cut.  I’m not falling for it, and like the French castle defenders in Monty Python and the Holy Grail, I’m flinging the Trojan Rabbit right back at them.

How about you?  Are you planning on purchasing any vacation from your employer next year? Do you think it’s a good idea, and that I’m wrong?  Let me know in the comments.

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