Some companies have unlimited vacation policies, which as I’ve been explaining to my children lately, is likely a trap. Other companies offer vacation packages, but then the “needs of the business” still don’t allow you to take your vacation. Or maybe you have more vacation than you need. In the later two scenarios, you might consider using Open Enrollment to pre-elect to sell PTO for 2023.

What are the pros and cons of pre-election to sell PTO?

Pros:

• Pre-election allows you to get paid out at 100%. That’s a bigger boost to your paycheck, to your 403b/401k contribution dollars (assuming you aren’t maxing out, $22,500 for 2023), and to your pension.

Cons:

• Failing to pre-elect may mean your payout rate is less than 100%, such as 85%. That’s a 15% penalty for not telling your employer in advance.
• Whatever you pre-elect, you will have to sell; even if your situation changes, and you wish you could change your mind to take it as vacation instead.
  • There may be some exceptions if your PTO balance drops low enough, such as below a certain threshold by a certain date, but that’s usually a very low threshold.
• All of the PTO hours you elect to sell at 100%, will be paid out before any hours will be sold at the 85% payout rate. So if you end up unexpectedly needing to sell a big chunk of PTO early in the year (such as if your Christmas vacation got nixed), specifically before your pay raise goes into effect, you’ll be getting less dollars for that PTO than if you could wait to sell it later in the year (after your raise).

What else should you know about selling PTO?

• You’re likely not to get the amount right. Decide if you feel more comfortable selling too much, or selling too little.
• While this money will be taxed like any other money, the withholding taxes may be higher. Federally, taxes will be withheld at the supplemental wages tax withholding rate of 25%. And if your state charges a state income tax, a higher withholding rate may apply there as well.
• If you are already maxing out your 403b/401k contributions, and dealing with percentage-based contributions instead of dollars to contribute per paycheck while trying to also maximize your match with an employer who doesn’t provide a true-up, selling PTO (whether you sell at 85% or 100%) will mess with your contribution schedule. Make sure you keep track and re-calculate your contribution percentage as necessary.
• There’s likely a last day you’re allowed to sell for the year, before your last payperiod for the year closes. This blackout period may or may not be well communicated in advance. Expect it to encompass most if not all of December, and plan ahead. If you’re riding too near your PTO cap, a blackout period may find you involuntarily donating your extra PTO to your company at a 0% payout rate, ouch!

Make sure you check out all of my other articles on Open Enrollment education and decision thinking points, before Open Enrollment ends for many on Tuesday November 15th, 2023. Whether you need to decide on a dependent care flexible spending account, assess whether an HSA is a good fit for your family, consider legal or medical add-on insurance, or think about how to coordinate benefits, there’s an article there for you.