The Total Compensation Package: Valuing Vacation Pay, Job Benefits

by Silicon Valley Blogger on 2012-02-2220

While many people in the workforce tend to emphasize their base pay, I believe it’s also important to factor in benefits like vacation pay. The amount of vacation time you take can contribute to your well being. And for some workers, the right combination of employee benefits can make a lower-paying job more attractive than a slightly better-paying job elsewhere.

But here’s an interesting fact: the U.S. Department of Labor informs us that the Fair Labor Standards Act (FLSA) actually doesn’t require employers to pay their employees for vacations, sick time or holidays. But as you’ll see from my report below, there are those employers who will go the other extreme (and the extra mile) with compensating their employees for vacation time.

How Do You Earn Vacation Pay?

Each employer you work for may go with a different method of allocating your vacation time. Some employers allot a certain number of days to you at the beginning of the calendar year. For instance, you may know someone who earns two weeks of vacation time each January. Elsewhere, someone who is just starting a job may be limited to earning a few days of vacation time. points out that staff with more seniority might earn more than a few weeks off each year for paid time off, depending on the vacation time policy.

Other employers may require you to earn vacation time throughout the year, which means that you’ll accrue a predetermined amount of vacation time each pay period. As an office worker, I earned a maximum of 120 hours of vacation time. Each of us accrued about 4.5 hours of vacation time each paycheck. Some of us used a week in the summer or a few days at a time. Knowing that we had to use the vacation time or forfeit it gave us incentive to keep tabs on our accumulated balances.

Companies have differing policies on how they pay out their vacation pay. You may find it typical for your employer to include vacation pay in your next regular paycheck. Some employers might be able to give you the vacation pay before you leave your place of employment. However, it’s best to double check before you start packing. One coworker who joined a company I worked for assumed that the vacation pay policy was the same as that at her last employer. She was unhappily surprised to find that she didn’t have a big check awaiting her upon her resignation.

Some of you may feel pressure to skip vacations due to important projects or because of the state of the economy. CNN took note of several surveys that indicated that the average American gives up two vacation days a year, an equivalent of over $34 billion lost. By giving up those days, workers are missing out on the chance to refocus and to avoid the burnout that can strike even the most diligent employees.

Vacation Pay For Unused Vacation Time?

Interestingly, vacation pay has actually been the subject of abuse and corruption in some localities. Check out this article about how the State of California has misused their budget.

Apparently, government employees have made off with pretty huge paychecks in California, simply by NOT taking vacation time. Their unused vacation time translates into big six figure payouts, with the top 25 checks reportedly ranging from $203,921 all the way to a dazzling $815,736. Wow. Imagine this — those state government positions can be a gold mine, with overtime paying off for a whole lot of people. Here is an image that portrays this predicament (Click this link or the image below for a larger picture.):

California vacation pay

And here’s a breakdown of vacation pay amounts across California agencies:

life expectancy world map

On one hand, we see how paying out for vacation time can be quite an expense (and in the case of California, it’s an unfavorable one); on the other hand, employees who have taken advantage of this boon can only be grinning from ear to ear.

The Value of Employment Benefits

The California budget aside, this article aims to remind you to partake of the free programs and generous benefits that your employer may be affording you. At many workplaces, additional employee benefits are usually offered besides vacation pay. Sick leave can be a useful asset when you need time off to see a doctor or when you’re feeling ill. Does your company pay for holidays? One part-time worker I know feels pressured to make up her hours when she faces holidays such as Thanksgiving or New Year’s Day.

Additional benefits that companies may offer include a health insurance plan, a dental plan and a retirement savings plan such as a 401(k). I’ve also encountered vision plans, life insurance and disability insurance at several workplaces. You’re likely to pay premiums of varying amounts for these services, but they’ll generally be less expensive than the cost of individual policies. A health insurance policy that’s $400 a month for an individual policy may only cost you $60 a paycheck through your employer’s group health insurance plan.

Also, some employees can encounter daycare options, discounts with local or national retailers, and tuition reimbursement as benefits. MetLife did some research and found that a strong benefits package can go far when it comes to retaining staff and encouraging their loyalty. In the next five years, their forecast predicts that non-medical benefits will become more important to employees.

And when it comes to employee benefits, some people may ignore or forget about aspects that could make their compensation package more appealing. Take the retirement plans. If your employer offers a 401(k) and matches your contribution, then you’re turning down free money if you don’t sign up. Also, the 401(k) is a good example of an employee benefit that lowers your pre-tax income, so you’re liable for less tax later. If you missed the window for making changes to your retirement plan or for signing up for benefits like health insurance this year, then set up a reminder in your calendar for next year. If you’re limited to making changes during your company’s open enrollment period, then set up alerts to remind you to make those adjustments when you can.

How much do employee benefits add to our overall compensation package? Employee benefits can add as much as 30% to 40% to the base pay of employees. How can we value employee benefits that are received, especially when comparing job offers? You can quantify the dollar value of your employee benefits with some research. This table can help you narrow down some of the values.

Employee Benefit
Estimated Value
Vacation Pay Several days to several weeks of base pay, depending on employer policy.
Health Insurance Quotes from health insurance providers can help you determine this value, otherwise estimate what you’d pay for your own individual policy.
401(k) or Other Retirement Plan Consider the amount of the employer match and fees you’d pay for a self-funded retirement plan.
Dental Plan Seek quotes from dental plan providers.

So if you’re just entering the workforce or you’re about to commit to changing jobs, compare the employee benefits available to you. Is vacation pay offered and how do you accrue it? I think it’s critical to ask what other employee benefits are offered, too. Calculating the impact of your total compensation package can direct you to the right job choice.

Created March 10, 2010. Updated February 22, 2012. Copyright © 2012 The Digerati Life. All Rights Reserved.

{ 20 comments… read them below or add one }

Silicon Valley Blogger March 10, 2010 at 8:42 am

Anyone have thoughts on California’s employee compensation plans? Crazy? Excessive? What’s up Sacramento!

Kosmo @ The Casual Observer March 11, 2010 at 9:18 am

In theory, though, the state got a lot of productivity out of these people, since they weren’t taking any vacation, right? 🙂

Wow – 854 vacation days? It would take me a few years to rack up that many days.

Credit Card Chaser March 11, 2010 at 12:20 pm

Wow – very cool pickup. On that California story — that is a crazy amount of vacation days for the top 25.

Credit Girl March 11, 2010 at 2:51 pm

As a student myself, it’s really disheartening to see the government spending their money irresponsibly. They’ve cut so many classes in addition to general education budget cuts and they’re continuing to cut some more the following year. Because their reckless spending habits have been exposed (well, at least some of them), citizens are beginning to become more aware of their government which is why so many students are participating in protests to stop the budget cuts for schools.

jim March 11, 2010 at 4:32 pm

The top guy on the list K. Nguyen is a doctor. 854 days of work from a doctor is 3.5 years. Paying a doctor ~$800k for about 3.5 years labor is pretty standard pay for a doctor.

The problem here is that for some reason they allowed some employees to exceed the cap on maximum # of days they can bank.

Silicon Valley Blogger March 11, 2010 at 4:48 pm

So the guy is a doctor, but that pay is for unused vacation time. I don’t have an issue with paying for quality work and service, but paying for time off that was never used? I’ve worked in many companies in the Valley and each one had a “use it or lose it” policy with vacation days.

The big mistake here is that there’s no cap on vacation days, I agree — yet one more thing that the government lets slip, while everyone else (who works for the private sector) gets to absorb and face the consequences of these oversights.

Jesse March 11, 2010 at 7:58 pm

I’ve worked for several high tech companies (including two in Silicon Valley) and it’s pretty standard practice that vacation days (but not sick days) have a cash equivalent. The exact policy varies from company to company:

– One company only paid out when an employee left the company (up to 6 weeks)
– Another company allowed employees to cash out vacation days only during certain periods and required 1 day of vacation to be used for each day that was cashed out
– And the best one yet: One company allowed employees to cash out vacation at any time with no restrictions, and even let employees accrue up to 150 vacation days.

Also, since you cash out vacation days at your current salary, one trick I always use is to save up vacation days when I first start at a company and then cash them out later after I’ve gotten a couple raises.

basicmoneytips March 12, 2010 at 5:15 am

Back 10 years ago my company would allow vacation carry over, but never would pay you for vacation. Now we are use it or lose it, much like others have mentioned. I think it is irresponsible for a state government to be otherwise. As people get seniority, more vacation and higher pay is the general rule, so the expense would just continue to rise with time….

jim March 12, 2010 at 5:24 pm

I see nothing wrong with paying out unused vacation days as long as there’s some reasonable cap on the amount you can bank. If someone has 2 weeks vacation time and they work those 2 weeks instead of taking the time off then that’s 2 weeks extra work the employer got from that person.

The state of CA actually does have a cap on the amount of vacation days that you can accumulate. They limit it at 80 days. For some reason the people listed were allowed to accumulate more than the 80 day cap. Seems that allowing individuals to ignore the rules is the problem in this situation.

But I don’t think anyone has gotten “scammed” out of anything here. That doctor who cashed out >800 days worked those 800 days when he could have instead taken 800 days of vacation. So the state got 800 days of labor out of the guy. Its not like anyone is stealing anything here.

JB March 12, 2010 at 5:45 pm

This is so excessive. There’s obviously a huge incentive to not take vacation time and then cash out, the amounts listed would be a nice bump to anyones net worth!

Also, vacation time is given for a reason to get time to unwind and relax away from work. If someone is saving 3.5 years of vacation time I would guess they are stressed from no break and more likely to burn out, be irritable, etc.

John March 12, 2010 at 7:46 pm

This is a great reminder to count all your benefits when you’re contemplating a job change. It’s not all about the cash is it? Plus, those retirement plans help you save painlessly since you don’t even notice the money that goes into your accounts. I have been pleasantly surprised by what I’ve been able to save over time through my 401k accounts.

Studenomist March 13, 2010 at 10:57 am

Where I work they prefer to pay you out for vacation pay because it screws up the annual budget. When a full time employee is away they are either replaced with a part-timer or a temp. They need to be aware of how much money they should allocate to each category.

They can’t judge if someone needs the vacation time or the money. We all have unique situations.

James March 13, 2010 at 11:56 pm

They’ve cut so many classes in addition to general education budget cuts and they’re continuing to cut some more the following year. Because their reckless spending habits have been exposed.

The Biz of Life March 15, 2010 at 6:32 am

Keep digging , there’s plenty more gold to be found. You’ve barely scratched the surface on the CA budget woes and the waste of taxpayer money.

Michele March 16, 2010 at 9:23 am

If you look a little closer in the article, it is not just vacation that is being paid out, but other benefit time like Sick leave and comp time. There is more to the story here.

Robert March 18, 2010 at 7:00 pm

My company recently settled a lawsuit regarding unpaid vacation. For quite a few years, they said that employees were capped at a certain amount based on tenure, and after that, it simply disappeared. A California appeals court found this in violation of federal guidelines, and a lot of employees received large checks for unused vacation!

David April 19, 2010 at 10:16 am

California has its deficits for one reason, illegals. Look at what it costs to just educate and incarcerate.

The more than $10.1 billion in costs incurred by California taxpayers is composed of outlays in the following areas:

Education. Based on estimates of the illegal immigrant population in California and documented costs of K-12 schooling, Californians spend approximately $7.7 billion annually on education for illegal immigrant children and for their U.S.-born siblings. Nearly 15 percent of the K-12 public school students in California are children of illegal aliens.

Health care. Uncompensated medical outlays for health care provided to the state’s illegal alien population amount to about $1.4 billion a year.

Incarceration. The cost of incarcerating illegal aliens in California’s prisons and jails amounts to about $1.4 billion a year (not including related law enforcement and judicial expenditures or the monetary costs of the crimes that led to their incarceration).

Look at the banks that went under in Cali. from dealing with illegals.

Robert April 28, 2010 at 5:13 pm

Another way to look at it is the employer got all of those work hours without paying any additional health, retirement or other fringe benefits if the work had been done by an added employee. Organizations with employees who have accrued a lot of vacation time are usually ones that don’t have enough staff to get the job done.

krantcents February 23, 2012 at 1:29 pm

One of the perks/benefits that probably would not show up is sick time. I can accrue sick tim and use it to increase my years for retirement. I will have enough sick time accrued to buy a nearly a year of service.

Silicon Valley Blogger February 23, 2012 at 2:16 pm

You’re lucky to have this benefit. I don’t believe mine ever worked out that way. Sometimes there’s just a “flexible days off” benefit, which is a generic pool of days off (or PTO) that you can use any which way you want. I even heard that has Paid Time On, which is on top of Paid Time Off (PTO). The Paid Time On benefit lets you work on whatever you want on company time! I heard from a friend that Salesforce was a great place to work at, thanks to all the extra job perks. Technology companies in Silicon Valley are rather generous with the extras — and that’s one thing I miss from being employed in one of these giants. 🙂

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