Studies show that workers with paid time off (PTO) frequently don’t use all the time they’ve accrued. Because PTO is part of an employee’s total compensation package, the monetary value of PTO shouldn’t be left to go to waste. Some companies are addressing this need by enabling workers to convert their PTO into cash.
A PTO cash advance is a way for workers to borrow money based on their unused paid time off. In many cases, workers don’t use all their PTO, and it expires or rolls over to the next year. That means you may never get to use that part of your benefits package until you leave the firm.
Some employers and third-party companies are taking steps to address this issue by allowing employees to take out loans based on a percentage of their accrued PTO.
Sorbet
| Min. Loan Amount | $300 |
|---|---|
| Max. Loan Amount | $3,000 |
| APR | 9.99% to 36% APR |
| Interest Rate Type | Fixed |
| Turnaround Time | Up to 5 business days for approval and 5 business days for funding, or faster for a fee |
How the PTO advance works varies depending on who extends the advance, but at a minimum, you’ll need to be a W-2 worker with PTO as part of your employee benefits package.
If you’re going through a third-party firm, you’ll calculate the value of your unused PTO and apply for the loan online or via mobile app. If approved, the money is typically deposited into your linked bank account, and you can use it for whatever you need. Other uses for accrued PTO could include adding it to your retirement account, paying off student loans or even using it as collateral for a personal loan.
In some cases, you make monthly interest-only payments on the loan and then repay it when you leave the company or the loan term is up. If you get the advance directly from your employer, you may never have to repay the “loan” — you’ll just receive cash instead of days off.
It’s important to note that a PTO cash advance is a relatively new concept, so it’ll be interesting to see how it evolves.
A PTO advance loan should not be confused with borrowing from a cash advance app. The most obvious difference is that PTO advances are only for workers who accrue paid time off. Cash advance apps can work for almost anyone with a job, whether they have PTO or not.
Borrowing limits are another distinction between the two. Most cash advance apps only let you borrow up to a few hundred dollars, but a PTO advance could get you thousands depending on the amount of PTO saved up, your annual salary and other factors.
Both cash advance options typically don’t require credit checks or approval, and funding times are usually fast. However, most cash advance apps don’t charge interest or late fees, but you may have to pay interest and late fees on a PTO advance, depending on the provider.
Requirements to get a PTO cash advance may vary depending on who facilitates the advance, but here are some basic criteria you may need to meet.
How much a PTO advance costs depends on who provides the advance. For example, a third-party company may charge interest on the loan, which can vary. You may also be charged late fees if you miss a payment, although an occasional slip might be waived for good customers.
“If a member misses their payment date, they’ll begin to incur late fees,” says Veetahl Eilat-Raichel, co-founder and CEO at Sorbet, a fintech firm that offers PTO cash advances. “We understand things happen, so one-time missed payments are often waived upon request, and select customers may be eligible for multiple late payment fee forgiveness.”
“However, after several months of failure to submit payment, Sorbet reserves the right to require payment of the entire unpaid balance of the advance amount and report this information to the credit bureaus or use any other measures available under law,” adds Eilat-Raichel.
If you’re getting a PTO advance directly from your employer, you may not pay any interest or fees, but you’ll likely be taxed on the advance the same as if it were regular income. Some employers may treat it as a loan that needs to be paid back with interest.
Cashing in on your unused PTO is a new concept, so weigh the pros and cons before taking advantage of this opportunity.
A PTO cash advance might be a good idea if you have a lot of accrued PTO that you don’t have time to use. It can also be a smart move if you have an emergency expense and would rather not put it on a credit card or take out a pricey payday loan.
“According to Sorbet’s data, an average employee in the US has over $3,000 in unused PTO at any given moment,” says Eilat-Raichel. “Instead of waiting until they leave the company, Sorbet advances the payout so employees can unlock more compensation without using risky payday loans. This may offer a higher borrowing limit than traditional cash advance options as well.”
Since the eligibility requirements can be somewhat strict to qualify for a PTO advance and completely out of reach for some workers, here are a few alternatives to consider.
PTO cash advances are a relatively new concept, but offer a viable alternative to risky payday loans and low-dollar cash advance app loans. But they are restricted to W-2 workers who get paid time off as part of their total compensation. Plus, they are limited to certain states and have other requirements that may make them out of reach for some borrowers.
But there are plenty of alternatives to PTO advances, including cash advance apps, credit cards, personal loans and other lending sources. Whichever option you choose, compare interest rates, loan terms and added fees to find the best deal for your situation.
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