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PTO vs. Inflation

Updated: Feb 15

Understanding Problems and Creating Solutions

PTO vs. Inflation

The economy has changed at an unprecedented rate. With inflation increasing faster than it has in the past 40 years, consumers are left wondering how they’ll deal with the rising costs of:

  • Rent

  • Cars

  • Gas

  • Food; and

  • Household goods

And with no sign that inflation pressures will ease any time soon, solutions must come quickly.

One solution could be a change in how PTO (paid time off) is viewed and handled by both employers and employees.

In this guide, we’ll cover PTO vs. inflation, and address how many of the issues caused by inflation can be solved with better PTO policies.

Table of Contents

What Is Inflation?

Inflation measures the rate at which the cost of goods and services increases within the economy. Inflation leads to higher prices for basic necessities, such as housing and food, and high inflation rates often have a negative impact on society.

As inflation becomes elevated throughout the economy, inflation quickly becomes a concern to businesses and consumers alike.

Not only does inflation make money saved today less valuable tomorrow, but it also erodes

purchasing power and can affect the ability to retire.

Due to the combination of fiscal and monetary policy, supply chain issues and other driving factors, inflation is rising at a rate faster than it has in the last 40 years, with a 7% spike in just one year (2021-2022).

How Does Inflation Affect Wages?

In a perfect world, wages would increase on par with inflation. But, in most cases, this is not happening.

While you may have experienced an above-average pay increase, or know someone who has, likely the increase in your wages did not match the current rate of inflation.

So, what does this mean for employees and employers? Let’s take a closer look.

In October of 2021, average hourly earnings increased by 0.4%. Sounds good for employees, right?

Not really. Because the consumer inflation for the same month increased 0.9%.

So, even for the employees who were lucky enough to receive a wage increase, real average

wage earnings actually decreased by 0.5% when accounting for inflation.

How Can Inflation Impact Time Off?

By the middle of the year, many employees are feeling burnt out and opt for paid time off to take summer vacations and getaways.

But recently, travel restrictions and economic complications caused by the global pandemic have resulted in massive amounts of PTO (see the definition of PTO) going unused.

Record-high inflation rates have meant the end of PTO for many employees. With the option to pick up extra shifts or work overtime, making ends meet becomes a necessity for working families due to the increased cost of living.

The result? A vacation-hungry workforce with stockpiles of PTO that will either go to waste or carry over and cost employers even more as inflation continues.

PTO vs. Inflation: Problems and Solutions

Inflation can cause issues with PTO for both employees and employers. Luckily, there are solutions available for these complex problems with Sorbet.

For Employees

Work-life balance is now considered one of the strongest predictors of happiness, but more than 50% of employees are unhappy with their work-life balance.

At Sorbet, we aim to solve these issues by creating a system that allows employees to take advantage of PTO in a way that works for them, while also saving employers major expenses and combatting retention problems with their workforce.

Problem: Wage Increases Are Not Enough to Cover the Costs of Inflation

It’s a sad truth. A study conducted by Brookings gives us the staggering reality of today’s inflation and how it’s ultimately resulting in a net loss for employees. Basically, most Americans have taken a pay cut in the last two years, even if they’ve received a raise.

While nominal pay increases took place in many industries, inflation managed to erase most of the average gains. Here’s how:

From January 2020 to November 2021, inflation reached nearly 8%, however, the average company increased wages by only 3%, resulting in 5% less buying power for the average American.

What does that look like in layman’s terms?

Let’s use Miguel as an example. Miguel is an average American, working Monday to Friday, nine hours a day as a forklift operator for a shipping company.

During the pandemic, Miguel was considered an essential worker and as such, his employers rewarded his dedication and service by increasing his hourly rate from $14.75 to $15.50, an increase of 5%.

Now, in normal economic times, this would likely be in line or above the rate of inflation. But during the last two years, Miguel effectively took a 3% pay cut because his dollar no longer stretches as far.

But, with Sorbet, Miguel’s employers could have helped close the gap with an option to cash advance his paid time off.

Solution: Having the Option to Cash Advance PTO With Sorbet

As an essential worker, Miguel felt compelled to work as many hours as he could to keep up with demand.

He enjoyed the benefits of overtime, but he also started to feel burnt out and deflated because, in reality, he still couldn’t afford the increased cost of goods and services with his wages.

He found himself struggling to make ends meet.

With Sorbet, Miguel’s employers could have offered him the opportunity to cash advance his unused vacation days in full.

Not only would this help lift Miguel out of a financial funk, but it would also save his employer the burden of replacing Miguel while he was off or paying more for time carried over due to wage inflation.

Problem: Employees Can’t Afford to Use PTO for Vacations

Due to rising costs, many employees simply cannot afford to use PTO. Taking a vacation is costly, and even more so with rising inflation.

Let’s take a look at Christa, a frontline healthcare worker who is literally at the end of her rope, both mentally and financially.

Christa, like many nurses, saw a wage increase of 4% in 2021. Normally, this would translate to a better quality of life, but for Christa, it meant a net loss of 3% of her income because of inflation.

Christa knows she needs a vacation, but she can’t afford to lose the overtime, nor can she afford to take her family anywhere due to inflation. She’s exhausted, and she faces serious burnout due to the lack of time for self-care.

Solution: Partially Cashing Out PTO With Sorbet

Sorbet has the solution.

Christa has accrued 15 unused days of vacation, but 15 days off is not a reality for her.

With Sorbet, her employer could offer her a partial cash-out, allowing Christa to take 10 days PTO in cash and use the other 5 to take her family on a much-needed break to the lake.

Using the cash from the 10 unused days she didn’t take off, Christa was able to rent a cabin and get the R&R she so desperately needed.

The result? Christa returns to work feeling refreshed and knowing that she works for an employer who truly cares for her wellbeing.

Explore the guide on PTO accrual calculation for further explanation based on your PTO policy.

For Employers

These days, employers are facing labor shortages, unlike anything they’ve ever seen. More than 1.5 million more Americans than expected retired during the pandemic and employers want to maximize employee satisfaction and retention while decreasing overall costs.

Problem: Higher Wages Increase Company Liability

For the average business in America, wage increases could mean the loss of needed profits and the growth of PTO liability.

Raising wages to match inflation is not always possible. But for employees, inflation makes it difficult to survive without a salary increase.

But, there is a middle ground. A solution that can create a win-win for both employer and employee.

Solution: Encourage Employees to Use or Cash Advance PTO

Encouraging employees to take their PTO or cash it out before annual wage increases due to inflation is a win-win.

Employees don’t lose time or money (something they simply can’t afford), and employers don’t have to face extra expenditures that eat into profits.

Solve Your PTO Inflation Problems With Sorbet

At Sorbet, we want to normalize healthy employee/employer relationships by offering a solution to the problem of PTO vs. inflation.

Using your PTO shouldn’t be weird. But it should also be an option to cash advance PTO if taking time off is not a possibility.

Reality check: unused PTO is a loss for employers and employees.

Giving employees the option to cash advance their PTO often results in greater work-life balance and overall job satisfaction.

Happy employees are healthier and more productive, thus lowering turnover costs for employers. Not to mention, the reduced risk of wage inflation cost.

Sorbet offers the sweetest solution to the PTO problem.

Sorbet takes outdated PTO systems and transforms them into a win-win for employers and employees alike by:

  • Saving employers' money; and

  • Allowing employees to instantly cash advance some or all of their unused PTO

To learn more about improving your current PTO system, click here to schedule a free Sorbet demo today.

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