From the Thanksgiving kick-off of the holiday season through December 31, many businesses find themselves short-staffed as employees take time off to spend with family and friends. But if you limit how many vacation days employees can roll over to the new year, you might find your workplace to be nearly a ghost town as employees scramble to use their time off rather than lose it.
A paid time off (PTO) contribution arrangement may be the solution. It allows employees with unused vacation hours to elect to convert them to retirement plan contributions. If the plan has a 401(k) feature, it can treat these amounts as a pretax benefit, similar to normal employee deferrals. Alternatively, the plan can treat the amounts as employer profit sharing, converting the excess PTO amounts to employer contributions.
A PTO contribution arrangement can be a better option than increasing the number of days employees can roll over. Why? Larger rollover limits can result in employees building up large balances that create a significant liability on your books.
To offer a PTO contribution arrangement, you simply need to amend your plan. However, you must still follow the plan document’s eligibility, vesting, rollover, distribution and loan terms, and additional rules apply.
To learn more about PTO contribution arrangements, including their tax implications, please contact us in Brea, 714.990.1040, or Visalia, 559.732.4135.