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I had my annual raise meeting with my boss today.  I received 3.5% and an additional week of paid time off (per year) with the option that if I didn't want the paid time off, I could opt for an additional raise equivalent to an extra week of pay.  By my math, the additional week of pay + the 3.5% raise would come out to about 5.5%.  I have 3 kids (twin 7 month olds & a 5 year old) & my wife stays at home with them for now.  I greatly value my time with them, and work is burning me out some, so I'm leaning towards taking the PTO.  On the other hand, I have 3 kids and a stay at home wife, so the extra cash would definitely help.  I realize that if I forego the pay increase, I may also be losing out on future compounding pay increases, additional 401(k) matching funds, profit sharing, etc, but will also be avoiding FICA taxes and income taxes.  Also, I'm considering what we would do with the extra week of PTO--probably another vacation, which costs $, or if we stay at home, we'd end up doing things that cost $.

What would you do & why?

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Remember you don't necessarily have to take your extra week all at once. Sometimes, a long weekend is great for family f... (more)

Pobre (Jul. 27, 2016 @ 11:55a) |

+1. Show me the moneeeeeeeey.

ledwards (Jul. 27, 2016 @ 12:49p) |

I'd take the cash. I'd never manage to take 3 weeks of time off in a year anyway.

Seity (Jul. 27, 2016 @ 12:56p) |

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Take the raise. If you run out of PTO you can take unpaid time off if needed.

pay raise because the next year raise will be based on the existing pay rate. and bonus will be pegged to your pay rate.

Vacation? Bah! I haven't taken a vacation in years.

I would take the extra money. You didn't have the extra week before, don't let that play with your mind that you somehow need it now. It's a luxury item. My philosophy is delayed gratification.

Money. Who has time to take PTO?

I'd take the time off. The suggestion to just take unpaid leave later if you feel like it is likely unrealistic. Most places will hate you if ever exercise this option and will penalize you harshly in future raises/reviews.  It is likely only available in FMLA circumstances, and your employer may require you to use up all of your PTO for FMLA before allowing unpaid leave.

It really all comes down to what you value your time off at, and what your other income is. Some people value it at $0/hr (the "I love what I get paid to do!!!" types?). Some people value it equally to what they're paid at work. Some people value it more highly than what they're paid at work.

Also, if your other income (investments, etc) is not an insignificant portion of your overall income, then you will likely value your vacation time more highly and a reduction of 2% salary for an extra 2% time off can be a much better tradeoff as overall income isn't affected by the same %. If you are paycheck-to-paycheck with no savings, then the extra vacation time is likely a bad choice.  If you pull in 1/3 of your total income from investments, then a 2% difference in W2 income affects your overall income by less than 1.33%.

The future pay increases based on current salary is a red herring. They likely have pay bands for different titles at your workplace and likely won't consider your previous tradeoff for less vacation when you're near the top of the band and thus may get lower future increases due to a higher salary "increase" this year.  If that's the case, then taking the no-vacation option might result in nearly the same pay a few years down the line as if you took the vacation increase, except you'll have less vacation.....

Plus even if they did take it into account... you should still get the same pay per hour and increase per hour regardless of the choice you take. Except your pay probably goes slightly down with the no vacation option because you have more taxes at marginal rate and also 2% may not be equivalent to 1 week's worth of your time. For example, if you currently work only 49 weeks+2 week vacation+1 week holidays (or less), then 1 week is more than 2% additional work-time.  Or another example, 10 holidays + 2.5 weeks vacation currently would = 47.5 weeks worked, and 1 week would be an increase of 2.1% work.

I think it depends on how much you need the money and how much work is really burning you out.

Also, how secure is your job? Is the compounding of future pay really dependable?

Or, do you have the option of unpaid time off as Jayk suggested? I don't think thats a given unless theres a legal requirement for something like a medical leave.

How many days of PTO do you have/year right now?

I'd go with the time off to spend with your 3 tiny tots, and to rejuvenate your body and mind.

You can see it as an investment towards good physical and mental health, such that you can give your best at work in the other 49 weeks of the year.

It can also be an investment in your family cohesiveness and relationship with your wife.

That extra week doesn't have to involve taking an expensive vacation elsewhere or other unusual costs.

If you felt the need to economize, you could use the free time to save your family money in other ways, such as doing home improvements that you'd otherwise have to pay an external contractor to do, taking the time to find a really good deal on a used vehicle, driving a day to go see your inlaws instead of paying for their annual plane tickets to come see you, or whatever it might be in your circumstances.

b534202 said:   How many days of PTO do you have/year right now?

Currently 3 weeks plus standard holidays, and 2 floating holidays (for religious holidays). No separate sick time. I will get an additional week of pto at 10 years (been here 5 years, so 5 top go for that).

Not a lot of time banked (used when daughters were born prematurely)

cr3s said:   pay raise because the next year raise will be based on the existing pay rate. and bonus will be pegged to your pay rate.
   He gets the raise regardless.  The question is that he gets an extra week of time off, which he can either take the time off or cash in at his regular pay rate.

Yes, the net effect is that he ends up with more money, but it isnt a raise and likely wont be factored into any future pay-based calculations.

With 3 weeks already, I would take the money.

Bend3r said:   I'd take the time off. The suggestion to just take unpaid leave later if you feel like it is likely unrealistic. Most places will hate you if ever exercise this option and will penalize you harshly in future raises/reviews.
OP's employer seems to be OK with an additional week of time off, considering they offered it. As long as it doesn't impact your deliverables and you plan the time off (paid or not) with management there shouldn't be an issue.

Glitch99 said:   cr3s said:   pay raise because the next year raise will be based on the existing pay rate. and bonus will be pegged to your pay rate.
   He gets the raise regardless.  The question is that he gets an extra week of time off, which he can either take the time off or cash in at his regular pay rate.

Yes, the net effect is that he ends up with more money, but it isnt a raise and likely wont be factored into any future pay-based calculations.


Actually, foregoing the week of pto results in an additional permanent raise, not just a 1-time bonus. The additional week of pto is also a permanent increase.

jayK said:   Bend3r said:   I'd take the time off. The suggestion to just take unpaid leave later if you feel like it is likely unrealistic. Most places will hate you if ever exercise this option and will penalize you harshly in future raises/reviews.
OP's employer seems to be OK with an additional week of time off, considering they offered it. As long as it doesn't impact your deliverables and you plan the time off (paid or not) with management there shouldn't be an issue.


Unpaid time off isn't likely to fly unless there's an emergency.

raringvt said:   
Glitch99 said:   
cr3s said:   pay raise because the next year raise will be based on the existing pay rate. and bonus will be pegged to your pay rate.
   He gets the raise regardless.  The question is that he gets an extra week of time off, which he can either take the time off or cash in at his regular pay rate.

Yes, the net effect is that he ends up with more money, but it isnt a raise and likely wont be factored into any future pay-based calculations.


Actually, foregoing the week of pto results in an additional permanent raise, not just a 1-time bonus. The additional week of pto is also a permanent increase.

  
Just to clarify, are they changing your pay rate to account for the "extra week"?  Or are they literally just taking your current pay rate in any given year and treating it as if they are buying out a week of your vacation time?

The two things are different, since the latter doesn't compound with overtime (if you ever have that available to you)

Also, the latter would be functionally identical to if you were allowed to sell-down accrued vacation time at the end of the company fiscal year.
(I know my company forces a buy-down to 200 hours of carry-over each year, for instance, so if I was carrying extra, all of my new vacation time would automatically convert to cash anyway)

It is a one-time decision, I can either have 4 weeks of PTO per year vs 3 weeks of PTO or I can increase my annual salary by an amount equivalent to one week of pay.

arch8ngel said:   
raringvt said:   
Glitch99 said:   
cr3s said:   pay raise because the next year raise will be based on the existing pay rate. and bonus will be pegged to your pay rate.
   He gets the raise regardless.  The question is that he gets an extra week of time off, which he can either take the time off or cash in at his regular pay rate.

Yes, the net effect is that he ends up with more money, but it isnt a raise and likely wont be factored into any future pay-based calculations.


Actually, foregoing the week of pto results in an additional permanent raise, not just a 1-time bonus. The additional week of pto is also a permanent increase.

  
Just to clarify, are they changing your pay rate to account for the "extra week"?  Or are they literally just taking your current pay rate in any given year and treating it as if they are buying out a week of your vacation time?

The two things are different, since the latter doesn't compound with overtime (if you ever have that available to you)

Exactly. Say you are psid $25/hour, $1,000/week.  Are they cutting you a check for an extra $1,000 in lieu of taking the extra week off (which is what was implied by "exchange it for an extra week of pay")? Or are they actually adding another $.48 to your hourly pay rate, so that over the course of the year you'll receive an extra $1k? 

The extra week (and the ability to cash it out) may be permanent, but there's a good chance it's being offered that way specifically to avoid it being included as part of your salary.

I'm all for taking the money, but be sure to understand what you are taking.

If you are in a situation to make this decision you are earning enough that an extra weeks vacation can be budgeted for. In addition to the weeks pay, you will be spending more while on vacation. From a purely financial perspective you will save more by working more. But to what end? Will you retire a year sooner by working a week extra? Will you enjoy the time saved later as much as you will enjoy it now? I would take the vacation every time. Life is too short.

The numbers work out very favorable for the employer and less favorable for the employee.  It is deceptive of the employer to pretend it's a "fair trade".  This doesn't mean you shouldn't take the deal, if as said, you value your free time significantly less than your pay rate.  I don't know all the background numbers for your company, so I'll do an example that would use my own company/pay rate if they offered something similar.   You also said "by your estimate" on something, so it's unclear how they'd actually implement it -- By multiplying salary by (#paid days after subtracting PTO/holidays + 5)/(#paid days after subtracting PTO/holidays) after already applying your other "raise" which would be more reasonable, or if they just add 2% to the "raise" like in your example.  They may be more fair overall than I present below if the assumptions are wrong.

Using your example, next year your base pay rate would be 103.5% or 105.5%.   The $ option would be an increase of 1.93% to "base salary".   However, they don't just pay you salary, they pay you salary+benefits, and the benefits (only looking at health insurance here, because most of the others scale somewhat).  For me, the compensation is ~1.2X salary.  So, the more realistic comparison of rates is 124.2% or 126.2%, or an increase of 1.61%.  From the employer's side, this is not the end of it, however.  The employer has overhead expenses (facilities, office space, utilities, IT department, HR department, Management, etc).  For my company, which intentionally turns only a very small profit, the billing factor is over 4X.  A leaner company might be ~2.5-3X.  So, for every $ of my time for base pay, it costs the company about $3.50.  These overhead expenses do NOT scale up if I work one more week - The office space is the same, utilities are same, # managers are same, IT department is same, HR might actually go down because they're now grinding more work out of some employees.  So, the company would be paying roughly 362.25% of my old base salary next year if I took the vacation option, or 364.25% of my base salary if I took the "$" option -- An increase to them of only 0.55%.

As to workload increase, I don't know number of your holidays, but you say 3 weeks+holidays+2 days floating.  So i'll estimate 5 weeks (this would assume 7 days are "holidays").  This means you will work 47 weeks with the $ option or 46 weeks with the vacation option.  An increase in work time of 2.174%.   This means the employer may be paying as little as 25.4 cents on the dollar (0.55%/2.174%) for your extra week of work if you take the "$" option.

From the employee side, things aren't quite as bad, because you don't care about the overhead the company must pay when you're on vacation.  So, relevant here is a 1.61% increase in excahnge for 2.174% more work.  This means you'r receiving pay at roughly 74 cents on the dollar for working  the extra week, should you so choose.  This ignores income tax bracket effects, which will decrease the benefit slightly further because the incremental pay will all fall into your highest tax bracket while the rest of your income is taxed at your effective (average) tax rate.

It may seem like this is being nitpicky on the numbers, but you can be assured that HR/management has gone over them in this manner to ensure it's a Really Good Deal for them and not really a "Benefit" option for the employee.  That's my main point here, and it doesn't say you're better off taking off the more vacation time.

There is an additional point that HR hasn't overlooked but is likely applicable:
raringvt said:   
Glitch99 said:   
cr3s said:   pay raise because the next year raise will be based on the existing pay rate. and bonus will be pegged to your pay rate.
   He gets the raise regardless.  The question is that he gets an extra week of time off, which he can either take the time off or cash in at his regular pay rate.

Yes, the net effect is that he ends up with more money, but it isnt a raise and likely wont be factored into any future pay-based calculations.


Actually, foregoing the week of pto results in an additional permanent raise, not just a 1-time bonus. The additional week of pto is also a permanent increase.

  This is only true if the company is very small and they decide each person's pay adjustments in a vacuum.  If the company is large, they will consider where your salary falls within the range of people in a similar pay tier.  If you're higher in the pay scale for that range, they will give smaller raises and "market adjustments" in the future.   Thus it's likely not a full permanent increase of 2% to pay on an ongoing basis.  Your conclusion that it's a permanent raise to your salary on an ongoing basis is only not applicable if the "extra week's pay" is not part of your base salary and if they segment it from your normal pay when they determine pay adjustments each year (which I find highly unlikely, for the same reasons outlined above -- They've done all  the numbers and intend to get a very good deal).  This gives the opportunity to further screw those who take the $ option if they stay with the company for several more years -- In which case pay will eventually normalize to near where it would have been anyways except they'll get an extra week of work from you every year on an ongoing basis for free.  However, you are guaranteed that the vacation increase is a permanent increase if you take that option, unless they decide to cut everyone's  vacation time.

Glitch99 said:   
arch8ngel said:   
raringvt said:   
Glitch99 said:   
cr3s said:   pay raise because the next year raise will be based on the existing pay rate. and bonus will be pegged to your pay rate.
   He gets the raise regardless.  The question is that he gets an extra week of time off, which he can either take the time off or cash in at his regular pay rate.

Yes, the net effect is that he ends up with more money, but it isnt a raise and likely wont be factored into any future pay-based calculations.


Actually, foregoing the week of pto results in an additional permanent raise, not just a 1-time bonus. The additional week of pto is also a permanent increase.

  
Just to clarify, are they changing your pay rate to account for the "extra week"?  Or are they literally just taking your current pay rate in any given year and treating it as if they are buying out a week of your vacation time?

The two things are different, since the latter doesn't compound with overtime (if you ever have that available to you)

Exactly. Say you are psid $25/hour, $1,000/week.  Are they cutting you a check for an extra $1,000 in lieu of taking the extra week off (which is what was implied by "exchange it for an extra week of pay")? Or are they actually adding another $.48 to your hourly pay rate, so that over the course of the year you'll receive an extra $1k? 

The extra week (and the ability to cash it out) may be permanent, but there's a good chance it's being offered that way specifically to avoid it being included as part of your salary.

I'm all for taking the money, but be sure to understand what you are taking.

Sorry if I wasn't clear in the OP, but I don't know how else to state it; my 2 choices are:

1) Take a 3.5% pay increase and begin accruing 4 weeks of annual PTO now & into the future.

2) Take a 5.5% pay increase (permanent pay increase), continue accruing 3 weeks of PTO now & into the future.

I make enough to support my family & manage to save about 15% of my pay annually.  I feel like I'm spreading myself too thin at home as I work some extra hours during our busy seasons (year-end & tax filing deadline).  I have a solid emergency fund, good job security and am well ahead of schedule for retirement savings (for my age).  My wife will eventually go back to work (probably not until the twins start school).  My initial thought was to take the $, because of the compounding of future raises & the additional 401(k) match & profit sharing that come with additional pay.  The more I think about it though, the more I think I need to take the vacation week.  I am starting to feel a bit burned out, I want to make memories with my kids, and I don't really need the extra cash (did I really just say that?).  It seems it doesn't really matter how much I make, our lifestyle inflates or deflates to accommodate. I know that the true FWFers will point out that I need to cut out the lifestyle inflation, but to what end--so I can feel better about the # of dollars my quarterly statement says I have in the bank?  The older I get (I'm 38, not exactly an old wise man), the more I wonder why I keep delaying gratification--is my goal to stress myself to a heart attack at 50, leaving my wife & kids lots of money to enjoy their lives?

raringvt said:   
 
Sorry if I wasn't clear in the OP, but I don't know how else to state it; my 2 choices are:

1) Take a 3.5% pay increase and begin accruing 4 weeks of annual PTO now & into the future.

2) Take a 5.5% pay increase (permanent pay increase), continue accruing 3 weeks of PTO now & into the future.

 

  
How does your company handle the carryover of unused PTO?

Is there a cap on the hours that carry over?
Do they buy you down to the cap?  Or is there some portion that is "use it or lose it"?

arch8ngel said:   
raringvt said:   
 
Sorry if I wasn't clear in the OP, but I don't know how else to state it; my 2 choices are:

1) Take a 3.5% pay increase and begin accruing 4 weeks of annual PTO now & into the future.

2) Take a 5.5% pay increase (permanent pay increase), continue accruing 3 weeks of PTO now & into the future.

 

  
How does your company handle the carryover of unused PTO?

Is there a cap on the hours that carry over?
Do they buy you down to the cap?  Or is there some portion that is "use it or lose it"?

  Great point! if the policy is to buy-down overages from unused PTO, then it's clear to chose the increased PTO option.  Then, at your own discretion, you can optionally create overages in the future if you want to and your base pay stays lower in the pay band meaning you don't have negative effects to future pay adjustments either.   I wonder how common that policy is though, I've actually never heard of it before.  I know  I lose my vacation if it goes over cap (rolls over year to year) and I lose my floating days if unused at the end of the year, with $0 compensation.

arch8ngel said:   
raringvt said:   
 
Sorry if I wasn't clear in the OP, but I don't know how else to state it; my 2 choices are:

1) Take a 3.5% pay increase and begin accruing 4 weeks of annual PTO now & into the future.

2) Take a 5.5% pay increase (permanent pay increase), continue accruing 3 weeks of PTO now & into the future.

 

  
How does your company handle the carryover of unused PTO?

Is there a cap on the hours that carry over?
Do they buy you down to the cap?  Or is there some portion that is "use it or lose it"?

I can carryover my annual accrual (so currently, I could carryover 3 weeks)--anything beyond the annual accrual amount would be forfeited--that will never be a problem for me though.  

Bend3r said:   
  I wonder how common that policy is though, I've actually never heard of it before.  I know  I lose my vacation if it goes over cap (rolls over year to year) and I lose my floating days if unused at the end of the year, with $0 compensation.

  I have no idea if it's common, or not, but my employer buys us down to 200 hours.

10+ years ago, they used to just let it accrue.

raringvt said:   
 
I can carryover my annual accrual (so currently, I could carryover 3 weeks)--anything beyond the annual accrual amount would be forfeited--that will never be a problem for me though.  

  
If you risk forfeiture, and already get decent PTO (by American standards), personally, I'd opt for the money and guarantee that I won't lose the value.

If they offered a buy-down, I'd have gone with the extra PTO, to have an option.
 

Take the time off. I would only consider the money if you work at some kind of institutional employer that allows unpaid time off without a hassle.

And only you can answer this, but will your extra week of paid time off be spent doing chores, or worse, a staycation, or will you be going to Paris?

I always go for the OT. I usually ending up taking days off for no particular purpose near the end of the year, since there is a maximum number of carry-over days I'm allowed (use it or lose it).

Also, in my instance, taking more paid time off serves no purpose. The work just piles up for me to see when I come back, whether I take paid time off or regular vacation days.

TravelerMSY said:   will your extra week of paid time off be spent doing chores, or worse, a staycation, or will you be going to Paris?
I live in a beach resort community, so even staycations aren't that bad.  The reality of the additional week is that we would probably go somewhere (we like to get away to the mountains at least once a year), or I would use them up taking random days to take my son fishing or to an amusement or water park.  Not quite Paris, not quite doing chores.  

Why is this thread so long?

This is analogous to frivolous spending vs investing and getting compounding interest.

Every future raise, job, and overtime will be anchored to this higher salary.

Cash is king baby. You work to make money so that you don't have to work.

I'd take the PTO, no question.

I get 4.5 weeks currently, plus ten Fed holidays,, and it's still not nearly enough!

jd2010 said:   
Cash is king baby. You work to make money so that you don't have to work.

That's what I used to think too.  What if you find yourself on your death bed in 5 years--will you be wishing you had more money in the bank?  Don't get me wrong, I do and always have, work my a$$ off.  I will retire early.  I will retire comfortably.  I just don't want 15+ year goals to be the only thing in my life.

raringvt said:   
jd2010 said:   
Cash is king baby. You work to make money so that you don't have to work.

That's what I used to think too.  What if you find yourself on your death bed in 5 years--will you be wishing you had more money in the bank?  

  He who dies with the most money wins.

If you add enough value to the company you should be able to get both the raise and the additional PTO.

jayK said:   If you add enough value to the company you should be able to get both the raise and the additional PTO.
Funny, because I'm going to discuss just that with my boss.  My raise was smaller this year than in years past, despite a glowing review & me taking on additional responsibility.  I've been with the company for 5 years and with this raise (not including the additional week of PTO) will make a 51% cumulative pay increase; so 5.5% is pretty low by comparison.  I don't think we have pay bands as others have suggested, in fact, we're so small that I'm the only person in our company with my job title, but maybe they do have some perceived glass ceiling that they won't allow me to go above.

Take the extra money. So long as you're employed you're going to get it, employees don't always get to use their PTO, a situation that is unlikely to get better anytime soon.

It all comes down to circumstances... I would likely always take the raise over the PTO because I have a hard time using my PTO, as it is... part of that is I am just not used to taking off much time, other part is that my job is flexible enough that I rarely need time off to do things... I can work remotely, so not a big deal.

Here are the pros (some of which you listed as cons, or pros for taking the PTO):
1. More money now
2. More money later (future raises)
3. Better bonus (percentage of pay... higher pay, higher bonus)
4. 401k match (percentage of pay...)
5. Additional FICA (you will have a greater benefit if it needed for your family as insurance and better when you take your retirement... plus it puts you closer to exceeding the cap when you don't have to pay into SS any further for the year)
6. Higher value for PTO if you happen to cash out at some point, like paid out when you leave
7. Company provided life insurance (many times this is based on a multiple of salary)
8. Short-term/long-term disability (usually a percentage of pay)

Cons
1. Time off is great and can be used in many different ways

I dunno, it may just be me (and quite a few others here), but I say take the money. Until I no longer need money, I am not in the habit of turning it down...

compounding doesn't make sense in this case because your vacation increase is perpetual, so after 5 years you are still looking at 2% delta for 1 extra week, assuming the 2% change doesn't impact your future salary adjustments

looks like you have your mind made up and you think PTO is worth more than the money, it's your decision and it's always the right one

I would think about a couple of additional questions:
1. would it be bad in terms of perceptions from team/manager if you do take 4 weeks off in one year while others only take 3?
2. if you do change jobs soon, it's easier to negotiate based on the higher base instead of 1 extra week of vacation, especially if the new company has the 'unlimited vacation' policy

Regardless, you should totally ask the manager if you can get both, by showcasing the values you've brought to the company and your potential
 

Also have 3 kids; my wife works. I'm assuming you get about 9 holidays so total of 15+9+2 PTO days ... ~26.   I get more than that, but I would happily take more PTO in lieu of pay.  At my company it's dependent on years of tenure.  Sounds like things are more informal where you are.

It completely depends as someone else suggested on how much you need the $.  I know that where my wife and I are in our 40s and have ample income, time becomes the precious commodity.

It seems like this decision is one that would have impact as long as you're with the company.  I've been with my company for 20 years this August, so a decision like this would be pretty meaningful as I could see myself retiring with this company.

Assuming money is not a problem, I would probably go with the PTO assuming there are no other issues involved.

A couple things to think about... 1) do your responsibilities stay the same and does it become difficult to take the PTO? Would you have to work harder to keep up with your work?... 2) would your employers view you differently if you opt for the extra pto rather than opting to work more? 

Skipping 21 Messages...
I'd take the cash. I'd never manage to take 3 weeks of time off in a year anyway.



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