Sorbet’s creative new approach to refinancing employees’ paid time off

Employee burnout is costing companies increasingly significant amounts of money. Unused paid time off ends up taking space on company balance sheets as a liability, in addition to the physiological and psychological impact it has on the employees themselves.

Enter Sorbet, a firm that found a solution to that problem on both sides of the equation. Their solution is to track employees' time off and burnout rates in real time, giving both employers and employees a better understanding of where they stand. Additionally, their solution includes refinancing employees for their unused vacation time, keeping it from reflecting in the company’s balance sheet as a liability.

First, let’s understand how unused PTO days translate into a liability. At companies that provide paid vacation or paid time off, employees’ salary reflects an allocation of days (or hours) per year that they’re paid to work, and a corresponding allocation of days the employer pays them not to work. If workers take fewer than the allocated days off, employers can be required to pay them for those extra days of work, which essentially becomes a liability for the company. 

For example, say an employee is eligible for 12 days off per year. That means that in an average month, they are paid to work 19 days and paid not to work 1 day, assuming there are 20 workdays per month. If they end up not taking that 1 day off, they will have worked 20 days, having only been paid for 19 – and their employer owes them this money. This debt is immediately reflected on the company's balance sheet as a liability, and only continues to grow over time.

“Basically, when you don’t take full advantage of your allocated time off, you’re essentially lending money to your employer,” Veetahl Eilat-Raichel, CEO and co-founder at Sorbet elaborated. “According to our data, an average employee holds over $3,000 in unused vacation days at a time.”

The problem

The bottom line is that employees are often unable to take their designated paid time off, contributing to their burnout — which costs them at least $125 billion in healthcare annually. This situation is expensive for companies, as not only are they accruing debt, but they’re also taking on the costs related to high employee turnover rates — firms find themselves paying heavy PTO payouts on top of the already pricey turnover costs.

Research has shown that up to half of annual workforce turnover can be attributed to burnout, which is also among the top reasons for employees’ resignations. Employee turnover has cost US industries more than $630 billion. Each resignation can cost a company up to a third of the worker’s annual salary.

With PTO payouts, employers’ concern doesn’t just end at accruing liability — the inflicted liability is a highly unpredictable debt too. This is so for three reasons. Firstly, companies never know when these liabilities are going to show up since they are dependent on whether an employee decides to take their time off, and when. Secondly, there is no set date to pay it out, as that is dependent on when an employee leaves the firm. Thirdly, companies can’t put a finger on exactly how much the cost is going to be. Since these payouts are completed at the end of an employee’s time with a company, the ultimate payout is according to the employee's salary at termination, regardless of how much they earned when they originally accrued it. So, the effective cost of this debt balloons by 6%-10% annually — the current rate of wage inflation.’

The solution

“The good news is that research clearly points to the benefits of taking time off on stress prevention and improved productivity, which is one of the many reasons why it is so important for employees to use their PTO,” Eilat-Raichel said.

The firm’s solution looks to aid both employees and employers. In addition to facilitating a timely transfer of PTO payouts, it helps both parties keep track of burnout levels more actively.

Sorbet’s platform works by initially integrating directly with the employer's human resources information system, analyzing the data to produce a predictive model of unusable PTO – the portion of the company’s PTO balance that Sorbet predicts will remain unused and “stuck” on the company’s balance sheet.

On the front end, employers are presented with a real-time, fully customizable dashboard, which grants them complete visibility of their predicted PTO accruals with real-time insights to track and predict the impact that unused PTO will have, both financially and on employees’ wellbeing. 

Using these insights, finance leaders can decide to refinance the actual debt through Sorbet, allowing them to control and predict the payout and save costs by protecting the company against wage inflation. 

Additionally, the platform provides employers with data points to help prevent burnout and turnover, among which is a “freshness score”, which is a personalized scale indicating how burnt out your employees are on a scale of 1-100, and helps monitor potential risks and keep track of company-wide PTO usage.

For employees, PTO is an illiquid asset that they may lose entirely or can't cash out until they leave their company. However, with Sorbet, employees gain control of their PTO usage and can choose how they want to spend it, by either using their days or converting the unusable portion of their time into cash.

Meanwhile, each employee gets access to Sorbet’s mobile app, which allows them to decide how much of their unusable PTO they would like to cash out and when. The Sorbet app is pretty straightforward. Employees can cash out their eligible, unusable time in 4 steps, starting with signing up for the service using their work email. Once they’ve decided how much of their unusable PTO they want to cash out, they can load the desired amount onto a prepaid Sorbet Visa card — and that’s that. They may spend it anytime, anywhere.

Sorbet, as a firm, lays a strong emphasis on personalized PTO, stemming from the belief that PTO cannot continue to be treated as a one-size-fits-all solution. No two employees are the same, and neither are their PTO needs. That led to Sorbet’s flexibility, where employees can use their funds to do whatever they wish. 

“While one employee might need the extra cash for an emergency, another might cash out some of their days to pay for an epic vacation. So, as you can see, Sorbet truly provides employees with an amazing benefit that will make a difference in their lives,” Eilat-Raichel said.

Taking Sorbet to market

Sorbet was launched just a few months before COVID-19 was declared a pandemic.

The firm, at the time, was working on another wellness and productivity solution, for which it had been engaging with CHROs and HR leaders across industries. With the onset of the pandemic and the consequent series of quarantines, these leaders brought an all-new problem to the company’s attention — employees were not utilizing their PTOs. 

“HR leaders we were already in touch with kept engaging with us and sharing their challenges and concerns. Over the course of several months, something amazing happened. In every single conversation across sectors, verticals, and coasts – everyone was talking about their employees not taking time off,” Eilat-Raichel told me.

As the firm researched the market and tracked industries, it became apparent that since the start of the pandemic, no one was taking any time off. This included both employees and the leaders themselves. It became clear that with working from home, sheltering in place, kids not at school, and tremendous uncertainty all around, this was becoming a huge wellness issue with potentially severe consequences in the short and long term.

The more they pondered on the matter, they found there were deeper fundamental issues that were in question, like: What does a day off mean when you work from home? When does a day start? When does it end? What's the point of taking a vacation when you can’t travel anywhere? And what would it look like if I take time off when no one can see what I’m doing all day?

These questions and many more made it clear to Eilat-Raichel and the team that this was not simply a tiny payroll issue, but a dramatic shift in behavior that requires a disruptive approach to Paid Time Off, which they found hasn’t been disrupted in decades. So, once their solution was ready, they were eager to take it to market.

Sorbet finds two major buyers for its product within companies: the CHRO and the CFO. While naturally, both have a very different approach to the matter, at the end of the day they want the same thing — happy employees and low costs.

“We have different messaging strategies for each persona, showing how our solution solves a big pain point for them, while also solving it for their counterparts. Our product does most of the work for us and once we show people our solution, they immediately understand the value that Sorbet can give them, their colleagues in Finance, or HR and their employees,” Eilat-Raichel said.