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Time really is money with PTO cash advances

If you’d rather have cash in hand instead of a vacation, a PTO cash advance may fit the bill.

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.

What is a PTO cash advance?

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

Sorbet

  • Get cash for your unused PTO
  • Interest-only payments for up to 2 years
  • Available in: CO, FL, IL, MA, NY, NJ, TX, VA, OR, AR, NE, TN, ME, CT, WV
Sign up today
on Sorbet's secure site
APR Between 12% and 18%
Interest Rate Type Fixed
Turnaround Time 2 to 5 days

How do PTO cash advances work?

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.

PTO advance loan vs. cash advance apps

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

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.

  • Must be a W-2 worker. Typically, only W-2 employees are given paid time off. For example, freelancers and contract workers are not eligible for PTO advances.
  • Minimum salary. You may need to make a minimum annual salary to qualify for a PTO advance.
  • Minimum number of PTO hours. If you only have a couple of days of accrued PTO time, you may not be eligible for an advance yet.
  • Employer PTO stipulations. If your employer doesn’t carry over your unused PTO into the next year (and doesn’t pay out upon termination), you might not be eligible for an advance. However, this may depend on who offers the PTO advance.
  • Reside in certain states. PTO cash advances are not available in every state, so you may be ineligible for an advance based on where you live.

How much does a PTO cash advance cost?

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.

Pros and cons of PTO cash advances

Cashing in on your unused PTO is a new concept, so weigh the pros and cons before taking advantage of this opportunity.

Pros

  • Fast approval and funding. Much like a cash advance app, getting a PTO advance is quick and easy, and you could receive the funds within minutes.
  • Inexpensive upfront costs. Rather than having to repay the loan on your next payday, you’ll typically only have to make monthly interest payments until the loan term is up or you leave the company.
  • Cash now. In most cases, when you don’t use your PTO, you may have to wait until you leave the company to take advantage of the cash value of your PTO.
  • Higher borrowing limits. Cash advance apps and payday loans typically offer small loan amounts, but PTO advances may have larger borrowing limits.

Cons

  • Interest and late fees. PTO advances may charge interest and late fees, whereas cash advance apps typically don’t.
  • Not all workers are eligible. If you’re not a W-2 employee with accrued PTO, you aren’t eligible for this type of cash advance.
  • Must meet minimum requirements. You may need to meet minimum salary and PTO hour requirements.
  • Not available in all states. Third-party PTO advance providers only operate in a handful of states at this time.

When does a PTO cash advance make sense?

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.”

PTO advance alternatives

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.

  • Cash advance apps. One of the most obvious and low-cost alternatives to a PTO advance is a cash advance app. However, borrowing limits are typically low, and some providers require users to have direct deposit to access cash advances, although not all apps require direct deposit.
  • Credit cards. While a credit card is convenient, it isn’t always the best move due to high interest rates. However, if you qualify for a credit card with a 0% introductory rate, you could have an interest-free loan for up to 18 months.
  • Personal loans. Many online lenders offer personal loans of all sizes and provide fast funding, but lenders typically conduct a credit check and have other requirements to qualify.
  • Payday alternative loan (PAL). Some credit unions offer small-dollar loans to members with better interest rates and longer repayment terms than other options. You may have to be a member for at least thirty days before you can apply for a PAL.
  • Traditional payday loan. Fees and interest rates are high for payday loans, and there is a real risk of falling into a debt cycle. But in an emergency, a payday loan may be your best option.

Bottom line

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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