Textbook Problem

For the past several weeks, Adele Delgado, payroll manager for Petrillo Packing Company, has been studying the mounting costs of accrued vacations and sick leave. Most of her firm’s employees are entitled to two weeks’ vacation each year and the privilege of accruing their vacation time for future use. Also, the workers have a generous sick-leave plan that reimburses them while they are ill at home or in the hospital.

Scanning the employees’ accrued vacation times on the computer printout, Delgado notes the line entry for John Mannick. Mannick recently retired and cashed in 14 weeks of accrued vacation—all paid at his current wage, which was much more than when he originally earned the vacations. And, of course, the firm’s payroll taxes for the accrued vacation payout were significantly increased.

Delgado also knows that some workers feel short-changed if they do not use their sick leave each year. They realize that if the leave is not used, they lose it for that year. Probably, she thinks, this accounts for those who regularly become ill on Mondays or Fridays.

What solutions can you offer to limit the cost of and more effectively manage the firm’s policies for compensated leave time?