Unlimited paid time off (PTO) has been around for more than a decade. Yet it still tends to evoke images of employees asking for 300 days off a year because … it's unlimited, right?
The reality is far different. In fact, employees with unlimited PTO use two fewer vacation days a year than those with traditional time-off plans, according to the American Society for Human Resource Management (SHRM). And, as the employer, you reserve the right to approve or deny time-off requests based on staffing and business needs.
If unlimited PTO isn’t truly unlimited, then what is it? What are the risks and rewards? And is this policy right for you?
Like most benefits, it comes down to cultural and organizational fit. Before you implement an unlimited PTO policy, explore these potential pluses and minuses. And if you do decide unlimited PTO is right for you, learn some tips to help you get the most out of your policy.
Allowing your employees to choose the amount of vacation they take each year can:
- Improve well-being and work-life balance
- Support recruitment and retention
- Reduce administrative burdens
- Enhance work culture
Employees value work-life balance as much as salary and even more than promotions, according to a 2022 survey by Forbes. Increasing vacation days is one way to help employees achieve the work-life balance they desire.
Additional time off can also help employees combat stress and burnout. Many employees feel like they can’t take full-week vacations to recharge because they need to save days off for caregiving duties, medical appointments and other personal tasks. Not having to save vacation for rainy days can ease those concerns.
Recruitment and retention
Unlimited PTO is already a strong recruitment and retention tool among the tech sector and start-ups, according to SHRM. But its appeal is much wider. A MetLife survey showed that 72% of employees are interested in having unlimited vacation. And 50% of employees would choose this option over a higher salary, according to Fortune magazine.
Implementing unlimited vacation can help you differentiate yourself from competitors. Though this type of policy gets plenty of media attention, it isn’t widespread. Fortune magazine reports that fewer than 10% of employees are covered by an unlimited PTO policy.
When done right, removing the cap on vacation days can streamline and reduce your administrative responsibilities. It allows you to get away from negotiating and setting a specific number of vacation days each year for each employee.
For example, instead of having some employees with five weeks of vacation and others with two based on seniority or bargaining, you set the same parameters for all employees. With unlimited vacation, employees would simply work with their supervisors and colleagues to take days off as needed.
A cultural boost
Allowing employees to choose their vacation allotment can also improve your work culture. This type of policy demonstrates trust between employees and supervisors. It also rewards outcome-based performance. That is, the policy allows employees to take additional days off as long as they get their work done. This can help your organization focus on productivity rather than face time or the appearance of being busy.
Implementing an unlimited PTO policy can also present challenges. For example, it can:
- Result in employees taking fewer vacation days
- Cause resentment among some employees
- Be a poor fit for your business, industry or culture
- Become complicated and legally risky
As previously noted, unlimited PTO has been shown to result in employees using less time off. Often, employees self-regulate their time off because they are concerned about being perceived as abusing the benefit.
In the study SHRM reported on, employees with unlimited PTO took an average of 13 days a year, compared with 15 days for those with traditional time-off policies. Even if your intent is for employees to take more vacation, an unlimited policy can sometimes have the opposite effect.
Switching to a new time-off policy could cause resentment among employees. For example, those with heavier workloads may feel like they can’t take the same amount of time off as others. They may even view unlimited PTO as a loss. Similarly, unlimited PTO for everyone can feel unfair to employees who have accrued lots of PTO.
Another risk is that an unlimited vacation policy may not fit your business, industry or culture. It typically works best with output-based jobs, not commission-based workplaces where more time off could directly lead to less compensation. It’s also easier to apply to salaried employees, not hourly employees or those eligible for overtime pay.
In addition, it requires trust between colleagues and supervisors. Your employees must work together to ensure coverage and be comfortable enough to take time away from the office without feeling judged. Workplaces with high turnover or tension between management and employees would not be a good fit.
Potential legal complications and risks
Depending on where you do business, you may have legal obligations relating to employees' accrued vacation time. Consult with counsel before switching over to a new system to be sure you're in compliance.
Unlimited PTO can also become entangled with provincial laws regarding sick leave, safe leave and parental leave. To avoid this risk, implement a time-off policy solely for vacation time.
Finally, having an unlimited PTO policy does not free you from the need to track employees' time off; you still have to stay on top of potential performance management and employee burnout issues.
The following strategies can help you get the most out of your time-off policy.
- Use the right term to describe your policy.
- Create an accessible, easy-to-use time-off calendar.
- Encourage and demonstrate support for time off.
- Examine your work culture.
Though the term “unlimited PTO” has become common, the law network LexBlog recommends avoiding it and opting for the terms “unlimited vacation” or “flexible time off”.
Further, within your time-off policy, limit the number of consecutive days an employee can take off and create separate policies for all types of paid and unpaid leave, including workers’ compensation, sick leave, safe leave, parental leave, and short- and long-term disability. In addition, keep records of nonvacation time-off allocations, noting absences for sick time, safe time, medical leave, etc., in case challenges to your vacation policy arise down the road.
An unlimited vacation policy requires team members to work together to manage deadlines and workloads. Create a calendar where employees and supervisors can easily track out-of-office dates.
A master calendar will help spread out vacation requests and ensure you have proper staffing to meet business needs. It can be set up for a single team, a department or the entire organization. This type of schedule can also remind employees to use vacation throughout the year instead of in big chunks during the holiday season.
For flexible vacation policies to work, management needs to encourage and demonstrate support. Your leave policy should state that employees are expected to meet deadlines and work responsibilities, but it shouldn’t appear discouraging or punitive.
Supervisors and executives should also schedule time off in accordance with your guidelines so that employees feel comfortable doing the same.
To encourage employees to take more time off, communicate minimum and maximum time ranges. For example, some companies are requiring employees to take off at least one full week during the year to recharge.
As you explore your time-off policy, take an honest look at your company culture. If you have an always-on environment where your employees work long hours and weekends, then an unlimited vacation policy could be more work than it’s worth.
However, if your organization is focused more on outcomes-based jobs, work-life balance and employee wellness, then boosting vacation options could support those goals. It can also be a strong recruitment and retention strategy.
For more information on unlimited vacation policies, talk with your benefits advisor or legal counsel. They can help you examine your current time-off policy and address potential changes for organizational fit and compliance.