Paid time off, or PTO, is an integral part of comprehensive compensation. It plays a significant part in the successful recruitment and retention of employees. But how much PTO should employers give? In the U.S. the average PTO offered is 10 days. But this also differs by industry.
In recent years, we have seen a rise in unlimited PTO. U.S. job postings offering unlimited PTO rose 178% between May 2015 and May 2019. It makes sense from a recruitment standpoint. 50% of U.S. workers surveyed reported that they’d prefer unlimited PTO to a higher salary!
Should your company reconsider its traditional types of PTO policies in favor of unlimited paid time off? In this article, we’ll cover the benefits and pitfalls to consider before making a call.
What is an Unlimited PTO Policy?
Unlimited PTO literally means unlimited access to leave for employees— that’s fully paid time off from work. It neatly covers vacation time, sick days, bereavement time, and mental health days. Awesome right?
Theoretically, this perk means that your team members can take as much time off as they want or need for any reason or no reason at all. In practice, this isn’t exactly the case. Unlimited PTO that is unstructured runs the risk of exploitation.
Offering staff unlimited time off must be based on and backed up by a solid unlimited PTO policy.
A clear policy is the foundation of a successful unlimited PTO benefit. Benefits administration software can help you automate your benefits management and improve efficiency — all while staying compliant.
A well-communicated and understood policy creates trust between the organization and its employees. It will also ensure there is equity amongst manager approvals within a company. Managers are still the decision-makers as to whether a PTO request is granted, regardless of a shift from allotted vacation days to an unlimited policy.
For example, the policy should address approval procedures and what validates a PTO request to be rejected. For example, the policy must address whether multiple members of a team can be out on the same day. It should outline the maximum number of consecutive days a team member may be off from work, and so forth.
The Benefits of Offering Unlimited PTO
Offering sought-after employee perks and benefits aids in your recruitment of new hires and retention of existing employees. It also enhances your employee engagement scores. Adding unlimited time off to your benefits package means you reap the rewards mentioned below.
A Less Stressed Workforce
Vacations provide workers with an opportunity to break away from daily routines, reduce stress levels, and focus on their interests outside of work. 75% of people have experienced burnout at work, which is a threat to both their personal wellness and the organizations that employ them. Time off to regain energy and focus is therefore an essential part of an employee’s relationship to their work.
Improved Work-Life Balance and Employee Well-Being
Data shows that 61.9% of people with unlimited paid time off report having a healthy work-life balance.
To quote clinical psychologist, Patti van Eys, Ph.D. “The direct and often overlooked connection between work-life balance and employee engagement is employee well-being.”
Offering unlimited PTO signals to employees that taking time for themselves is encouraged. “It sends them the message that their well-being is just as important as productivity.”
Incentivized Retention
Employees who feel valued and have the work-life balance that they want are less likely to look for or choose other employment opportunities. When an employee weighs up a job offer that includes any number of paid leave days, unlimited access to paid time off will by nature look more attractive.
Increased productivity
According to the Wellbeing Research Centre, “Companies with higher average levels of wellbeing are more valuable, have greater returns on assets, and report higher annual profits.”
Besides the fact that happy employees are 13% more productive than their unhappy counterparts, a well-rested workforce is also a money saver. Exhausted workers make more errors that cost the organization money in lost profits and time. Therefore, employees who feel empowered to take time when they feel overwhelmed with work are more effective and productive in the long run.
It Builds Trust
An unlimited PTO policy inherently communicates to your employees that they can be trusted to police their own behavior. It says you trust them to work when needed and take breaks appropriately.
A Recruiting Tool
Unlimited PTO is reported as the most valued emerging employee benefit. From a job seeker’s perspective, no set number of days off from work can beat the promise of unlimited vacation time.
Easy Implementation
While it is still wise to track PTO, an unlimited PTO program will eliminate some of the minutia from your process. A company that runs on unlimited PTO is by nature more concerned with meeting KPIs than the exact number of days or hours an employee spends on the job.
For instance, you may choose not to track when employees leave an hour early for an appointment. You can also skip ensuring your employees know they can take time off to vote. You can spend less time worrying about categorizing time off— like when someone calls in “sick” but goes to the beach.
Eliminates an “End of The Year Rush”
A lot of companies with set PTO days have a use-it-or-lose-it policy. Employees therefore scramble to take days off at the end of the year that won’t carry over into the next year.
An unlimited time off policy negates this “rush” and relieves your HR team of tracking how much leave employees have left, are owed payouts for, or are entitled to.
Reduced Spend for Employers
As a part of remuneration, unclaimed PTO is classified as a current liability in terms of your organization’s accounting. When an employee leaves, it must be paid out to them as a lump sum. If they’ve accumulated leave over multiple years, this might be a tidy figure.
Offering unlimited PTO means that, although your employees always have access to PTO, they also aren’t owed any specific number of days off. Whether your company has a layoff or receives a resignation, you no longer have accrued unused PTO payouts to worry about.
The Pitfalls of Offering Unlimited PTO
Are you already drafting up your organization’s new unlimited PTO guidance? While the benefits abound, there are some downsides of which to be aware.
Manager Workload
Each PTO request must be reviewed by the manager for decision-making. This may include reviewing data. Has this employee taken time off recently? If they have, how much is too much time away from the organization?
What work is on their plate during this time? Have they identified a backup? Has anyone else requested this time off? Essentially— will business functions be able to proceed if you grant this time off request?
Equity in Decision-Making
Because the decision to approve or reject a PTO request lies with the manager, the risk of real or perceived equity issues exists. Does the manager favor certain employees? Are denied requests creating team culture issues? Are the requests being reviewed and approved equitably from manager to manager? Is it fair policy to retract approval for one member of the team to take PTO if another has an emergency (such as unforeseen bereavement or sick leave)?
In addition, different types of positions will be easier to grant approvals to. Coverage for the receptionist at a busy law firm may be harder to find than an insurance agent with a caseload and colleagues who do the same type of work.
Strained Relationships and Distrust
The request for time off becomes a negotiation between the manager and the employee each time. This may create strained relationships. Consider more junior teammates who may not feel as comfortable asking for PTO. In addition, if a request is denied, feelings of resentment for an “unlimited” policy that is not truly unlimited may develop.
For the sake of transparency and thrust, there also can’t be an “unofficial” limit to approved time off. If requests are denied because an employee has already taken X days off within a period the company does, in effect, have limited PTO— but without a responsibility toward the employee of paying out time that isn’t taken.
Employees May Take LESS Time Off
A poll from Glassdoor found that “most professionals have difficulties unplugging from work while taking time off, with 54% of professionals reporting that they are unable or do not believe they can fully unplug while on paid time off (PTO).”
This may sound like a perk for your organization. But employees who don’t get breaks tend to underperform, feel less satisfaction in their jobs, and are more likely to look for other work.
Tracking FMLA is More Challenging
Without a specific amount of time off allotted for vacation and sick time in your leave policy, it may be more difficult to account for benefits and compliance related to the Family and Medical Leave Act (FMLA).
Risk of PTO Abuse
With an unlimited PTO plan, managers need to be vigilant with data review to ensure that no one is abusing this flexible perk.
Any time you gain in administrative relief from managing PTO budgets may just be taken up by additional performance management steps to ensure KPIs are met.
A Financial Loss for Employees
For veteran employees who have worked to accrue time, shifting to a PTO policy may feel punitive.
Of all the cons of unlimited PTO, the lack of financial responsibility on the company’s side is what has often labeled it an anti-perk. While employees only have access to PTO on the company’s terms (with approval), a rejection carries no value in terms of the number of vacation days an employee has in the bank as claimable funds for unused PTO. On paper, the company wins all the way.
Those who tout unlimited PTO as a scam often refer to its impact on laid-off workers. Companies that have unlimited PTO policies don’t pay out any unclaimed PTO after a RIF.
How Do Companies Manage Unlimited PTO?
It’s clear from the pros and cons of unlimited PTO we discussed that it is not, per definition, a good or bad implementation. It is also becoming evident that an unlimited PTO policy does not mean carte blanche permission for employees to come and go as they please. So if unlimited PTO is not really unlimited, how do companies manage it?
Discretion of PTO Approval
First and foremost, the policy should detail that business needs will impact if and when PTO is granted. In other words, employees must be able to manage their workload and ensure the business does not suffer in their absence.
A company that has seasonal peaks may outright ban PTO requests while all employee time is required for the rush. Other organizations may find peaks don’t apply to all employees. For example, if an accounting employee has an April 15th IRS deadline, is it feasible for them to vacation in Europe from April 1st to the 14th? Probably not. But if the receptionist requested that time, and there are backup receptionists available, then that’s likely an easy approval.
Bottom line: Business needs must be considered in the approval process.
Operational Details of an Unlimited PTO Policy
In terms of human resource management, deciding to move a company over to unlimited PTO is easier said than done When it comes to the nuts and bolts, how does unlimited PTO work?
We’ve outlined some processes to get you started:
Establish a Request Process
Your policy should be clear about how to request PTO. Considerations include:
- How far in advance should requests be made?
- Will there be any work or communication during their vacation days?
- Is the requestor or their manager in charge of finding coverage for their absence?
- Is there a limit to the amount of time or consecutive days an employee may take PTO?
Establish Approval Guidelines for Managers
Managers should follow a protocol to ensure there is equity amidst one manager’s approvals and between the different managers in the organization.
Considerations include:
- How many people on the same team can be out at the same time?
- What is the limit on consecutive days out of the office?
- What is the turnaround time for a response to the employee?
- What are the business needs of this employee during the requested time?
- Has the employee provided a backup plan to accomplish work or field client calls in their absence?
- Will the employee be reachable during their time out of the office?
- Will the employee work remotely at any point?
- How much time off has this employee requested and been granted this year? Have they been denied any requests?
- Is the employee at risk for burnout?
- Is this an employee who has taken too little time off? Does the manager need to work harder to accommodate this request?
- Is this employee prone to work-life balance issues?
Create Culture
Fear is a real concern when it comes to employees asking managers for time off, especially among new hires. It is vital to a successful unlimited PTO policy to create a safe environment for requests. Open communication about employee needs and business needs is crucial to creating trust and good culture. Considerations include:
- Is the policy clearly communicated so that employees know how to request time off and what information is required for submission?
- Is the request process easy, non-confrontational, and non-invasive towards their privacy so employees feel safe and supported in requesting PTO?
- Are you, as a manager, leading by example and taking time off yourself?
- Is the organization’s leadership modeling the way?
- If your company is switching from a traditional PTO policy, is there a good transition plan? Existing employees who have earned PTO may pose a threat to this “unlimited” culture. Ensure you are honoring their accruals and their contributions to the company. This may include payouts for unused vacation so that everyone is on a level playing field.
Compliance and Consequences
What is considered abuse of an unlimited PTO policy? How will you prevent employees from circumventing the approval process by simply taking sick leave? For example, will you require medical proof after an employee called in sick?
Your policy should have a section outlining abuse investigations and consequences should abuse be confirmed.
To be able to evaluate abuse, your organization must have data. Therefore, while a flexible policy like “unlimited time off” sounds like you’ll avoid tracking, that’s not the case. Use a time and attendance system to track PTO requests (as well as your scheduling and payroll).
You should also track managers’ approvals to review consistency and equity. Establish a median of PTO taken per employee and per department. This will help flag outliers, unnecessary rejections, understaffed teams, and risks of employee burnout.
Finally, it is advisable that you consult with local Counsel to ensure your policy is compliant with state rules. Laws do vary from state to state, and region to region.
Best Practices for Your Unlimited PTO Policy
If you do decide to launch your unlimited vacation policy, engage in these best practices:
Communicate Expectations
A danger of unlimited PTO is that, since their vacation time is unlimited, an employee’s time off is also replaceable and therefore worth less consideration. This creates an environment where managers find it justifiable to call employees or otherwise interrupt their personal time. They can always take more leave, right?
If your company culture is that certain events are unmissable, or that employees can be contacted during PTO for emergencies, be upfront about this. Also address how, if an employee’s PTO is interrupted, the company will replace it.
Coordinate Calendars
Create a communal calendar so that time off can be managed across teams. This will help guarantee that there is a coverage plan for all positions and that colleagues know who is available.
Lead by Example
Employees tend to underuse their PTO and work while they are out of the office. Allow your team members to unplug and return to work refreshed. Show them you offer a safe work environment by ensuring management is also doing this. They deserve a real break too!
Encourage Time Off
Set a minimum number of days that each employee has to take off annually to avoid them not taking any time off. Policy abuse is much more rare than policy underuse!
Conclusion
Recent times have shown an increase in employers offering unlimited PTO. We have also seen a rise in candidate and employee requests for such policies. But leading a horse to water does not mean it will drink.
We still see workers afraid to ask for time off. We are seeing more people on the beach with their laptops dialing in for Zoom meetings than ever before. An unlimited vacation policy may serve as an excellent recruitment tool. It may even feel good to existing hires and retain them. But if company culture doesn’t allow for use of the time off being offered, this perk isn’t really a part of your total rewards package. And rest assured, your employees will see right through that.
