Unlimited PTO: Pros, Cons, and Considerations

One evergreen HR theme is productivity: how do you get more out of the resources at hand and improve the performance of your employees? Though it may at first seem counterintuitive, increasing productivity in the office could depend on your company's time off policy. We don't mean limiting vacation time-- we're talking about offering more! Here's everything you need to know about unlimited PTO.

There are three paid time off policies to consider offering your employees: traditional, flexible, and unlimited. While there are pros and cons to all three options, unlimited PTO is a swiftly-growing trend for many of the most competitive companies, such as Netflix, LinkedIn, Evernote, and yours truly-- TriNet. Here’s why:

The Pros:

Easier for HR departments

It’s important to note that paid time off is not purely vacation. This can include bereavement, sick days, vacation time, parental and family leave, short or long-term disability, and holiday pay-- and keeping track of each of these allotments can become a logistical nightmare for HR departments. With unlimited PTO, while there should still be a system in place for approving time taken off, HR departments will not be bogged down with tracking and reinforcing hours taken and hourly limits of each category.

It’s surprisingly cost-efficient

Assuming employees don’t abuse the policy (which hasn’t historically been an issue-- check the “con” list below for more information on this), unlimited amounts of PTO can save your company money. When there exists a specific amount of time that can be taken off, many employers will have to pay out the vacation days that aren’t used by the end of the year (or the end of employment, in some cases). With unlimited PTO, you will not be expected to pay out your employees for any vacation days not taken.

It’s a recruitment tool

As aforementioned, many larger and competitive companies are offering this PTO policy as an attractive recruiting tool. Unlimited vacation sounds good to everyone-- including top candidates. In fact, in a recent PTO survey, 51% of participants indicated they would take a job for 10% less pay (all else being equal) if unlimited PTO was available.

Employees will be rewarded based on results, not appearances

A culture that allows unlimited PTO should not punish employees who choose to take that time. Therefore, workers should not be judged by the amount of time they’re in the office (an arbitrary metric) but instead by the results he or she delivers. This will promote goal-driven attitudes, efficiency in your workforce, and ingenuity to get jobs done better and faster. The more positive results they deliver, the higher chance they’ll be promoted.

However, unlimited PTO policy is not the golden answer, nor is it the best fit for every company. While it has obvious benefits, there are some downsides to consider. Which brings us to…

The Cons

Potential for abuse

Though this has not been a major problem for companies in the past, this is the most common concern with offering an unlimited PTO policy. “I’m paying my employees to sit on the beach for 50 days out of the year!” It’s true that this potential exists, but according to Glassdoor, only 25% of Americans take their full allotment of allotted vacation hours. As more of the workforce start identifying as “work martyrs,” an arguably more concerning issue is that workers aren’t taking enough vacation.

Less regulation

Without heavy HR or managerial involvement, there is less regulation to vacation or parental leave schedules. No organization can function smoothly when too many leaders or team members are absent at the same time. Decisions are delayed, meetings postponed, and emails start piling up.

Penalizing PTO

Without a specific allotment of vacation days, there is no policy to encourage time away from the office. Therefore, a major downside of implementing an unlimited PTO policy is the potential for employees to be chastised for taking their vacation days. Without a definitive outline, it will be harder for employees to gauge how much PTO is actually acceptable. And while some will be testing the waters and pushing the limits, others might choose to not use any PTO as a means to get ahead. If this behavior is rewarded, then you are creating a company culture that does not encourage vacation and therefore doesn’t value work-life balance. Needless to say, this can lead to burnout and resentment.

Losing PTO as a reward

When everyone can take as much vacation as they want, it loses its appeal as a motivator. PTO as an incentive can be particularly effective in a tiered structure; this means that the longer an employee stays at an organization, the more PTO he or she earns per year. This increases loyalty and gives employees something to constantly work towards.

Some extra considerations...

When implementing an unlimited PTO policy, it’s important to remember that it’s a system based partially on trust. It will be less effective in a work environment that gives employees little to no autonomy or freedom. That is the situation in which unlimited vacation is the most likely to be abused.

Employees must be invested in their work and goal-driven for this system to run smoothly. Setting this policy is, in a sense, communicating to your employees that you trust them and value their work-life balance.

If you’re considering implementing unlimited PTO, make sure all of your managing teams have the same understanding of what that system will look like. Be sure to put certain practices in place such as checking PTO dates with managers in advance and ensuring that managers will not penalize employees for taking time off unless it becomes a problem reflected in their work.

Remember-- happy and healthy employees are productive employees!

Note: This article was originally published in April of 2018 and has since been updated.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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