Paid time off (PTO) is a great way to give your employees the much-needed breaks they deserve, and some states and municipalities are taking this one step further by making it a law to provide PTO to workers. As you compete with other organizations to attract and retain talent, it’s time to take a second look at your PTO policies and see if it’s worth going the distance with unlimited PTO.
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Unlimited PTO has become a fairly popular trend in business and HR circles, but the hype hasn’t converted into practice. Only 6% of organizations offer open or unlimited leave to employees, according to the 2019 employee benefits survey from the Society for Human Resources Management (SHRM). The report added that the policy’s availability has changed little in the last 5 years.
Those figures could—and perhaps should—grow as companies better understand what unlimited PTO can do.
What Is Unlimited PTO?
Unlimited PTO is a benefit that, at least at first glance, means what it sounds like. The idea originated with startups in the Silicon Valley to offer employees as much time off as they desire. As long as they get their work done, no cap is involved.
Additional caveats may apply, though. There are companies that use names like “flexible” and “personalized” PTO in an effort to make the term less sensational. As a result, the policy enables companies to set an upper limit to the amount of time off employees can have.
The “unlimited” part of unlimited PTO is something a lot of people question. While there are companies that don’t shy away from offering truly unlimited PTO to employees, others cap the amount of PTO. Another option is to avoid addressing limits altogether and let managers handle PTO according to their judgment and company values.
Benefits of Unlimited PTO
Unlimited PTO policies offer employees increased flexibility and a resulting host of other benefits.
It’s a major asset to attracting and retaining top talent. According to David Musyj, President and CEO at Windsor Regional Hospital in Ontario, unlimited time off is an important part of why employee satisfaction rates at the hospital range between 92% and 94%. Plus, it has helped them recruit the best talent. “The look on an individual’s face when they hear about the policy is priceless,” Musyj recently told Inc.
Unlimited PTO has also helped the hospital’s employees pitch in when their coworkers are away from work, creating a more collaborative environment that impacts all day-to-day activities. In addition to teamwork, the policy has boosted overall morale. Employees don’t have to worry about using up valuable vacation days. “The energy they return to work with after being able to participate with their family is truly priceless for our patients,” Musyj said.
The impact on work/life balance is a significant factor for any company. According to a Gallup poll, 53% of employees said that it’s “very important” to have a job that allows them to have greater work/life balance and personal well-being. An unlimited time off policy could help employees achieve both of those goals, thereby enhancing their happiness, productivity, and loyalty.
Consider matters from the other side. Unused PTO is a major problem for organizations, and employees who rack up PTO that they don’t use can suffer in terms of productivity and morale. Not only can that cost companies indirectly, but if those employees find another job, companies are usually on the hook for that vacation time. According to U.S Travel, businesses on average owe each employee $1,898 in accrued paid time off. For companies with more than 500 workers, the cost per employee rises to $2,609.
Should You Create an Unlimited PTO Policy?
There are different routes in developing an actual unlimited PTO policy. You can create a set of guidelines and rules for its successful implementation or, like Netflix, take an alternative approach. “Our vacation policy is ‘take vacation,’” according to the company’s website. “We don’t have any rules or forms around how many weeks per year.”
It’s interesting how Netflix’s excerpt comes from the “freedom and responsibility” section of the culture page. Netflix argued there’s “an unhealthy emphasis on process and not much freedom” in many organizations. And in the end, processes and rules can dominate companies and override their values.
Maybe your organization has already gone overboard with restrictive policies. In that case, it’s time to reevaluate everything. “If you believe employees need strict rules and enforcement to be productive, hiring and retaining high-performance people will be a challenge for you,” according to Sue Bingham, Founder of leadership development company HPWP Group, in Harvard Business Review. “You hired these people for their tenacity and talents. Get out of the way and let them be great.”
Rewarding employees with unlimited PTO can send a positive message. It demonstrates that their freedom is important, and it instills a high level of trust. After all, the policy communicates to current and prospective high-performing employees that their needs are important. Based on a survey by HR software company Namely, high performers took 5 more vacation days per year than lower performers.
It’s true that unlimited time off may not be for every company. Those in retail, healthcare, and manufacturing may have a tough time pulling it off. For a lot of organizations, though, the benefits of an unlimited PTO policy outweigh the drawbacks.
If you choose to develop an unlimited time off policy, prepare for but don’t focus on the potential obstacles. For instance, critics point out that people may take advantage of the policy. As Bingham said, you can simply “deal with any people who choose not to meet expectations on a case-by-case basis.” Or, according to Musyj, who hadn’t seen the policy abused, “Our theory is if someone is abusing it, that’s probably the least of your worries regarding that employee.”
You may be wondering about the specifics of developing an unlimited leave policy. There are some complications involved, such as legal considerations from tracking PTO accruals/usage and managing interactions with the Family and Medical Leave Act (FMLA). You can get the knowledge for developing effective policies with an HR degree online.
The curriculum, which is guided by the SHRM, teaches you relevant skills for working effectively in companies and organizations of all sizes. From the laws governing the workplace to conflict management and more, you’ll gain experience and build a strong foundation to become an HR professional.
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