HR Management & Compliance

The Pros and Cons of Unlimited PTO

Salary, bonuses, and other compensation-based incentives will always be important for the workforce. But increasingly, work/life balance is a key factor for workers considering their employment options, as well. Over half of employees wish their companies offered more flexible work options.

PTO

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These can include the ability to work from home or flexible schedules, for example. But for many, the holy grail of workplace flexibility is unlimited paid time off (PTO). The idea of being able to take a day—or several weeks—off whenever one wants is understandably attractive to workers but also understandably frightening for employers.

Of course, few unlimited PTO programs are so wildly flexible in practice. To get a better idea of how such programs work in the real world, as well as the major pros and cons for both employees and employers, we solicited feedback from industry experts, who weighed in on both the pros and the cons of unlimited PTO.

Downsides for Employees

One needn’t spend time imagining the benefits to employees of unlimited PTO, so we won’t discuss the potential for life-enriching travel to exotic locations or quality time with loved ones in this post. Instead, we’ll look at some of the downsides.

Not really “off” with PTO. “Bosses and other workers tend to stay more in touch with their employees/co-workers during their ‘unlimited time-off’ (emails and texts) so they never really get a break from work,” says Rob Whalen, CEO of PTO Exchange.

Employees end up taking less time off. Employees might also be surprised to find that they end up in the office more with unlimited PTO than with a limit on the number of days they’re allowed to take off. Whalen notes there are numerous studies showing that American employees often end up taking little or no more time off in an “unlimited” system.

“In a study by Namely, research suggests that employees with ‘unlimited’ vacation actually take fewer days off (13) on average than those with a limited number (15),” Whalen says.

Downsides for Employers

The first downside of unlimited PTO for employers that probably comes to mind is the idea of no one being in the office because everyone is on extended vacations. But as noted above, employees often tend to take less time off when they have unlimited PTO. Still, that doesn’t mean unlimited PTO policies can’t pose risks for employers.

Michael C. Schmidt, Vice Chair for the Labor & Employment Department at Cozen O’Connor, weighed in with a few major possible pitfalls of unlimited PTO:

  • It could cause scheduling difficulties for groups or teams that require the attendance of a certain number of employees at any given time, particularly if no sufficient notice and approval requirements are in place and consistently enforced.
  • It’s harder to use PTO banks to reward good-performing employees or punish for misconduct.
  • It’s harder to terminate an employee for abusing PTO.

Benefits for Employers

It seems highly unlikely that employers would embrace unlimited PTO policies if there were no upsides for them whatsoever. Schmidt points to the following potential benefits of those policies for the companies that implement them:

  • Unlimited PTO is good for morale among current employees and promotes a trusting culture and workplace environment.
  • It’s good for recruiting new employees into a culture and an environment that are perceived to be trusting and collaborative and without over-regulation.
  • It eliminates the administrative burden on the company’s HR or benefits department, which no longer needs to track PTO taken.
  • Even with an unlimited PTO bank, most employees still are not likely to take more PTO than they otherwise would, particularly when their jobs have annual hours, work product, or other performance-related goals and expectations, and there is no potential obligation to pay out accrued but unused PTO at the end of the year or upon an employee’s separation from the company.
  • It’s less likely that truly sick employees will come into the office when they do not fear the loss of PTO days or money (if they have no PTO left).

For those who feel the benefits may outweigh the drawbacks to an unlimited PTO policy, there are some important best practices to follow to help maximize the former and minimize the latter.

Best Practices

As with almost anything in life and the workplace, there are pros and cons of unlimited PTO policies. This doesn’t mean that such policies are essential for all businesses or that they should never be considered. Instead, it means employers should consider following some best practices if they do decide unlimited PTO is right for them.

Patricia Miller, Esq., of Hackler Flynn & Associates, a California employment law firm, offers the following advice:

  • Consider that unlimited PTO may not be appropriate for all employees. Full-time, exempt employees, who are entrusted with the discretion and judgment to balance work obligations, may be appropriate candidates. Commissioned-based employees, or nonexempt workers, may not be.
  • Consider that unlimited PTO may not be appropriate for all companies. An unlimited PTO policy works best when the company culture already operates on a goal-oriented basis that tracks performance and goals.
  • Put parameters around the “unlimitedness” of the policy, especially if an employer is in a state where PTO is paid out upon termination or layoff.
  • Retain the right to hold employees to performance and productivity requirements. It’s important to set boundaries based on performance criteria, scheduling with sensitivity to business needs and others’ schedules.
  • Provide guidelines on how to request time off (i.e., anything more than 24 hours or 3 days of PTO consecutively should be requested at least 4 weeks ahead of time). Each policy should also still come with the caveat that an employer can reject a PTO request due to workload or other employees’ already having requested time off.
  • Draft policies to explain the interaction between protected leaves (i.e., the Family and Medical Leave Act (FMLA)), unlimited PTO, and other wage replacement benefits (e.g., state disability benefits or sick leave). The policy also should address coordination of overlapping paid benefits.

Unlimited PTO is a bit of a misnomer. While conceptually, it means there isn’t a hard limit on the number of paid days an employee can take off per year, it is generally not without “limits.”

Employees still need to make sure they perform the essential responsibilities of their job function; be available for certain key meetings, projects, or events; and set a good example for others in the organization, among other considerations. Still, the concept can be a useful recruiting tool for organizations as long as they work out ways to avoid some of the obvious pitfalls.