Benefits and Compensation, Learning & Development

The Mirage of ‘Unlimited’ PTO

All employers want to make their compensation and benefits packages sound as attractive as possible to prospective employees. This is why it’s no surprise that “unlimited PTO” has become a common offering – what could be more attractive to candidates than the idea of taking all the paid time off they want? But this “benefit” is a mirage – there’s no such thing as unlimited PTO in practice, and employees shouldn’t let companies fool them into thinking otherwise.

The actual benefits of unlimited PTO flow in one direction: to employers. Employers are relieved the responsibility to fully account for accrued time off and attract candidates with the allure of an unattainable benefit. While unlimited PTO has its benefits for employers, it can lead to significant cultural problems by creating an atmosphere of uncertainty and tension in the workplace where employees don’t know where they stand with management and relative to their colleagues.

The alternative to deceptive “benefits” like unlimited PTO is a set of clearly defined policies that let employees know exactly what they’re allowed to do. These benefits could include convertible PTO (which allows employees to direct unused vacation time toward other priorities), increased compensation, a pre-specified number of days off, or some combination of all the above. This sort of transparency isn’t just good for employees; it’s good for companies over the long term.

Why is ‘Unlimited’ PTO So Popular?

Despite the fact that genuinely unlimited PTO isn’t a possibility for any company, this doesn’t prevent job-seekers from making it a priority in their search. According to a recent survey conducted by The Harris Poll, substantial majorities of Gen Z, Millennial, and Gen X workers consider the availability of unlimited PTO an important factor when evaluating whether to switch from their current jobs to something new. Boomers are less inclined to prioritize unlimited PTO, but 45 percent are looking for it when they assess possible employers.

Candidates aren’t just actively searching for employers who offer unlimited PTO; half of those surveyed by Harris say they would even take a pay cut in exchange for the benefit. These results were reported alongside even larger majorities of workers who say they want flexible schedules and the ability to work remotely. Flexibility has become a major focus for employers as we emerge from the COVID-19 pandemic. A recent Deloitte survey of professionals in the U.S. found that 94 percent of employees believe they “would benefit from work flexibility.”

It’s likely that employees mistakenly view unlimited PTO as another way companies can offer greater flexibility. But this is just an illusion.

The Mirage of Unlimited PTO

There’s a reason unlimited PTO sounds too good to be true—because it is. Considering the fact that 60 percent of workers say they struggle to use all their allotted PTO – while 75 percent report that they’ve even taken “unneeded” vacation time to avoid losing what they’ve earned – it’s clear that unlimited PTO is superfluous at best. At worst, it’s a misleading gimmick that actually leaves employees worse off than traditional PTO.

In California, when employees are terminated before they’ve taken all the PTO they’ve earned, the company must pay the remainder as wages (though companies aren’t required to offer paid vacation in the first place). The California Department of Industrial Relations states that, while employers can “place a reasonable cap on vacation benefits … unless otherwise stipulated by a collective bargaining agreement, upon termination of employment all earned and unused vacation must be paid to the employee at his or her final rate of pay.” This payout is why many companies choose to skirt this requirement by offering “unlimited” PTO – it obviates the need to track what employees are actually owed.

It’s remarkable that candidates are willing to sacrifice pay for a “benefit” that many companies have used to deprive employees of what they’ve rightfully earned. But the lack of understanding about where unlimited PTO comes from and its real-world implications has led to this situation, which is why employees should be educated about the benefits they’re actually receiving.

Alternatives to Unlimited PTO

Companies have a responsibility to be upfront with employees about their compensation and benefits. They should also offer benefits that employees will fully leverage. Every year, American workers fail to use hundreds of millions of vacation days, and in many cases these days go to waste. There’s no reason to offer a benefit if your employees aren’t taking advantage of it–unless it’s simply a way to present the false impression that you support your workforce.

While it’s understandable that candidates hear “unlimited PTO” and think “flexibility,” there are much better ways to provide the flexibility employees are demanding. For example, 90 percent of employees say a benefit like convertible PTO–which would allow them to repurpose their vacation time by putting the same resources toward their retirement accounts, emergency funds, student loan payments, etc.–would make them more likely to stay with their current employer. Creative benefits like convertible PTO also have the added benefit of transparency; employees know exactly what they’re getting, and your company culture will benefit from the alignment of expectations between managers, employees, and their colleagues.

When companies make unlimited PTO part of their benefits package, it’s more difficult to hold them accountable. Meanwhile, employees are in a constant state of uncertainty about the status of their vacation time; added anxiety about their managers’ and colleagues’ perceptions can create even more cultural problems and make it difficult for employees to use their PTO. These are all reasons why candidates and employees should always be suspicious of unlimited PTO–the reality is often very different from what’s advertised.

Rob Whalen is co-founder and CEO of PTO Exchange.