Pros and Cons of Unlimited PTO

Unlimited personal time off sounds like the ultimate all-you-can eat buffet for employees. Extend that Monday holiday to a four-day weekend and take that dream vacation, too. Never stress about being tapped out on sick leave when a child’s sick.

But there are also tasty morsels for businesses. A no-limits policy can be a fantastic recruiting tool. Though managers might initially fear someday showing up to an empty office, they soon realize the unlimited PTO buffet frees them from unpalatable administrative tasks and paperwork.  The naggy end-of-year “use it or lose it” reminders become a thing of the past.

The biggest business benefit to unlimited PTO, though, is economics. Not keeping carryover time off on the books helps the bottom line. It’s also the area that’s drawing the most kickback.

Unlimited time off is nowhere near a trend even though the concept has been getting buzz in recent years. The Society for Human Resource Management estimates that only 1 to 2 percent of American companies offer such programs, a number that’s remained steady over the past five years.

Variations of unlimited PTO

So what exactly is unlimited PTO?

That depends on the company. Some businesses offer true “the sky’s the limit” no-limit policies.  These tend to be in place at companies with results-only work environments that emphasize outcome rather than hours at the desk.

Others are upfront that, though there’s no set number of personal days, employees must take individual and collective responsibility for making sure the work gets done.

Still others retain set numbers but “bucket” the leave. There are no vacation days, sick days or personal days. Here’s your allotment. Use it as you see fit.

In many unlimited PTO plans, it’s still often necessary for companies to restrict when the time can be used. Some businesses have minimal staffing requirements, while others have seasonal ebbs and flows. In those situations, except in the case of sick days or emergencies, managers still have to manage requests. If employees sense that bosses are grudging in granting time off, the policy won’t work.

Why eliminate limits?

There’s little question that American workers aren’t taking as much time off these days.  Last year alone, Americans gave up a whopping 622 million vacation days, according to Project Time Off. Time off taken per employee did increase slightly, from 16.2 days in 2015 to 16.8 last year. That’s a far cry from the average of 20.3 days in 2000.

That’s an economic problem for both sides. At companies with “use it or lose it” policies, employees in essence donated $602 each to their employers in 2016. At firms that allow employees to bank time, the average liability per employee amounts to almost $1,900.

Do workers even want an all-you-can-eat buffet when they can’t finish a Happy Meal? At least one company that went to unlimited PTO found that it quickly became a valued benefit. Employees at Mammoth, a small family-owned business, ranked it behind health insurance and 401k but ahead of dental insurance and professional development.

Apparently, in our always-on, constantly connected culture, employees need more explicit permission to take time off. As Indeed, which has a no-limits policy, puts it, the company wants “rested, empowered and motivated employees.” Empowerment worked. Indeed saw a 28 percent increase in days off in its first year of unlimited PTO.

Other companies have seen the opposite. Rather than feeling empowered, employees struggle to decipher subtext in “unlimited.” At Mammoth, the company where employees value unlimited time off, they still didn’t take as many days on average as they’d been granted under the previous policy.

That’s led some firms to ponder implementing vacation floors, forcing people to take at least a minimum amount of time rather than imposing limits.

Emerging legal issues

There also are legal complications developing in implementing unlimited PTO. One company backed off its plan when a group of workers with vested banked time threatened to sue. In California, there are concerns that unlimited PTO policies might violate state law.

Many other states also require payout of unused sick and vacation time when an employee resigns or is terminated. The amount can be tricky to calculate when leave is unlimited. Issues can crop up in compliance with the federal Family Leave and Medical Act as well as with similar state laws. Discrimination complaints are also a concern.

Though there’s a huge financial benefit for companies to unlimited time off, there are downsides as well. Any company looking to make the move must consider both the legal aspects and how easily its managers can adapt to a more free-wheeling world.