Work-life balance is a top concern for potential hires and employees today. This has many organizations weighing the possibility of offering unlimited paid time off (PTO). Companies with unlimited PTO do see benefits. But turning to unlimited vacation, first consider these unlimited PTO pros and cons.
What does unlimited PTO mean?
Unlimited PTO means the employee has access to as many vacation days as they like. Typically, as long as they get their work done, this policy means that an employee can take unlimited time off. Generally, instead of tracking a fixed number of days contractually offered by the organization, the employee requests the time off directly from their manager.
It’s a vacation policy strategy that has gained momentum in the wake of the pandemic and within a tighter labor market. Companies that offer unlimited vacation include Microsoft, GE, Netflix, Salesforce, and Dropbox. For many employees, it sounds like a sweet deal.
In fact, in a MetLife survey, respondents were more interested in unlimited time off than in tuition reimbursement, subsidized child care, or free office snacks. Yet, according to a 2023 Harris Poll/Fortune report, only seven percent of Americans had access to an unlimited vacation policy, which a third of American workers defined as more than 30 days off.
Pros and cons of unlimited PTO
Many employees like the sound of unlimited vacation policies. Yet, human resources professionals and other stakeholders must take stock of both the advantages and challenges for the business itself before moving to transform their approach to time off.
Benefits of unlimited time off
The financial benefit of unlimited PTO policies can be substantial for the organization. A CBS News report cited Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School, estimating that US companies are carrying about $224 billion in liability for workers’ unused vacation days.
With a fixed vacation policy, employees are entitled to compensation for any unused days. Moving from accrued vacation time to flexible vacation policies lets companies avoid that enormous liability.
Unlimited vacation days also appeal to job-seekers and help attract new employees who have work-life balance as a top priority. Meanwhile, offering flexible time off can also support retention by demonstrating your trust in your workers to decide when they need time off. Flexible vacation policies also show you support your current team members in their efforts to recharge and relax.
Although it may seem counterintuitive, this approach to time off can also increase productivity. Within the first year Indeed moved to unlimited time off, despite the number of vacation days taken increasing by 20 percent, “the company was still able to significantly increase headcount, open new offices, and boost monthly visitors to its website.”
The flexibility of this strategy can also reduce workload on HR as they no longer need to closely monitor the reasons people are taking time off. All that’s needed is a system for managers to approve the PTO requests. Paychex recommends developing a clear, documented PTO policy that also highlights any busy periods in which it may prove difficult to get time off approved.
At the same time, this type of policy removes the December rush of people trying to use up their accrued time off before the end of the year. With flexible vacation policies, people spread out the days they ask for vacation, providing a better balance of availability across the company.
Cons of unlimited PTO
A flexible vacation policy seems like it would help people be more productive while avoiding burnout. Yet these generous policies don’t always counteract the difficulties people face with asking for time off.
Kickstarter did away with its unlimited time off after realizing its people were taking less time off under the policy. According to the 2023 Harris Poll/Fortune results, “the average employed American with an ‘unlimited paid time off’ took 18 days off last year.”
At the same time, you might encounter PTO overuse. If people abuse the policy, you could face understaffing issues. Plus, the people left at work could feel overworked and overwhelmed trying to pick up the slack.
Unlimited vacation can also foster inequities. Employees who take “too much” flexible time off may suffer the perception that they are slackers. Meanwhile, those perceived as more motivated, as they don’t take advantage of the program, may be more likely to advance or get other benefits.
Your current employees also may resist the change to flexible vacation days. They may have been working to accrue vacation in order to use their accumulated hours as a financial cushion if needed when leaving the job.
Additionally, while a pro was that this can be easier for HR to manage, on the flip side unlimited PTO can be more difficult to track.
Companies that use time off as a reward would also need to revisit their incentive programs. Without the ability to offer extra vacation days as employee recognition, the organization would need to find other ways to acknowledge high performers.
Seeking employee input into unlimited PTO
Companies that have unlimited PTO can reduce business liabilities, build trust with employees, boost retention, and reduce administrative tasks. Yet, this approach can backfire if people don’t feel they can take time off or resent losing their accrued hours. The transition will take intentional planning and discussions with key stakeholders.
Next up, we’ll talk about unlimited vacation from the employees’ point of view. In the meantime, if you’re considering an unlimited time off policy, seek employee feedback first. While many complex variables come into play when considering whether you should offer unlimited PTO, employees should be part of the conversation.
Ready to move this conversation forward? Sogolytics can help you design a survey to better understand what your colleagues want in a vacation policy.
