Unlimited Paid Time Off: Pros, Cons & Implementation

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Unlimited Paid Time Off: Pros, Cons & Implementation

Unlimited paid time off (PTO) is a simple idea: employees are given an unlimited number of days off. They neither accrue nor are they assigned a number of vacation days per year. It may sound crazy, but companies like Goldman Sachs, Netflix, Oracle and LinkedIn are doing it.

The goal is to give employees greater freedom and flexibility, potentially improving well-being across the organization and benefitting both employees and the business. Let’s unpack this further. 

Contents
Introduction to unlimited paid time off
Should HR consider implementing unlimited paid time off?
How to build a successful unlimited PTO policy
Examples of companies that offer unlimited PTO

Introduction to unlimited paid time off

In theory, unlimited PTO gives employees the freedom to take as much paid time off as they want as long as they can continue to perform their role efficiently and keep up with their workload, and it doesn’t disrupt the business.

This does not mean that employees can simply take time off whenever they want. They still need to request time off through their manager and through whatever company system is in place that requires them to submit requests for time off. 

A key benefit of this type of policy is that it gives the employee responsibility for how they will manage and allocate their time.

Why do companies offer unlimited paid time off?

In a tight labor market, employers are searching for ways to attract new employees and retain current ones. They want to prioritize employee well-being, the employee experience, and company culture.

According to a Metlife Employee Benefit Trends study, “more and more, employees are building non-traditional, nonlinear, and more malleable careers over the long term – creating significant opportunities for employers to position themselves as allies in their employees’ happiness.”

A post-pandemic survey from Prosper Insights & Analytics reported that nearly 60% of employees are either neutral or unhappy with their overall work-life balance. Workers want benefits that support and enhance their lives, and unlimited PTO is increasingly appealing. According to a Harris Poll for Fortune of 2,000 workers, 50% of employees in the US would take unlimited PTO over higher pay.

Not only can unlimited vacation time be a real morale booster, but it can also enable your company to build a culture of trust and healthy relationships; employee autonomy improves communication, teamwork, commitment and productivity.

The findings of State of American Vacation revealed that employees at companies with encouraging cultures were much happier than their peers at firms that discourage vacation time. These employees are also much happier with their job and how much vacation time they use. Happy employees have the power to positively influence the bottom line.

The drawback of unlimited paid time off

Yet some companies that have experimented with unlimited PTO have found it to be a failure. A survey showed workers given unlimited PTO took fewer holidays than those with a fixed number of days. A US poll showed that one-third of US workers with unlimited PTO spent every holiday working. New policies won’t change overnight a culture that thrives on overwork. 

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Critics have also noted that unlimited vacation time may be more of a perk for the company than for workers. Letting people take as much time off as they want means no more unused days and no need to pay them out later.

For Netflix however, which began offering unlimited holidays to its employees back in 2003, it has been a great success. This is because the company has always had a culture of accountability. In addition, Netflix CEO Reed Hastings set the tone by taking off six weeks a year.

Should HR consider implementing unlimited paid time off?

If you’re thinking about implementing unlimited PTO, it’s important to weigh up the pros and cons.

The benefits of unlimited paid time off

1.     Improved employee productivity and happiness

The State of the American Workplace Report found that 53% of employees believe maintaining a good work-life balance is essential. Unlimited PTO enables people to lead a full life and also makes them feel trusted and respected – resulting in improved morale and greater loyalty.

2.     Increased employee autonomy

Increased productivity and engagement are just two of the benefits of unlimited PTO. Workers who can decide how to allocate their time feel in control of their work and life, leading to increased job satisfaction and loyalty. 

3.     Companies can save money

When employees cash in their unused leave days at the end of the year or when they resign, companies have to pay out large sums of money. Without leave accrual the organization is absolved of this responsibility. Taking time off also increases employees’ physical health and well-being, allowing them to be more productive and creative, and benefitting the bottom line.

4.     It’s less admin for HR

Tracking PTO is a time-consuming task for HR. It has to be recorded in the PTO request system, payroll system, or when employees submit their time. With unlimited PTO, this is no longer necessary, allowing HR to focus on more pressing tasks, while also saving time and money for the HR team. A basic time-tracking tool can do the job of managing leave applications and approvals at a fraction of the cost.

5.     It’s easier to attract and retain talent

Unlimited PTO can be an effective attraction and retention tool for top talent. Employees place a high value on flexible working arrangements, especially in a post-pandemic workplace. Savvy employers understand the growing trend of employees being willing to forgo salary increases for better perks. 

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The disadvantages of unlimited paid time off

1. Employees may abuse the system

Unlimited PTO may lead to employees taking extended leave without fear of losing their jobs. No employer wants to be in this situation, as it will impact deadlines, affect the workloads of others, and may lead to team disharmony.

2. Unlimited paid leave is no longer viewed as a reward

When unlimited PTO is the norm, companies can no longer use it as a reward or incentive. Organizations will have other ways to motivate and reward employees.

3. Managers may find it difficult to build schedules

Unlimited PTO may interfere with business needs, especially if people take time off during busy periods or when deadlines are looming. This may also make it difficult for team leaders to plan.

4. Meeting regulation and compliance requirements

Certain types of leave are mandatory, such as sick leave, maternity leave, and religious observance. HR needs to be up to speed on compliance requirements and develop unlimited PTO policies accordingly. 

5. Undefined expectations may lead to misunderstanding

Unlimited PTO only works if the company culture allows employees to take a reasonable and suitable amount of time off. There has to be an acceptable number of days or weeks that people can take at any one time.

6. Employees may take less time off

The idea of unlimited PTO is inherently ambiguous and lacks clear rules. When managers and leaders don’t set an example, employees may be confused or uneasy about taking leave and may not take the leave they rightfully deserve for fear of looking like they’re abusing the system.

HR tip:

Creating a comprehensive policy outlining your policy is key when introducing unlimited paid time off for your employees.

If your company is experimenting with unlimited PTO as an option to improve work culture, offer employees a better work-life balance, and attract top talent seeking flexible workplace benefits, creating a policy that clearly outlines expectations is essential to making it work successfully.

Be clear about when the policy will be rolled out. Establish parameters around the reasonable amount of time employees will be entitled to take unlimited PTO. Set rules about working during busy periods, and meeting deadlines.

Put the policy in writing and include it in your employee handbook.

How to build a successful unlimited PTO policy

1. Moving from limited paid time off to unlimited paid time off

Making the move from traditional paid leave to unlimited PTO offers employees the opportunity to maintain work-life balance while ensuring your company thrives through an engaged, committed workforce. To make sure your unlimited PTO succeeds, take note of some basic tips.

  • Choose an appropriate transition date: Employees may have unused or accrued PTO. To make the transition smooth, it’s advisable to kick off unlimited PTO at the beginning of a new fiscal or calendar year.
  • Advise employees to use existing accrued leave: Make it clear that accrued leave will be lost when the new policy is rolled out. Provide sufficient time for employees to use their leave before they forfeit it.
  • Identify who is eligible for unlimited PTO: Your organization can choose to make unlimited PTO available to only certain types of employees. The most common are salaried employees, consultants, IT or project-based employees, and salespeople.
  • Set expectations: Communicate expectations early. Be clear about how many concurrent vacation days employees may take, the lead time required before an employee can go on vacation, and the correct process for submitting leave requests.

Ensure that employees understand that performance and productivity expectations must still be met in accordance with their job descriptions.

2. Developing your unlimited paid time off policy

  • Align the policy with your company’s core values: Apply the company’s guiding principles and fundamental beliefs when formulating your unlimited PTO policy. Building it with your people at its heart will ensure that everyone is guided by common business goals.
  • Get stakeholder buy-in upfront: Unlimited PTO needs to fit in with how work is done. Discuss this with managers and team leaders of different groups of employees and incorporate their needs and requirements.
  • Be open to questions or concerns: As with any new approach, people will have questions. The HR team must be ready to provide guidance for everyone.
  • Get feedback: Ask employees and managers how it’s working for them. Talk about the positives and negatives. Then use that feedback to take action and tweak where necessary. Ensure that you continue to communicate.
  • Ensure that the policy is well-documented: Make it clear that employees must have leave requests approved by their supervisor and set a limit to the number of staff in any one department that may be on leave at the same time. Make it a requirement that individual and team performance are not affected by employee absence.

3. Implementing the unlimited PTO policy

Communication is key: Set boundaries from the outset and make the written policy available to everyone. This will make it easier to manage the policy and ensure no-one abuses it.

Encourage managers to lead by example: Employees often take off less time than they deserve because they don’t know where to draw the line between acceptable and excessive. Managers can set the tone and help to create more transparency about how unlimited PTO works.

Redefine success metrics: Measure employee value by what they achieve instead of the number of hours they spend at the office. This will help to create a culture where employees feel trusted and can enjoy their time off.

4. Ensuring unlimited PTO is used effectively

  • Encourage employees to use unlimited vacation time: Some people may struggle with boundaries and feel uncomfortable taking leave. Others may not take time off because they are simply not used to unlimited PTO. Encourage your employees to take at least five days of consecutive leave at the very minimum.
  • Ensure the policy is not open to abuse: Implementing unlimited PTO means that there is the potential for employees to abuse company policy. Avoid this by ensuring managers conduct regular performance reviews and ensure that the policy is understood and followed. 
How HR can build an unlimited PTO

Examples of companies that offer unlimited PTO

Oracle

Oracle offers unlimited vacation time to salaried employees. They must get preapproval from their manager, so they aren’t going on leave when they are really needed. In addition to unlimited vacation time, LinkedIn employees receive 17 paid holidays a year.

Evernote

Evernote unlimited vacation time comes with a $1,000 annual vacation stipend for employees, provided the employee takes a break of five days or longer.

Evernote unlimited paid time off policy
Source

Hubspot

Hubspot offers a company-wide week off in July, as well as unlimited vacation. After five years with the company, employees get a four-week paid sabbatical and a sabbatical bonus.

HubSpot unlimited paid time off policy
Source

Key takeaways

  • Annual leave with a difference: Unlimited paid time off (PTO) gives employees the freedom to take as much paid time off as they want as long as they can continue to perform their job role effectively and it doesn’t disrupt the business.
  • Creating a culture of trust: Unlimited vacation time can enable your company to build a culture of trust. When people can use their discretion to decide how much leave they can take while still fulfilling their job duties and responsibilities, they feel recognized and respected.
  • Establish the parameters: Document your policy in writing and ensure it sets parameters around the reasonable and acceptable amount of time employees will be entitled to take unlimited PTO.
  • Encourage managers to lead by example: Employees often take less time off than they deserve because they don’t know where to draw the line between acceptable and excessive. Help managers to set the tone and help to create more transparency about how the policy works.
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