By: Paul Davis on April 15th, 2016

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Is Unlimited Paid Time Off (PTO) Right for Your Business?

Total Rewards | Risk Management | Benefits | Business Management & Strategy | Best Practices | Employee Relations

The idea of employees having an unlimited amount of paid time off (PTO) is a more complicated proposition than it sounds. There’s already a great article on our site that discusses the pros and cons of unlimited PTO plans, and this particular article focuses specifically on the suitability of unlimited PTO plans for certain organizations and types of workers.

When I discuss the idea of unlimited PTO with clients, I find it useful to begin by outlining what an unlimited PTO program actually plan looks like. While organizations can always customize their PTO policies to fit their organization, unlimited PTO policies typically have some characteristics that are universal:

  • The unlimited PTO isn’t actually unlimited;
  • Employees are still required to get their work done;
  • There is still a request/approval process before leave can be taken;
  • Time off still needs to be tracked in certain instances for regulatory reasons;
  • There’s no payout for unused PTO.

Probably the most counter-intuitive of these characteristics involves the unlimited PTO not actually being unlimited. This ties in directly with the second point, which is that employees are still required to get their work done. Since having to do work precludes having unlimited time off, the term ‘unlimited PTO’ is a misnomer when interpreted literally. With that said, these sorts of plans are a sharp deviation from a standard accrual-based PTO plan (i.e. you accrue a certain amount of PTO during the course of the year, and your unused PTO is paid out to you when you leave). Describing how limited the unlimited PTO plan actually is presents a messaging challenge for companies.

Organizations Best Suited to Adopt an Unlimited PTO PlanOn top of these policy characteristics, there are some general rules of thumb regarding what sorts of companies and roles an unlimited leave policy is best suited for. This is important to clarify, because when you think about problems with unlimited PTO plans, you’re really only talking about the problems with these plans for companies who might realistically adopt such a plan. If you’re a leader at a company and are considering implementing an unlimited PTO plan, some of the following information can help you consider whether such a plan will work at your organization.

Organizations Best Suited to Adopt an Unlimited PTO Plan:

  • Have supervisors who can effectively manage timelines and balance workloads of their staff;
    • This is critical because not all requests for leave in an unlimited PTO plan should be approved. Supervisors need to have a good handle on project workloads and deliverables so that they can make informed decisions when reviewing time off requests.
  • Effectively set and communicate expectations;
    • When rolling this sort of plan out to current employees, or explaining the benefit to prospective hires, it’s important to manage employees’ expectations about what the benefit actually is. If an employee is aware of the limits of their ‘unlimited’ PTO plan, they should not feel cheated when they don’t get to take unlimited PTO.
  • Have an organizational culture that isn’t in conflict with a non-traditional and open-ended vacation plan;
    • This sort of plan typically puts a lot of responsibility on first level supervisors because they have more factors to consider when making their determinations of employee requests for time off. Organizations that don’t allow their supervisors a wide degree of latitude can find it difficult to give their managers additional decision-making responsibilities.
  • Can easily measure the results of work being performed;
    • Being able to measure the work that an employee is doing allows companies to protect themselves against what is generally the most worried-about byproduct of an open-ended PTO plan; abuse.
  • Have a workforce that isn’t always needed to work a set amount of hours per week
    • If your organization’s employees need to bill their time (e.g. federal contractors), need to be available during certain hours (e.g. customer service), or are constantly engaged with customer during the work day (e.g. retail), an unlimited PTO plan may not make sense for your workforce. This is because there is typically less flexibility for employees in those sorts of circumstances, which undercuts some of the core positive attributes that an ‘unlimited’ PTO plan offers.

Now that we’ve laid the groundwork for what an ‘unlimited’ PTO plan is, and what sort of organizations are best suited to successfully use such a plan, you’re well positioned to start thinking about whether your organization might be compatible with an unlimited PTO plan. If you are seriously considering such a plan, the actual process of implementing an unlimited PTO plan involves a number of additional considerations so that you avoid potential pitfalls. Some of these considerations include:

  • Whether your organization has any contracts covered by the SCA;
  • Whether your organization is covered by laws (such as the FMLA) that require tracking of certain types of leave;
  • How to handle already accrued PTO when you make the transition;
  • How to train managers on the new process;
  • How to communicate the benefit

In summary, two different organizations with identical ‘unlimited’ PTO plans can have very different outcomes when they roll out their plans. The amount of effort you put into considering the suitability for such a plan, and how you roll out and communicate the plan are the guiding factors to whether an unlimited PTO plan can be successful at your organization.