Unlimited Paid Time Off (PTO): Is It A Good Idea?

It seems too good to be true: When you need to, just take time off, as much as you need.

The concept of unlimited paid time off, in which employees are able to take “unlimited” days off and the company is not required to track accrued time off, is an intriguing one. But is it the right idea for your company?

Let’s Not Call It “Unlimited”

Just the name, unlimited PTO, can strike fear in the hearts of business owners. It conjures up images of empty offices and work areas while employees are laying out on beaches for weeks at a time, sipping fruity drinks and taking full advantage of the “unlimited” policy. Here at People Person, we prefer the term “Flexible PTO.” This provides employees with a PTO policy in which they are able to take time off at their discretion, as long as the work is being accomplished and time away does not disrupt company operations. With a flexible PTO policy, you, as the employer, can still set boundaries and parameters as necessary.

The Pros of a Flexible PTO Policy

In terms of a workplace benefit, it’s hard to argue with flexible PTO. It’s a perk that encourages better work-life balance for employees, which in turn should improve overall productivity. According to the Harvard Business School, overstressed employees can quickly become burned-out employees, and the psychological and physical results of that cost American businesses more than $125 billion a year.

Without the traditional qualifications for vacation time, personal time, and sick time, employees can simply take time off, whether it’s for a vacation, to spend a day with an aging parent, or any other reason, because the reason no longer matters. This type of policy also eliminates the problem of trying to anticipate and allocate time off on a year-long basis, so employees never find themselves with unused days at the end of the year.

Moreover, depending on their role in the company as well as job responsibilities, there’s a good chance that some of your employees do work when they’re not actually at work.  According to a 2018 survey by Wrike, about a third of American workers actually work on their vacations, making this time less about a day off of work and more about a day physically away from the workplace.

From an administrative standpoint, implementing flexible PTO eliminates the need to formally track time off. Depending on your state, it can also eliminate the financial burden of having to pay out accrued PTO at the time of termination.

The Cons of a Flexible PTO Policy

While a flexible PTO policy seems great on the surface, some employers still attach a stigma to employees who take “excessive” time off. This can also create interpersonal issues between coworkers, when one is taking more time off than another. A recent study by Namely showed that employees of companies with flexible PTO policies take an average of 13 days off per year, two fewer than those employees with traditional PTO policies.

A policy which provides flexible PTO generally pays an employee when they are off work, as long as the absence is approved. This can create conflict in situations when an employee is taking Family Medical Leave (FMLA), for example. FMLA is a job protected leave, and if an employee is eligible, they can take up to 12 weeks off. Generally speaking, FMLA is unpaid. However, with a flexible PTO policy, the employer would likely need to pay the employee for this time off, considering that FMLA is “approved” time off.

Additionally, switching to a structure of flexible PTO removes a standard reward for employment longevity. Traditional benefit structures reward employees with longer tenures by increasing PTO over time. It also allows some employees to earn additional “wages” through accrued PTO, which may then be paid out upon termination.

Rethinking this structure requires organizations to find other ways to reward longevity, which may not be fiscally or organizationally feasible.

The Bottom Line

So, can a flexible PTO policy work for your company? It depends. It’s certainly an advantage in recruiting and retaining top employees in a competitive job market, but it is also not the right choice for everyone.

Flexible PTO has been successfully implemented in a variety of big-name organizations, from General Electric to Dropbox. Numerous studies show that there are certain key elements that can contribute to a successful flexible PTO policy.

Organizations that switch to flexible PTO need to have a culture of trust in place, clear parameters and expectations, open communication, and a goal-oriented working environment. They should also take care to ensure their reasons for implementing a flexible PTO policy is truly for the benefit of the employees and not solely as a way to save money, whether by removing the need to pay out accrued PTO or cutting back on administrative hours devoted to tracking time off.

Even though it’s called “Flexible PTO,” the benefit does require some structure for successful implementation. Among other things, your organization will want to establish:

• Parameters for the maximum number of consecutive days that can be taken away from the workplace.
• A minimum number of PTO days an employee should be taking each year.
• Policies for prioritizing PTO requests, including a “first come, first serve” policy for employees who want to take time off during the same time.
• Guidelines for managers and supervisors to follow in communicating the policy, as well as what to do if the policy is abused.
• Guidelines for employees in how to rethink their productivity with new time-off policies.

Flexible PTO policies challenge a number of common workplace perceptions, from the perceived correlation between longer hours and employee value to how work life vs. personal life are prioritized. The perceptions of customers and clients should also be considered. Depending on your business, there may be certain expectations in place regarding the daily presence of specific employees and roles within the organization. Employees, managers, and cultures that value these perceptions will find flexible PTO policies challenging.

If you are an employer considering a flexible PTO policy, be sure that your first priority is the health and wellbeing of your employees, with the release of the administration and financial burden being secondary. This will help ensure that the policy is implemented in a way that is fair for everyone involved, including the company.