What is an Unlimited PTO Policy and How to Do it Right

March 8, 2018 by Keri Overman

In today’s market, it’s becoming more difficult to attract and retain top talent. Offering competitive benefit packages has become increasingly important for organizations looking to add top-performers to their team. Standard benefits packages with medical, 401K, and two weeks vacation are quickly becoming overshadowed by more diverse, unique, and impactful employee benefits packages.

One unique benefit competitive companies have begun to offer is unlimited PTO. The concept of “unlimited PTO”—offering employees paid time off with no cap—originated in Silicon Valley as part of the emerging startup scene. Startups offered this perk to help attract top talent they might otherwise have not been able to afford. However, what was once a “trendy” employee benefit limited to emerging startups has now begun to appear in more established companies. Research by the Society for Human Resource Management (SHRM) indicates unlimited (or unstructured) PTO programs are becoming more popular. In fact, General Electric recently implemented a “permissive time off” policy, which effects over 30,000 salaried employees in the U.S.

That being said, current research estimates the total percentage of companies in the U.S. offering unlimited vacation time at around 2%. A survey by HR association WorldatWork indicates that only 1% of large companies offer unlimited PTO.

With such a small amount of companies offering unlimited PTO, it could be your secret weapon to build an attractive, high-impact benefits package that stands out to top candidates. However, there are several pros and cons to implementing an unlimited PTO policy.

In this post I’ll explore the pros and cons of an unlimited PTO policy, the financial implications of unlimited PTO, tips on deciding if unlimited PTO is right for your organization, and guidelines to successfully implement an unlimited PTO policy at your company.

Benefits of an Unlimited PTO Policy

Implementing an unlimited PTO policy can have several positive impacts on your organization including:

  • Less time spent managing accrued time off. With unlimited PTO, HR staff is no longer making constant changes to employee PTO for taking a half day off, a one hour dentist appointment, etc. They also no longer have to field inquiries from employees about how much time off they’ve accumulated, or what they have left for the year.
  • Reduced financial liability. Under an unlimited PTO plan you no longer have to pay out accrued, unused PTO when an employee leaves the company. Research conducted by Oxford Economics found the average vacation liability per employee to be $1,898. This translates to $65.6 billion in accrued time-off liabilities on the books of U.S. companies.
  • Fewer time off conflicts. In organizations with “use-it-or-lose-it” PTO policies, there is often a mad dash in November and December to use up any leftover PTO. This can cause severely understaffed departments at year-end. With unlimited PTO, there’s no end of year rush to use up expiring PTO.
  • Employees take off time when they actually need it. Under traditional PTO plans employees (especially those with young children) are inclined to save up their PTO days in case of unexpected illness or another family emergency. However, it’s important to encourage employees to take time off to relax and rejuvenate, so they can function optimally when at work. Unlimited PTO policies help encourage this behavior.
  • Attracting and retaining top talent. Most high-performing employees are self-sufficient and self-motivated. This means they appreciate work environments built on personal accountability, trust, and autonomy. Unlimited PTO programs can help foster a work environment where top talent thrives.
  • Empowering employees. Motivation studies indicate that when employees feel trusted, their motivation, morale, and productivity increase substantially. Unlimited PTO can help foster an environment of trust.

Challenges of an Unlimited PTO Policy

While there are several pluses to implementing unlimited vacation time, there are also several challenges related to this policy including:

  • New logistics. Although an unlimited PTO plan might eliminate your team’s need to meticulously track each hour taken off, you’ll still have to have a system in place to track PTO days used.
  • Policy abuse. When it comes to unlimited vacation time, there’s always a risk of policy abuse. Many companies worry that employees will take off frequently or take off for long periods of time. This policy abuse can have an impact on the company through performance problems and project delays.
  • Low policy usage. In some cases, an unlimited PTO policy may discourage employees from taking time off. Some organizations with unlimited PTO have found that unclear expectations around what amount of PTO is appropriate have encountered issues with employees taking off less than what is recommended. In organizations that prioritize work-life balance, this can be a potential con.
  • Unmanaged PTO. Unlimited PTO can quickly become unmanaged PTO if the proper procedures are not in place. A more formal time-off policy means more formal procedures around how vacation time is requested, approved, and tracked.
  • Unclear expectations for employees. In some cases, employees are unsure what amount of vacation time their manager finds acceptable under an unlimited PTO policy. In highly competitive organizations, employees might fear taking any time off. This creates a stressful, highly toxic work environment.

How to Decide if Unlimited PTO is Right for Your Business

Several small-to-mid-sized businesses have tested unlimited PTO policies at their organization to see how it would impact employee engagement and retention. Most organizations that implement an unlimited PTO policy find their employees take off roughly the same amount of PTO as the year prior. Studies have found employees at organizations with unlimited PTO are taking off between two and three weeks of vacation annually, on average. This figure includes time-off for vacation, personal reasons, and sick days.

When employers are considering implementing unlimited PTO they often fear employees will take off for extended vacations. However, organizations with unlimited PTO have not found this to be the case. More common is that employees are taking one or two day tips, long weekends, or extending holidays rather than leaving for long periods of time.

Surveys ranked unlimited PTO as the third most popular employee benefit at organizations that offered it. Unlimited PTO came in just behind health insurance and 401k plans. This means unlimited PTO beat out vision insurance, dental insurance, and professional development as the more desired benefit.

Whenever you’re thinking about offering an additional employee benefit or perk, you should consider if it’s inline with your company’s values. Offering unlimited PTO might be right for your organization if you believe strongly in the following values:

  • Autonomy
  • Trust
  • Freedom
  • Mutual Respect
  • Accountability
  • Work-life balance

Beyond core values, you’ll also have to consider industry limitations. For example, businesses in the retail and manufacturing industries have a difficult time implementing unstructured PTO policies.

Also, when you’re considering changing your benefits program, it’s important to consider the make-up of your workforce. Would your employees find an unlimited PTO program valuable? In organizations with a younger workforce, unlimited vacation plans may provide a huge value. However, in organizations within more structured industries (such as finance or healthcare), employees might prefer the traditional PTO plan they’re used to.

If you're interested in attracting and retaining top talent, don't forget to register for our upcoming webinar: How to Build a High-Impact Employee Retention Program Without Spending a Penny. Save your seat here!

Building Your Unlimited PTO Policy

If you’ve decided you’d like to roll out an unlimited PTO policy to your employees, you’ll need to make some decisions about the structure of your policy. As you go about creating a formal written policy, here are some questions you can answer to begin formulating an outline for your new policy:

  • What will you call the policy? “Unlimited PTO” or “Unlimited Vacation” might be too ‘startupy’ for an established business. Some alternatives might include “Flexible PTO” or “Self-Managed PTO.” What you the call the program will greatly impact how employees and job candidates perceive it.
  • Will you offer a required minimum amount of PTO per year?
  • Will you provide guidelines as to what amount of annual PTO is recommended or acceptable?
  • Will you require employees to submit time-off requests or let them entirely self-manage their PTO?
  • If time-off requests are required, what process should employees follow?
  • Will you require employees to submit a work completion plan for longer time-off requests?
  • How will employees be held accountable for project deadlines and general job performance?
  • What system will you use to track PTO usage so you can evaluate your new unlimited PTO policy’s effects?
  • Will you require employees to designate someone to take over their responsibilities in their absence?

Considering and answering these questions is a great first step in building a formal unlimited PTO policy.

How to Implement an Unlimited PTO Plan at Your Company

Once you’ve make decisions about the structure of your new PTO plan and created a formal written policy, there are several key things you should consider before implementing the new plan.

  • When switching from a traditional PTO plan to unlimited, long-term employees may see it as a loss of deferred compensation from accrued time-off. To combat this, institute a process to offer payouts for accrued time-off when the new PTO plan is rolled out. Certain states have strict regulations over pay-outs regarding PTO, so make sure you’re being compliant.
  • Give advanced notice to employees that a new benefit type will be rolled out soon. Explain the impact of the new PTO policy and how it will become part of the company’s culture.
  • Create, document, and distribute a written policy that outlines the structure of your unlimited vacation policy. Make sure to include details on eligibility, the proper procedure to request time off, and any rules on how this benefit will be managed. Make sure to put this new policy in your employee handbook.
  • Educate management staff about the new policy and how to administer it in accordance with your new documented policy.
  • Put systems in place to track the new PTO policy usage. Even if employees are not held accountable to a specific number of vacation days per year, it’s still important to have a system in place to track vacation time. This will allow your team to monitor trends over time and watch out for over or under-usage.
  • Remember that unlimited PTO does not have to mean “unmanaged PTO.” You can offer your employees unlimited PTO but still hold them accountable for appropriate request-off procedures and accountability protocols.

Key Take-Aways

In today’s post, I explored the pros and cons of unlimited PTO plans and offered some guidance in selecting if this policy is right for your organization. Here are some key take-aways from today’s post:

  • Unlimited PTO can reduce your financial liabilities, empower your team, and help you attract top talent.
  • An unlimited PTO plan presents several potential challenges including unmanaged processes, policy abuse, and unclear expectations.
  • When deciding if unlimited PTO is right for your company make sure to consider your company values, industry limitations, and workforce demographics.
  • When implementing a new PTO policy, it’s crucial to formulate and document a formal, written policy.

What do you think: is unlimited PTO a good or bad idea? Does it work for specific companies but not others? Drop your thoughts in the comments box below!

If you're interested in attracting and retaining top talent, don't forget to register for our upcoming webinar: How to Build a High-Impact Employee Retention Program Without Spending a Penny. Save your seat here!

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