Unlimited PTO: Pros and Cons for Your Company

Unlimited PTO: Pros and Cons for Your Company

The pandemic continues to cast its shadow on the workplace.  Microsoft’s 2022 global Work Trend Index study shows that 47% of the respondents are more likely to prioritize personal life and family over work than they were in pre-pandemic times.  And with 29% of workers citing unsustainable work conditions as their top reason for quitting, employers realize the need to prioritize staff’s well-being.  Against this backdrop and to compete for talent, companies like Goldman Sachs, Sada Systems, and Sony Electronics have introduced a policy of unlimited Paid Time Off (PTO).

Are your employees struggling with high-stress levels? Do you find it hard to retain talent?  Unlimited PTO might work for your business.  In this article, we’ll discuss the advantages and the challenges of unlimited PTO to help you decide if this policy could benefit your company.

What is Unlimited PTO?

Unlimited PTO is an employer-provided benefit allotting employees as much free time as they need for a vacation, sickness, or personal reasons.  It can be utilized at their discretion as long as it’s compatible with their workload.  However, workers can’t take to the beach on a whim; they must coordinate their schedule with colleagues and request their manager’s approval.  The policy should clarify when staff can take time off, how far in advance they need to submit requests, and what approvals are required.  Unlimited PTO is a relatively new concept, pioneered by Silicon Valley start-ups and since taken up by larger companies like LinkedIn, Zoom, and Netflix.

Pros of Unlimited PTO for Businesses

While 39% of Netflix workers rate its vacation policy as its number one non-healthcare policy, other companies are divided on whether this benefit truly works for staff, with Facet being one organization canceling it in 2019.  Facet CEO Robert Sweeny wrote: “Unlimited vacation is a scam,” when the company changed to a traditional policy, saying: “Vacation is not really unlimited. If you take too much time off, you will get fired.”  However, his experience hasn’t deterred other companies, and with Microsoft’s recent announcement it’s no longer tracking vacation time, let’s discuss the pros and cons for your company.

1 – It Builds Trust

  • When a business adopts a policy of unlimited PTO, it shows hardworking employees that they’re not being nickeled and dimed for time off.
  • Open leave allows employees to take time off when a personal or health commitment arises without using allocated holiday time.
  • Empowering employees with vacation time fosters a sense of trust and influences staff to care more about your business’s future.

2 – It Aids In Recruitment and Retention

  • With job seekers rating work-life balance and vacation time as the number two job benefit they seek, an attractive leave policy enhances the employer brand.
  • It’s also a relatively cheap benefit for smaller businesses that can’t provide the same benefits as Fortune 500 companies.
  • Businesses with an open leave policy note that workers tend to use it for family or care commitments rather than spending a day at the pool.
  • Unlimited PTO will likely attract parents, caregivers, and Gen Z workers – known for prioritizing work-life balance.
  • Also, considering 60% of job seekers say their company’s culture makes it difficult to balance work and home commitments, unlimited PTO might convince your workers to stay. This could save you substantial costs by avoiding the need to replace them.

3 – It Prevents Employee Burnout & Helps Productivity

  • Rising workloads, long hours, and anxiety about high inflation have impacted workers’ mental health.
  • Given that 34% of respondents in the American Psychological Association’s 2022 Work and Well-being Survey respondents want, “a workplace culture that respects time off,” open leave might help your staff ward off burnout.
  • Enabling staff to take time off will revitalize workers. They’re more likely to come back ready to work hard and increase productivity.

4 – Unlimited PTO Saves Time

  • Tracking time off and unused vacation days takes up valuable time for HR staff and the accounting department.
  • Also, employees need to sign in and log their time. With unlimited PTO, provided it’s a clear policy, managers and HR staff won’t get bombarded with PTO-related questions.

5 – It Saves Money

  • This pro for companies is a drawback for staff. With most traditional PTO policies, staff gets paid for any days not taken when they leave the company.
  • With unlimited PTO, the company hasn’t specified the number of vacation days, meaning the company doesn’t have to pay out accrued days. 
  • Considering the average worker holds around $3,000 in paid time off, this can mean substantial savings for large companies.

Cons of Unlimited PTO for Businesses

An open leave policy works well for results-based businesses but is incompatible with companies relying on hourly staff dedication, such as customer service centers, tech support, or retail.  And in companies where it could work, a strong culture of trust and transparency is a minimum requirement to make it successful.

1- Workers Can Take Advantage

One of Netflix’s five key tenets is, ‘Hire, reward, and tolerate only fully formed adults.’   Consequently, a strong emphasis is put on employing risk-takers who fit in with its open and transparent culture.  Netflix’s workplace is geared towards adults it can trust with unlimited PTO. However, not every employer attempting an open leave policy can assume their culture is results-based and built on trust.   And when abuse does occur, it’s difficult to discipline employees based on excessive absences. It would be prudent to set clear parameters and devise policies for managing suspected abuse.

2 – The Policy Might be Confusing

Unlimited PTO is a sweetener for recruiters looking to avoid vacation time negotiations when hiring prospective employees. And an open leave policy might seem attractive to new hires. But, whether employees can enjoy this perk greatly depends on their manager’s discretion.  If a company’s workplace frowns upon taking leave, staff might refrain from doing so and feel duped by the policy.  One way to overcome this is to encourage staff (including managers) to take days and specify a minimum amount of time that needs to be taken.

 3 – It Might Lead To Delays

While ‘the use it or lose it’ pressure to use up holidays at year-end is not an issue, flexibility in taking leave might mean delayed projects due to time overlap.  Prevent scheduling conflicts by introducing a master calendar to track attendance.

 4 – Implementing Unlimited PTO Can Be Complicated

Moving from a limited PTO policy to an unlimited one takes time, research, and legal consultation to ensure compliance with federally mandated leave laws.  And creating and communicating a new policy won’t happen overnight.

5 – Moving To Unlimited PTO Can Be Expensive

Implementation can be costly if you need to pay out accrued time off as per a prior policy.  For instance, Microsoft opted to instead issue a one-time payout to all workers with an unused vacation balance.

Is Unlimited PTO Right for Your Company?

With an always-on work culture, employees might not take enough vacation time, leading to burnout and high-stress levels. One way to combat this might be to introduce unlimited PTO. Companies like Nextflix, Zoom and Facet have done so, with mixed results.  Could it work for your business?  If your company’s culture is results-based with a high level of trust, and you specify a minimum amount of vacation days, then it is likely to work.

This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.