Some companies are implementing unlimited PTO (paid time off) policies to attract talent and give current employees more flexibility in their lives. But is it the right move for your company? Are you implementing this because other companies are, or are you doing so because it will have a benefit on your employees’ loves? And you also might be asking, How does unlimited PTO work in the first place? These answers depend on many factors, so let’s explore a bit more.
Below, we will explain the pros and cons of unlimited PTO in hopes that it helps you make a more intelligent decision when deciding whether or not to switch your company to it.
What is the meaning of unlimited PTO?
An unlimited PTO (paid time off) policy allows employees to take vacation time and personal leave when they want and need. Employees are not limited to a specific number of days or hours off per year under this kind of policy. However, it doesn’t mean that an employee can take off as much unapproved time as they want. You should still have a communication and approval system in place with an unlimited PTO policy.
For the employee, this makes it easier to plan out vacations and other personal plans. It also means that they are not constantly fretting about how many days they have left before taking time off or running out of vacation hours because the year is almost over.
There are other flexible PTO policies that can be more attractive to employees than typical limited policy that starts around 10 paid days off per year and increases with tenure but aren’t full unlimited PTO. For this exercise, though, we’ll go through some advantages and potential disadvantages of a full unlimited PTO policy in your company.
Outside of strict monetary and HR reasons, you’ll find unlimited PTO can be good for company culture, relationships among employees, and more. In any case, your PTO policy should focus on making sure employees have enough flexibility in their schedule and time off to remain productive and in your organization.
10 Pros of unlimited PTO
Let’s go over some of the pros this policy offers both for employees and employers.
Employees want an unlimited PTO policy from their employer. A Metlife study found that the majority of employees — over 70% — want an unlimited PTO policy, noting that it would help create a “deeper level of care” with talent. So as you consider implementing an unlimited PTO policy employees, here are some of the reasons they may want one:
1. More Flexibility
Since employees can request time off without worry about how much PTO they’ve accrued or how much is in their bank, they can have a more flexible work environment. This beneficial to both parties. This flexibility ensures talent stays happy, rested, and unlimited PTO can help toward giving employees a proper work-life balance.
Having the flexibility to schedule vacations at any time during the year is beneficial for employees. This means that they can take more trips and enjoy their life without having to worry about running out of vacation days or wasting them because they aren’t going to be able to use them in a timely manner.
2. Boosts morale/retention
Allowing employees to take time off without feeling guilty or worrying about job security can boost morale. This may lead to higher retention rates for your company as well. The lack of pressure also means that employees will feel better about coming to work.
Retaining existing staff members might become easier when offering unlimited paid time off. It provides more freedom in deciding how much vacation an employee wants to take at any given point in their career path. Unlimited paid leave also allows full-time salaried workers and hourly employees — like retail store managers who work on commission — to benefit from increased flexibility without compromising pay structure.
3. Improves performance
Research across many years has shown that employees can be more productive when they take more time off. This is great for the employee because it can lead to better performance reviews, career advancement, and higher pay. Employees should have a chance to take breathers from work and not get burnt out.
4. Don’t have to worry about saving PTO for one vacation
Employees can feel comfortable taking time off whenever necessary if they don’t have to worry about saving their PTO for just one vacation. This can increase productivity because employees no longer feel pressured to choose between work and life events like anniversaries, weddings, and graduations. Unlimited PTO allows employees to enjoy all of these occasions when scheduled out and approved.
5. No pressure to work while sick
Employees don’t have to feel pressure to work while sick because they can take time off without consequences. Your employees’ health and well-being is vital to the productivity and culture of your company. They can take better care of themselves without having to worry about dipping into a PTO or sick leave pool a couple of days at a time.
You don’t want your employees working when sick, anyway. If an employee feels the need to come into work when sick, they can spread illnesses around the company, which results in lost productivity in more than just a single person.
Compared to over 70% of employees who would like an unlimited PTO policy, Bloomberg reports that roughly around just 10% of companies have adopted one. This could be due to hesitations of breaking from the norm or they provide for an industry where they don’t feel this type of policy would increase productivity. Whatever the reason, let’s look at some advantages of unlimited PTO for employers:
6. Creates a trusting environment
This policy creates an environment of trust between prospective employers and employees. The employee hones a sense of confidence that their employer believes in them to accomplish tasks while also taking deserved vacations and time off.
Nothing builds trust more than knowing you can take time off without repercussion, creating a better work-life balance.
7. Can be used as a recruiting tool
Remember how a majority of workers want unlimited PTO but an extreme minority of companies offer it? In that scenario, offering unlimited PTO can be seen as a perk and help employers attract talent. Word can spread quickly about your company in a positive manner. All of this can be used to bring in fresh talent to work for your company.
8. It may be cost-effective
Unlimited PTO could possibly be cost-effective and can even save money for the employer. With this system, businesses have lower turnover rates because employees could be more likely to stay with a company that provides unlimited PTO. Regular resignations in a company can be costly due to the time and resources it takes to find a replacement.
On the flip side, there is fact that companies don’t have to pay out time off when an employee leaves or is terminated. Under typical limited time off policies with rollovers, an employee can accrue large amounts of PTO over many years. One may choose to not take time off for years, and they may save up hundreds of hours of PTO in that time. When they leave the company, they are owed that money, which could mean months of salary (in addition to having to pay to backfill the role).
Having an unlimited PTO policy would encourage that kind of employee to take time off regularly, and the company wouldn’t have to pay out any PTO at the end of employment.
9. Can increase in productivity
With unlimited time off, employees are more likely to be productive. Employees who know that they can take a break whenever they want are less stressed and will feel more fulfilled in their daily tasks. Many studies have shown vacations lead to higher morale and productivity among employees, so they should be encouraged by supervising staff, too.
That higher morale and higher-engaged employees can help increase productivity and reduce stress levels in the workplace, too.
10. It can boost your culture initiatives
If your company has initiatives about employee mental health, but you only offer 10 days off total per year to employees, are you truly worried about their mental well-being? An unlimited PTO policy can back up statements and initiatives your company has that encourage a work-life balance. That will require lots of communication and guidance from supervisors and executives (as we’ll discuss in a moment), but when implemented well, it can really show employees how much you care about them.
Cons of unlimited PTO
Not every policy is perfect, and unlimited PTO can have its downsides for both employees and employers. However, with proper communication, a positive culture, and clear expectations, these kinds of downsides can be avoided.
No clear expectations or checks in place
A problem can arise when there are no clear expectations for when an employee should use their unlimited PTO. If you decide to offer unlimited PTO, make sure to set a clear company policy of this benefit. That way everyone knows how to enjoy their vacation days without abusing the policy. It’s meant to give everyone flexibility and comfort within the organization–not give everyone three months of vacation time every year.
There should be a couple of forms of communication/approval in place when you have an unlimited PTO policy:
- Explain what an average PTO request may look like
- General guidelines for how long and how often PTO requests are approved without question
- There should still be an approval process and tracking system for when employees are taking time off
Pressure to not use PTO if management/leaders don’t
Employees can feel pressure not to not take if they see that management and leaders aren’t taking time off themselves. This puts employees in a difficult position where they may feel like they need to take less time off, even if they need it. This defeats the whole purpose.
Management should lead by example and show employees what taking useful and needed time off, both for personal and leisure activities, looks like across the year.
Some of the cons for the employers are:
Employees could abuse their unlimited PTO
With unlimited paid time off, employees might take advantage of taking extended breaks, affecting productivity. Work still needs to get done, and unlimited PTO isn’t meant to offer every employee months off per year.
This is why it’s vital to communicate clear expectations of an unlimited time off policy.
Could cause scheduling conflicts
Employers may have to deal with many employees using PTO simultaneously, and that could cause a problem if multiple leaders or important team members are off a critical times. If a problem like this arises, you can approach team members and ask if they are flexible with when they take their vacation in order to make sure there is needed coverage. (This should only be broached if absolutely necessary.) If not, you can at least prep in advance for these absences.
Employees may take less time off with open PTO
Another potential con for employers is that employees might take less time off if they know it’s unlimited. One study showed that employees with unlimited PTO don’t really take more days off than those with a typical limited PTO plan (on average).
This means employees may not get the breaks they need, which could lead to them becoming burnt out or unproductive. If they think supervisors are constantly monitoring their PTO, they make take fewer vacations and general time off. You should encourage employees to take the time. It’ll benefit your organization in the long run.
In the end, unlimited PTO might not be for every company or employee. It’s essential to assess your company’s priorities and see how an unlimited PTO policy would affect your retention rates and overall morale.
There is no one-size-fits-all solution when it comes to managing work-life balance. If you are interested in learning more about ways you can improve culture in your organization, contact Compass, Insight Global’s culture consulting branch!