Unlimited paid time off policies sound good. Combined with the flexible hours and freedom of location for remote teams, they should, theoretically, allow workers to live their lives on their own terms.
Theoretically.
In truth, even well-meaning companies don’t always implement unlimited PTO policies correctly. Employees often take fewer days off with unlimited PTO than they do with more structured policies.
Done right, unlimited PTO offers employees an incredible opportunity to maintain the perfect work-life balance while ensuring your company thrives through an engaged, effective workforce every day of the year. Make sure your unlimited PTO policy falls on the right side of the line by following some basic, often overlooked rules.
This article explains what an unlimited PTO policy is and how it works. It covers its pros and cons and key tips for implementing it in your company.
Let’s dive in.
What is an unlimited PTO policy, and how does it work?
An unlimited paid time off (PTO) policy is a type of employee leave that lets employees take time off from work for any reason and continue to receive their regular pay. Under it, employees don’t have a set number of vacation days or sick time per year.
The idea of unlimited PTO is to promote a healthier work-life balance and give employees more flexibility in managing their time off without worrying about how many days they have left.
Employers aren’t legally required to provide PTO under the Fair Labor Standards Act (FLSA), but there are some exceptions. Under the Healthy Families and Workplaces Act (HFWA), employers in Colorado must provide two types of leaves of absence: accrued leave and public health emergency (PHE) leave.
However, with 77% of employees indicating paid leave as a must-have benefit, offering a PTO policy with unlimited vacation days can make your company more appealing to new hires.
More and more companies — particularly those in tech — are beginning to offer unlimited PTO. Examples include Netflix, Oracle, and Adobe.
Of course, there are caveats to this.
How unlimited PTO policies actually work
While unlimited PTO policies vary for each company, they aren’t truly “unlimited.” Employees can’t simply take 365 days off a year and get paid. Instead, these policies operate on a level of trust to prevent abuse.
Eligible employees are trusted to take time off as long as they finish their work. Most companies also use a human resources information system (HRIS) for employees to submit PTO requests for manager approval.
Some policies may also have an unofficial cap, which can be a few weeks or a month.
If you plan to implement an unlimited PTO policy in your company, create a comprehensive policy document with clear guidelines and communicate those expectations to your employees.
Pros and cons of implementing an unlimited PTO policy
Offering unlimited PTO can make your company more attractive. But it’s important to want to weigh the pros and cons first.
Let’s start with the pros.
Pro: Promotes a healthier work-life balance
Burnout is fairly common in the workplace. In fact, 26% of US employees say they often or always feel burned out.
With unlimited PTO, employees can take time off as needed. This flexibility enables them to prioritize their well-being and “recharge” their mental health, which can help prevent burnout .
Pro: Potential to save your company money
Although there’s no federal requirement to do so, many companies offer some type of paid leave. However, this means they also need to pay for any unused PTO time if an employee leaves.
Unlimited PTO policies eliminate the financial liability of paying out accrued and unused vacation days.
Additionally, employee turnover is costly. By offering attractive employee benefits like unlimited PTO, you can retain top talent and increase employee loyalty. This, in turn, helps reduce your recruitment and hiring costs, too.
Pro: Fosters a culture of trust
Implementing an unlimited PTO policy lets employees know the company trusts them to take ownership of their schedule and manage their well-being. This can help foster a culture of trust and increase employee morale.
Now, let’s look at the cons of unlimited PTO policies.
Con: Potential for abuse
As with any company perk, there’s always a potential for abuse or misuse.
Without clear guidelines, employees may exploit the unlimited vacation policy and take excessive time off. This can disrupt work schedules and reduce team productivity .
Con: Unequal distribution
Another drawback is the risk of unequal distribution. Some employees may take more time off than others, and some may not take time off at all. This can create a sense of unfairness, especially if the same employees are constantly having their colleagues pick up their work.
Con: Difficulty in planning
Regular unscheduled employee absences can make it challenging for managers to coordinate schedules to ensure adequate coverage. There’s also a risk of employees feeling disappointed or frustrated if their PTO request is denied during times of heavy workload.
Should your company offer an unlimited PTO policy?
On the surface, implementing an unlimited PTO is a win-win: It can help your company attract top talent and empower employees to manage their schedules.
However, a lack of clarity can make employees uncertain about how much time off is appropriate. There’s also the risk of workers exploiting the system.
With that said, offering unlimited PTO can absolutely benefit your human resource management (HRM) strategy. So, consider such a policy’s impact on your operations and how it aligns with your company’s values before deciding whether to implement one.
Key tips for implementing a successful unlimited PTO policy
Implementing an unlimited PTO policy can help promote a healthy work-life balance, but it requires careful consideration.
Here are a few tips to ensure a successful implementation:
Don’t keep score
Only track employee time off for official reporting purposes, which some countries require .
Track performance metrics based on real productivity without respect for hours spent in the office. Not only do studies show that employees who work long hours are more likely to suffer from health conditions , like heart attacks and strokes, but working more than 55 hours per week doesn’t correlate to gains in productivity anyway.
Remote’s unlimited PTO policy does not keep score regarding which employees take the most time off. Our “tell, don’t ask” policy gives our team members the benefit of the doubt. We only ask that anyone who decides to take time off provides advanced notice by using our unavailability calendar.
Set a minimum
Set a minimum number of days that employees must take off, both for individual stretches and for the year in total. At Remote, we mandate a minimum of 20 days off per employee per year. While we expect most team members to take more than that, we insist they take at least that much for their own well-being and for the sake of their productivity at work.
Encourage employees to take at least one long stretch away from work each year and make special policies for significant life events. Our parental leave policy , for example, mandates a minimum of 14 weeks off for new parents.
Make it easy for employees to request PTO. Workers who have to jump through hoops or go through a complicated process to get time off are less likely to do so.
With Remote’s global HR platform , employees can send time-off requests for managerial approval in just a few clicks.
They then receive an email notification once their request has been approved.
If employees don’t take enough time off, don’t try to make it up to them by offering a cash bonus or other compensation. Some people within the organization may take as little time off as possible in the hopes of scoring a big check at the end of the year. Instead, work with managers to ensure team members take regular breaks from their work. At Remote, we follow a general rule that every person should always have some upcoming time off on our unavailability calendar.
Identify and eliminate bottlenecks
Nothing highlights a problem with your business like having everything grind to a halt because one person takes a week off. If your company can’t handle someone’s absence, that’s not the responsibility of the person who took a vacation — it’s yours to ensure that no single person holds the keys to your company’s growth.
Early-stage businesses can’t afford to keep many people with duplicate responsibilities. Such companies may only have one designer, one marketer, one IT manager, or one salesperson. In these cases, the people taking personal time should communicate early and often to keep others updated on upcoming projects and events.
We strongly advocate for asynchronous work and vigilant documentation for the same reasons. When everything is public to others within the company (we use Notion for this) and no one feels required to work during specific time slots, anyone can read the documentation and pick up where others left off without the need for catch-up meetings, which are time-wasters anyway.
Respect personal and cultural differences
People should communicate if they expect to take off for a holiday, but cultural differences are not limited to days on and off.
Some people may feel comfortable doing a little work on their days off, even when their leaders assure them it’s not necessary. Others may delete Slack from their phones, shut down all email notifications, and head up into the mountains to get away from the world for a while.
Both approaches are fine. If one person feels comfortable answering emails in the evening and doesn’t feel pressured to work through every vacation, respect that choice. If someone else goes off the grid, though, don’t hold that person to the same standard as their more connected colleagues.
People view their vacation time differently. This is especially true across international borders. Respect the differences in the way your team members treat their PTO. Just make sure they take enough of it.
Make unlimited PTO a perk, not an excuse
With a traditional PTO policy, employees accrue time off in a PTO bank and are entitled to a payout of that bank’s value when they leave the company. Unlimited PTO is an ongoing perk, which means employees do not bank PTO hours and, therefore, do not receive payouts if they leave the company, no matter how much (or how little) time off they took.
The most successful companies are full of happy, productive people who are engaged with their work and don’t feel burned out. Unlimited PTO can help create that positive reality, but to make it work, you must proactively build a culture that champions a healthy work-life balance.
Regularly bring up your unlimited PTO policy in team meetings and remind employees who do not have any personal time off on the calendar to schedule some. At the end of the employment relationship, employees should feel like they got a great deal during their time with the company and not like they missed out on a parting payday.
If you’re looking for a solution to streamline employee management and implement PTO policies for your workforce, check out Remote’s global HR platform. Book a demo to see how we can help you hire, manage, and pay your team — no matter where they’re located.
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