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What Is Unlimited Paid Time Off (PTO)? How Does It Work?

Key Takeaways

1. Unlimited paid time off (or unlimited PTO) represents one of the more progressive work-life balance benefits to have emerged over the past few years.

2. There are huge benefits to an unlimited PTO policy, but it does come with risks. By implementing a well-thought-out PTO policy, your company can extract maximum value from this benefit.

3. There is a lot of demand in the marketplace for this benefit at the moment, so unlimited PTO may make it easier for you to attract staff and win the talent war.

4. Not all jobs are suitable for unlimited PTO. Jobs such as upper management and other salaried/overtime exempt roles, (where you are paid more on results than hours worked) are more suitable for unlimited PTO. Hourly paid jobs like nurses, customer support staff, and waiting staff, etc., tend to be less suitable·       

In recent times, policies that promote a healthy balance between work and life are becoming very popular. Unlimited paid time off (or ‘unlimited PTO’) represents one of the more progressive work-life balance discretionary benefits to have emerged over the past few years.

Even though unlimited paid time off sounds like a very attractive policy, it’s still not very common, with just 4% of companies estimated to be offering it, according to XpertHR’s 2021 paid leave survey. Unlimited PTO is most likely to be offered in large companies in the finance, technology and digital media sectors, according to findings in this US News Survey.

Despite the low prevalence of unlimited PTO policies, workers are well aware of this perk: according to a Harris Poll for Fortune Magazine, “50% of workers in the US would prefer access to unlimited PTO to earning a higher salary.” Employee demand for this unlimited benefit far exceeds employer supply. This means that unlimited paid time off is an employer brand differentiator and a great way for employers to boost their employer value proposition and ultimately be more attractive to candidates.

Even so, such policies need careful implementation to ensure they work effectively.

In this article, we explain unlimited paid time off in detail, and look at the pros and cons of this employee benefit. 

What is unlimited PTO?

Unlimited paid time off (PTO) is an annual leave policy in which employees are not issued with a specific number of paid off days at the beginning of the holiday year.  Rather, employees receive an unlimited PTO allowance, giving them the freedom to take as much paid time off as they want as long as they can continue to perform their job role effectively and it doesn’t disrupt the business.

Unlimited PTO is also sometimes known as “unlimited vacation” and “flexible time off”. 

While, in principle, unlimited PTO is a replacement for fixed annual leave entitlements, in reality, it is a replacement for all leave entitlements: In theory there is no need for compensatory leave, medical leave, or parental and maternity leave when the company allows unlimited leave at full pay. Of course, the practice does not always reflect the theory (as we shall see below). 

Pros and cons of unlimited PTO

The pros of unlimited PTO

 

  • Attract staff
  • There is a lot of demand in the marketplace for this benefit now, so unlimited PTO may make it easier for you to attract staff and win the talent war.
  • Potential well-being improvements
  • In theory, it should help your staff to achieve an enhanced work-life balance making employees happier, more engaged, and ultimately more productive at work.

The cons of unlimited PTO

  • Pressure to overwork
  • According to research by Namely, an HR software vendor, employers functioning under an unlimited PTO policy take fewer vacation days than those with limited PTO, (13 days vs 15 days). This means that unlimited PTO could be contributing to overworking and ultimately worker burnout.
  • Risk for employers
  • Unlimited PTO relies on there being a strong work ethic: Without this conscientious teamwork culture, (or adequate controls), some employees could take advantage of the freedom to the point that their excessive absence harms the business.
  • Unfairness
  • There is an issue of fairness. Not all jobs are suitable for unlimited PTO. Jobs such as upper management and other salaried/overtime exempt roles, (where you are paid more on results than hours worked) are more suitable for unlimited PTO. Hourly paid jobs like nurses, customer support staff, and waiting staff, etc., tend to be less suitable. Job holders in this latter category may struggle to get approval for unlimited PTO or simply be considered ineligible, creating issues around equity.

Video: Pros and cons of unlimited PTO summarized 

In the video below, the Employers Council sums and advantages and disadvantages of an unlimited paid time off policy.

How to implement an unlimited PTO policy

There are huge benefits to an unlimited PTO policy, but it does come with risks.  These risks are best mitigated by implementing a well-thought-out PTO policy, so your company can extract maximum value from this benefit.

To ensure that an unlimited PTO benefit is not abused, there must be clear boundaries set around it from the outset, using a written policy, visible to all. This will make it easier to both recognize and police abuse of the policy.

Establish the overarching boundary of the policy, e.g., something like:

  • Unlimited PTO is a vacation policy under which employees can take off as much paid vacation as they wish providing it does not interfere with their ability to complete their work.

It should be clearly defined how the employee should meet these conditions, for example

  • Employees must not be on any kind of performance improvement plan and must have scored at least a good at their last annual appraisal
  • The employee must have met any expectations around project delivery in terms of deadlines and deliverables
  • The employee needs to have coordinated with colleagues (and clients where relevant) to ensure that their absence does not disrupt their work or client deliverables
  • A certain number of weeks of advance notice must be given, which is proportional to the time being requested off, e.g., 1 month’s PTO may require significantly more notice than 1 week.

Unlimited PTO doesn’t work well in all companies and roles. This probably explains why only around 4% of companies offer it, despite its popularity with workers.

Anecdotal observations from Randstad hint that unlimited PTO is suited to environments/teams with a results-based culture rather than an hourly one, as you may find in a call center, customer service, and tech support. 

For example, Oracle offers unlimited PTO to its salaried employees, (those who don’t qualify for overtime) and it is termed ‘flexible vacation’. Oracle employees who aren’t eligible for unlimited PTO receive 13 days’ vacation in year one and 18 days after that. Oracle too requires employees to get preapproval from their manager, so they have distinct boundaries around the use of unlimited PTO.

If your company is planning to offer unlimited PTO on a selective basis, there would ideally be some transparent eligibility criteria, just like at Oracle, otherwise you could face accusations of favoritism, or worse discrimination. For example, specific jobs could be deemed eligible for unlimited PTO with a justification for their inclusion. You could go further and compensate those who are deemed ineligible for unlimited PTO in another way such as by offering an enhanced year-end bonus.

Horizons manage leave entitlements, anywhere in the world

An unlimited PTO policy offers great benefits to employees and employers but comes with some risks if not implemented effectively. Horizons has experience managing employee benefits and payroll internationally and if you need help implementing unlimited PTO (or any other benefit), in your business, please get in touch.

Frequently Asked Questions (FAQ)

There are pros and cons to unlimited PTO. It is an innovative work-life balance benefit that will make your company more attractive to top talent, making it easier to hire and potentially retain staff. Many companies are reporting successful implementation of unlimited PTO. However, unlimited PTO is still a benefit that is in its experimental stages and needs careful implementation to realize the full benefits.

However, it is possible to pay independent contractors amounts on regular intervals that are equivalent to a salary or wages in monetary terms. 

The following companies have some form of unlimited PTO Policy

  1. Netflix
  2. Oracle
  3. Linked-In
  4. Zoom
  5. Adobe
  6. Hubspot
  7. Twitter

Unlimited PTO is most likely to be offered in large companies in the finance, technology and digital media sectors.

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