Want to draw potential employees and amazing candidates to your company? Then offer an out-of-this-world paid time off (PTO) plan.
It’s a well-known fact that PTO draws employees in. An appealing PTO policy acts as bait when recruiting, giving you something to advertise and something to brag about. But offering unlimited PTO is, in my opinion, a mistake for most employers—here’s why.
What is unlimited PTO & how does it work?
Unlimited PTO is exactly what it sounds like: Under an unlimited PTO policy, employees don’t begin the year with a certain number of days off they need to accrue.
Managers can approve or deny time off at their discretion, and time off is not limited. This characteristic of being “unlimited” is the prime attraction—employees still need to request time off, but that time is not deducted from a balance.
Unlimited PTO is one of the more trendy benefits I’ve seen offered in the last decade or so. It’s become increasingly popular in the last few years as companies strive to stay competitive. Microsoft, Zoom, Twitter, and Netflix all offer this benefit. Smaller companies, too, find that offering an unlimited PTO policy helps level the playing field somewhat when it comes to recruiting talented candidates.
But be aware: Unlimited PTO sounds great in theory; however, it can get messy.
Learn about your obligations related to extended time off with our free guide to employee leaves of absence.
4 Considerations Of An Unlimited PTO Policy
As HR pros, it’s our responsibility to play out potential situations of how unlimited PTO can go south for employers very fast. Here are some things I’ve seen in the industry that give me pause as to the actual benefits of an unlimited PTO policy.
1. An informal unlimited PTO policy risks inequality.
Many companies that offer unlimited PTO don’t spell out exactly what it means; they also neglect to put systems in place to safeguard their employees and their scheduling.
For example, sometimes managers deny time off requests because of major events happening within the company or because someone in a similar position has already requested (and received) that time off. When one employee gets the requested time off and another doesn’t, the fairness of an “unlimited” policy could be called into question.
2. Unlimited PTO can cause scheduling nightmares.
What happens when three employees request the same day off? What happens if your entire company wants two weeks off around Christmas and New Year’s?
I’ve seen these scenarios play out frequently. How your company handles scheduling when you’ve promised unlimited time off is tricky, especially in industries where you need people to be physically present to do their jobs.
3. Delivering corrective action with an unlimited policy is difficult.
With unlimited PTO, it’s hard to be consistent and a precedent is set. We never want an employee to be able to use a positive benefit against their manager, and unlimited PTO is a situation where there is lots of gray area. If an employee abuses the PTO policy and corrective action needs to be delivered to the employee for the over usage, it can be tricky for the manager because the employee could say they were using the policy how it is meant to be utilized—it is unlimited, so there is no limit per se. However, there definitely is such a thing as over using an unlimited PTO benefit and abusing it!
4. Unlimited PTO could be seen as unfair when new and veteran employees get the same amount of time off.
Employees who have worked for years to accumulate time off may be resentful if a policy suddenly changes to unlimited late in the game. This change could be perceived as unfair, and might potentially impact their decision to stay or go.
4 Benefits Of Unlimited PTO
Of course, there are also benefits to offering unlimited PTO. Here are four major benefits I see:
1. Unlimited PTO builds trust with employees.
When employers offer unlimited PTO, employees feel they have the power to make decisions that are best for them, and that their managers trust them to do that. This autonomy is a powerful tool for helping employees buy into the culture of the company.
2. It’s a powerful recruitment, retention, and engagement tool.
The growing sentiment is that unlimited PTO looks good and sells well.
In a tight job market where employers are trying to out-recruit each other, unlimited PTO is one benefit that can help an organization rise to the top of interested candidates’ lists. According to Forbes, job postings with unlimited PTO have risen 178% from 2015 to 2019!
3. Unlimited PTO promotes better work-life balance.
Unlimited PTO allows employees to take the necessary time off to attend to their personal needs and do things they love. Sixty-two percent of workers with unlimited PTO report a healthy work-life balance compared to 53% of employees with a fixed two weeks of time off, according to Forbes.
However, studies have shown that sometimes unlimited PTO policies actually have the reverse effect, and employees end up taking less time off when there are no constraints or end up working on their paid time off. Forty-two percent of people with unlimited PTO say they always work on vacation.
In what industries does unlimited PTO not work?
In some industries, when an employee is absent, work stops. Education, autobody, restaurants, healthcare, and manual labor jobs all require people to be physically present, because demand is tied to the day-to-day operations of the workplace. These types of industries won’t benefit from an unlimited PTO policy because it would greatly disrupt their delivery of services.
The Big Question: Should you offer unlimited PTO?
Unlimited PTO sounds great on the surface, but in reality, it has its limitations (pun intended). As employers, we still need to position time off as a benefit we can control (approve or deny). From my perspective, there’s never going to be a way to submit and review PTO automatically; for PTO to work properly it requires processes that manage and govern its implementation.
Additionally, performance issues, deadlines, important meetings, and more make unlimited PTO less than it seems. For all of these reasons, I recommend an alternative: Offer flexible and attractive PTO policies that are compliant with regulations and allow workplaces to run more healthily.
What To Do Instead Of Unlimited PTO
There’s no one-size-fits-all way to tailor a PTO policy. In fact, there are numerous ways to create a slightly more constrained plan that is “unlimited” in spirit and works well in practice. Taking the time to figure out your own organization’s approach to PTO will ensure you’re serving your employees in the best and fairest way possible while at the same time developing a plan that’s manageable.
- In order to eliminate some of the risk around unlimited PTO, I recommend offering a generous PTO policy that is capped at a certain number of hours (for example, 240 hours of PTO).
- You can also stagger accrual rates so veteran employees are able to accrue time off faster than new hires, which is generous and fair to all employees.
- You can also use an allotment approach, where the PTO balance is granted at the beginning of the year and must be utilized by X date, and only X hours can be carried over.
At GenesisHR, assisting with creating and administering PTO plans is just one of the services we offer our clients. We’ll talk through what you’re doing and see how well it’s working (or not), and then offer custom strategies to help you realign your PTO policies if needed. Get in touch with us today to start the conversation—we’d love to help you solve your HR headaches.