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Navigating unlimited PTO: Pros, cons and best practices

By Carolyn Heinze

Offering unlimited time off can help retain employees, but the benefit does come with some disadvantages, including the potential difficulty of implementing the program. HR leaders should work with other company leaders to consider whether the vacation option is right for their organization.

An unlimited time-off program could improve employee experience and help company leaders show they understand that employees' parenting or caretaking could benefit from vacation flexibility. However, employees may not take as much paid time off (PTO) if their company does not follow a "use it or lose it" policy, and the dividing line between sick leave and vacation may become difficult to discern.

Here are more unlimited time off pros and cons to consider.

How does unlimited PTO work?

Unlimited paid time off is a guideline for employee vacation in which an employer does not restrict the amount of time a worker can take for vacation.

An unlimited PTO policy may include the caveat that workers can take unlimited vacation time as long as they are still carrying out all their work.

The pros of offering unlimited paid time off

An unlimited time-off program can offer companies various benefits in addition to the obvious advantages for employees. Here's how it can help organizations as well as their workers:

Unlimited PTO may appeal to job applicants

Offering unlimited PTO can give employers a competitive advantage.

"[Unlimited vacation time can] differentiate organizations from their competitors and show that level of workplace flexibility that many employees are looking for in this current environment," said Sara Eber Fowler, employment advisor at Seyfarth Shaw LLP, a law practice in Chicago.

Unlimited PTO offers employees more flexibility

Employees likely have various demands on their time, including children and aging parents.

"Unlimited [PTO] recognizes the diverse needs of the population," said Rich Fuerstenberg, senior partner of health at Mercer LLC, a professional services firm headquartered in New York. "[It] allows people to take their time off the way they want to and need to."

The cons of offering unlimited paid time off

However, implementing an unlimited time-off program and executing it does come with challenges. HR leaders should consider some of the following potential problems:

Not everyone may use their unlimited PTO

While unlimited PTO seems like a win for employees, company leaders may need to encourage workers to use their time off.

One option is making suggestions.

Company leaders can create guidelines for how much time employees should take off based on their job titles and tenure at the organization, Fuerstenberg said.

Some employees may take too much PTO

While some workers don't take enough time off, others may take advantage of an organization's unlimited PTO policy, which could begin interfering with their work.

One way to prevent program overuse could be to set guidelines about how long an employee can be absent during a given interval, Eber Fowler said. For example, employees may be allowed to take only two weeks of vacation at a time.

Managers may become an obstacle

While the company may offer unlimited time off, managers likely still control whether an employee can take a particular day off. If managers reject requests, employees may not be able to schedule their vacation time.

While some managers may be generous and almost always approve a vacation request, others may not be so easygoing, Fuerstenberg said.

Vacation data can potentially give insight into whether managers are becoming a roadblock to time off.

Companies should devise a method for determining whether certain departments are underutilizing or overutilizing the unlimited PTO policy, Fuerstenberg said. However, creating such a method may be difficult because vacation data may not be granular enough, or employees may not be required to report their time off if their PTO is unlimited.

However, HR staff should still learn as much as they can about how the unlimited PTO program is being used, so managers don't get in the way of employees using their vacation time.

Transitioning from an accrued model to unlimited PTO can be tricky

If a company is switching from a system of employees accruing time off to unlimited time off for everyone, HR and other leaders at the company need to determine how the company accounts for current employees' accrued vacation days.

One potential solution is effectively erasing employees' accrued time off and switching everyone to unlimited PTO starting on a specific day, Fuerstenberg said. However, this strategy is usually unpopular with employees.

Another option is to pay employees for their accrued time and then switch over to unlimited PTO on a certain day.

"If you just cash everybody out, it's the easiest and cleanest approach," Fuerstenberg said. "But it's also expensive."

The difference between paid sick leave and unlimited PTO can get murky

When an employee takes time off for health reasons, employers may be obligated to fulfill specific reporting requirements.

Because of this, organizations must be careful about how they approach paid sick leave in relation to unlimited PTO, Fuerstenberg said.

Some companies choose to keep the two policies separate because of potential issues.

For example, a manager failing to report an employee's sick leave could expose the organization to risk, Fuerstenberg said.

One way to alleviate this problem is by taking care with policy language.

Eber Fowler's firm urges clients to avoid referring to unlimited PTO as "unlimited PTO," she said. It should instead be labeled as "routine time off" or "full time off."

"While there's not a set number of paid time-off hours that are earned or limits on use, there can and should be limits on how these policies are applied," Eber Fowler said.

For example, vacations, short-term illnesses and other time away would qualify as "routine time off." Bereavement, extended disability, FMLA-qualifying events and parental leave are covered under different policies.

Some companies aren't positioned to offer unlimited PTO

Whether an organization's unlimited PTO program will be successful depends on a few factors.

Company leaders should ask several questions before implementing an unlimited PTO policy, said Amy Felix-Reese, global COO at Leadership Circle, a leadership and consulting firm headquartered in Draper, Utah:

• Does the company have a culture of trust?
• What are clients' needs as they relate to unlimited PTO?
• Does the company have the resources to offer unlimited PTO?
• Is the company in a state of high growth? (If this is the case, offering unlimited PTO may not be a wise strategy, Felix-Reese said.)
• What roles within the company are best suited for unlimited PTO?
• Is it possible for unlimited PTO to apply the same across all the company's locations? (For example, the labor laws in some countries require companies to pay employees for a certain amount of unlimited PTO even if those individuals haven't actually taken that time off, Felix-Reese said.)

Consider implementing a flexible work policy instead

A middle ground between earned vacation time and unlimited PTO could be a better choice for some companies.

Companies may opt to incorporate more flexibility into their workday rather than implement an unlimited PTO model, Felix-Reese said.

For example, companies may enable employees to take a few hours off for children's medical appointments.

If company leaders opt to implement unlimited PTO, building some structure into the program can help, Felix-Reese said.

"Make sure the guidelines are very clear -- as clear as they can be without overmanaging it," Felix-Reese said.

These guidelines could include the company's vision for unlimited PTO and descriptions of what employees should avoid doing with anecdotal examples.

Reviewing the program's success later on can be helpful, Felix-Reese said.

"Check in [during] the first year to get feedback," she said.

3 best practices for implementing an unlimited PTO policy

If company leaders decide to start offering unlimited PTO, following certain best practices can help the transition to an unlimited PTO policy go more smoothly. The following are some suggestions:

Encourage teams to communicate about vacation time

Problems may arise if multiple team members take vacation time at the same time and work-related tasks aren't getting done. HR staff can encourage teams to communicate about their vacation time so an unlimited PTO policy doesn't lead to work-related goals not getting achieved.

Decide how to track vacation time

As discussed above, distinguishing between vacation time and other time off, like sick leave, is important for all companies.

HR leaders should decide whether employees will still be obligated to track their vacation time and, if so, how they will do it. The HR department should also communicate with employees about the vacation tracking policy so workers are clear on how they should report their time.

Communicate that all employees should take time off

Employees who do not have unlimited PTO often receive emails from HR if they are going to "use or lose" their accrued vacation time.

In addition to communicating with employees about suggested amount of time to take off, HR staff could reach out to workers who haven't taken time off and encourage them to do so to avoid employee burnout.

Carolyn Heinze is a Paris-based freelance writer. She covers several technology and business areas, including HR software and sustainability.