How Do Unlimited Vacation Policies Work? Understanding PTO

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Unlimited vacation is one of the most sought-after perks at companies around the world. Many organizations offer unlimited paid time off to boost team morale, increase productivity and attract top talent. In return, employees are expected to perform at their best when they are at work. An unlimited vacation policy may benefit small businesses, but there are some things you should consider before embracing this approach.

TL;DR (Too Long; Didn't Read)

Unlimited vacation policies allow employees to take time off work whenever they want as long as they get the job done. This approach may increase employee engagement and prevent burnout, leading to higher productivity and better results in the workplace.

Time Off and Vacation Usage

Along with a generous health insurance plan, employers offer all sorts of perks to attract and retain top talent. Unlimited paid time off is particularly popular in the modern workplace. Netflix, HubSpot, Glassdoor, Dropbox and other popular brands were some of the first companies to implement this policy. Advocates say that unlimited time off may increase employee engagement, reduce turnover rates and improve work-life balance.

While these things may look good on paper, the numbers say something else. According to Priceline’s 2019 Work-Life Balance Report, Americans are taking less vacation than ever before. More than half of U.S. employees leave paid vacation days unused each year, saying that taking time off work makes them feel guilty. Some are simply too busy to take a break.

A record 768 million vacation days went to waste in 2018, reports the U.S. Travel Association. In today's fast-paced environment, employees believe that taking too much time off may harm their careers. In fact, the opposite is true. Research shows that taking more vacation days reduces burnout and workplace stress, improves sleep and may even increase the odds of getting a raise or bonus.

These findings are surprising, considering that paid leave is the most common benefit offered by U.S. companies. As it turns out, employees who are offered unlimited PTO actually take less time off. On one hand, they feel guilty for being away from work, which is why nearly 30% always work on vacation and more than 40% are constantly checking their work email. On the other hand, there is no urgency to schedule time off if the company has an unlimited PTO policy, so they tend to postpone their vacation.

How Does Unlimited PTO Work?

The idea behind unlimited time off is relatively simple. Employees who are offered this perk can take as many vacation days as they want as long as they get the job done. The days off are not accrued, meaning that employers don't have to pay out for vacation time when someone leaves the organization, as is what happens with traditional PTO policies. On the negative side, if an employee takes too much time off, you cannot terminate his employment contract for poor attendance.

From a legal perspective, any company can implement an unlimited PTO policy. Paid vacation time is not a legal requirement in most states. Instead, it's typically offered as a benefit by startups, nonprofits and tech companies. Some employers provide this perk to compensate for less-than-ideal salaries.

According to a 2017 report, employees at companies offering unlimited time off take about 13 days off work each year. Those working for companies with more traditional PTO policies take an average of 15 days off per year. This is quite surprising, considering that most job seekers prioritize PTO over vision coverage, dental insurance and retirement plans. In a recent survey, nearly 40% of employees expressed feelings of guilt for taking time off.

Why Offer Unlimited Time Off?

These findings show that offering unlimited vacation days may actually deter employees from taking time off. Unlimited vacation policies are meant to help workers achieve a better work-life balance, which in turn may increase their motivation, engagement and productivity. The reality is often quite different, though. If your employees end up working more often, their performance may suffer.

This concept emerged in the mid '90s when IBM and tech startups began to let staff take as much time off as they needed. Today, a growing number of companies, including the Virgin Group, Netflix, General Electric and GrubHub, are offering unlimited PTO. Netflix, for example, doesn't track working hours, sick days or vacation days. With this approach, employees can recharge their batteries and avoid burnout.

Unlimited vacation may enhance job performance, reduce workplace stress and boost employee happiness — after all, it's no secret that stress affects productivity and mental well-being. A flexible work schedule allows employees to spend more time doing the things they enjoy. Happier employees are more productive and engaged. For startups and small businesses having to compete with big industry players, offering unlimited time off can make it easier to attract top talent and reduce turnover rates.

Potential Drawbacks of Unlimited PTO

Like everything else, this concept has its drawbacks. It may keep employees who want to show their loyalty from taking time off. On top of that, many companies that offer unlimited PTO tend to be all-consuming workplaces. In this case, employees simply can't afford to take time off because of the workload.

An unlimited vacation policy may not work for small firms, as it may lead to staff shortages. If, say, you have five people on your team and three decide to take time off during the summer months, you won't have enough staff to do the work. The same can happen when one or more employees start taking too much time off work. Furthermore, unlimited PTO isn't the best choice for hourly jobs, call centers and small companies offering tech support.

Employers who embrace this approach prioritize results rather than actual hours worked. However, there is no guarantee that your employees will deliver better results. They may end up neglecting their duties or missing deadlines. That's why it's important to have clear policies in place and let your employees know what's expected of them. Discuss this with your team in advance and make sure their vacations won't overlap.

Organizations with unlimited PTO don't have to pay out unused vacation days when terminating an employee. Some workers may not feel comfortable with this arrangement. If you plan to offer unlimited time off, consider talking to your employees to see how they feel about it. Let them know when and how they can take time off and communicate your expectations clearly.

Implementing an Unlimited Vacation Policy

An unlimited vacation policy may benefit your business as a whole, but it can also backfire if implemented poorly. In general, company culture has a big impact on how employees leverage this perk. If they feel pressed to work around the clock, they may end up postponing or canceling their vacation plans. A positive company culture based on trust and accountability is crucial for any business offering unlimited PTO.

If you decide to offer unlimited vacation days, draft a document that answers any questions your staff may have. Let your employees know how to arrange for that time off and how you plan to keep them accountable. Make it clear that you're not offering working vacations. Instead, you expect them to recharge so they can perform their best when returning to work.

As a small business, you may not be able to implement unlimited PTO for your entire staff. For example, customer service may suffer if your tech support rep decides to take a month off. One way to address this problem is to implement a hybrid policy. This could mean allowing your employees to take time off whenever they want as long as they return to work within 10 or 15 days, or you can offer unlimited PTO as a reward for high performers.

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About the Author

Andra Picincu is a digital marketing consultant with over 10 years of experience. She works closely with small businesses and large organizations alike to help them grow and increase brand awareness. She holds a BA in Marketing and International Business and a BA in Psychology. Over the past decade, she has turned her passion for marketing and writing into a successful business with an international audience. Current and former clients include The HOTH, Bisnode Sverige, Nutracelle, CLICK - The Coffee Lover's Protein Drink, InstaCuppa, Marketgoo, GoHarvey, Internet Brands, and more. In her daily life, Ms. Picincu provides digital marketing consulting and copywriting services. Her goal is to help businesses understand and reach their target audience in new, creative ways.