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The Pitfalls to an Organization’s Unlimited Paid Time Off Policy

Updated: Mar 5


cons of unlimited paid time off policy

What is an Unlimited PTO Policy?


An unlimited PTO policy does not specify a set number of paid time off (PTO) days that employees can take. Instead, it gives employees the freedom to take time off whenever they need it, without having to worry about using up their allotted time. 


Why Do Companies Offer Unlimited PTO?


An organization’s Paid Time Off policy directly influences recruiting, job performance, and their bottom line. The big debate is whether a company should offer employees a set number of vacation days (a Traditional Paid Time Off Policy) or an Unlimited Paid Time Off Policy. On the surface, an Unlimited Vacation policy may seem “generous”, but if you take a closer look, it may not be in the organization’s, or employee’s, best interest, from both a financial and wellness perspective. Exploring the nuances of these policies and considering tips for better financial wellness can provide a more holistic understanding of the impact on employees and the organization.

It’s more critical now than ever for business leaders to go back to the drawing board with their Finance Teams & HR Departments to refine their PTO to ensure their goals, standards & expectations, communication strategies, and execution are set up successfully to optimize Paid Time Off usage.

Unlimited PTO Pros and Cons: Is It Good For Your Business and Employees?


Are There Any Pros to Unlimited PTO?


Some companies feel that offering unlimited PTO will solve all their employee wellness problems. It's understandable why. Unlimited PTO, in theory, provides employees with the freedom to take time off whenever they need it, without the stress of managing accrued vacation days. 


Work-Life Balance


The flexibility of unlimited time off can be particularly beneficial for employees who are juggling demanding work schedules with personal commitments, promoting better work-life balance and overall well-being.


Supporting this notion is data from MetLife's 2019 U.S. Employee Benefit Trends Study, which found that 72% of professionals express interest in receiving unlimited PTO. This suggests that employees perceive unlimited PTO as a valuable benefit that aligns with their desire for flexibility and work-life harmony.


Attracting Talent


Offering unlimited PTO can  contribute to a positive corporate image and give your company a significant edge in attracting and retaining top talent. Especially in industries where skilled professionals prioritize autonomy and the ability to manage their time effectively. 


Administrative Simplicity for Employers


Unlimited PTO policies can offer administrative benefits for employers. By eliminating the need to track and the financial burden of paying out accrued vacation time, companies can streamline their HR processes and save on administrative costs. This can be a significant advantage, especially for large organizations with numerous employees.


Why Unlimited PTO Is Bad for Employers and Employees

While the idea of Unlimited Paid Time Off sounds nice in theory, in practice, not so much. U.S. professionals are hesitant to take time off, even if they are paid to take it. According to a study by the U.S. Travel Association, 55% of Americans didn’t use all of their vacation time in 2018, resulting in 768 million days of unused Paid Time Off. Even with the well-known positive benefits of taking time off including reduced stress and greater job satisfaction, there’s still a major hesitation to take time off and COVID-19 has only made matters worse, resulting in a sharp increase in employee burnout and vacation accrual liability.

As an organization, if you want to truly execute a vacation policy that will empower your employees to take the time they need to reset and recharge to avoid burnout, a Traditional Paid Time Off policy has proven to be more successful. This approach provides clear guidelines for time off while maintaining structure. If you're wondering how to improve employee retention through an effective vacation policy, considering the benefits of a Traditional Paid Time Off policy is a step in the right direction. Here’s why:

1. Unlimited Paid Time Off is more of a recruiting ploy for tech workers than an effective wellness solution


We are seeing an uptick in jobs promoting unlimited Paid Time Off, but according to the Society for Human Resource Management's (SHRM's) 2016 Employee Benefits report, only 1-2% of American companies offer unlimited PTO as a benefit. Even though it’s a rare benefit, data from job platform Indeed indicates that since 2015, the number of job listings promoting their Unlimited PTO almost tripled, from 450 per million postings to nearly 1,300.



Tech jobs are six to eight times more likely to offer unlimited PTO versus other job openings. Generally speaking, unlimited vacation policies are more popular with start-ups, likely influenced by the unlimited PTO policies set in place by tech companies like Netflix, Dropbox, Glassdoor, and other high-growth companies.



 

Want to know your state's PTO regulations?

Download our PTO Playbook

 

It’s critical to question if an unlimited time-off policy is truly in the best interest of an organization and its employees. In a survey by community-workplace app Blind, almost 60% of tech workers felt burned out...that’s 44% higher than physicians


2. Employees who have unlimited time off actually take less time off


At first glance, unlimited time-off seems like an undeniable perk - it may set the tone that an employer gives their employees the agency to set their schedules and promotes a healthy work-life balance. But a recent study by Namely shows that on average, professionals with unlimited time-off take less time off than employees with a set number of vacation days, likely due to the lack of guidelines and formalized structure. When an employee understands their limits, they will do their best to work within them.



 

TIME TO MAKE PTO A WIN-WIN

Improve Employee Wellness While Saving Costs For Your Company

 

3. Unlimited Time Off is not actually unlimited...


Unlimited Paid Time Off policies are more of a marketing tactic for hiring than a true vacation policy. Time Off still needs to be approved by managers and each company sets their own standards and parameters for “appropriate use”. This ambiguity can cause anxiety and actually inhibit an employee from feeling confident in taking time off due to the heightened pressure and fear of “crossing the line”.

4. Managing time off distribution is challenging


If employees can schedule their time off whenever they want, this may create an issue with maintaining healthy business rhythms. Without diligent and proper oversight by management, companies may face understaffing or project delays if critical team members aren’t working at the right times.

5. Employees are leaving billions of dollars on the table


With Traditional Paid Time Off, employees are paid out the dollar value of their accrued days whenever they leave the company. This is a major financial asset that employees have access to. But with Unlimited Paid Time Off, employees aren’t eligible to be compensated for any unused vacation days which is essentially hundreds of dollars down the drain...In their careers, employees will forfeit $65.5 B in unused Paid Time Off. The average professional who is hungry and eager to leave a good impression falls victim for leaving vacation days behind.

6. Employees who aren’t eligible for carryover actually get paid less


There’s a catch to Unlimited Paid Time Off. With an unlimited PTO policy, unused time off doesn’t accrue. Therefore, if an employee quits or leaves the company, their employer is not obligated to pay them for their unused time. This means that employees who don’t accrue unused vacation days effectively get paid less than their peers who work at companies that are offered traditional Paid Time Off policies that payout for unused time-off.

Unlimited PTO Alternatives


If you're looking for a way to offer your employees more flexibility and work-life balance without the downsides of unlimited PTO, there are several alternatives to consider. Here are a few of the most popular options:


More PTO Days


One of the simplest ways to improve your PTO policy is to simply offer more days. This can be done by increasing the number of days that accrue each year or by providing a higher starting accrual rate for new employees.


Floating Holidays


Floating holidays are additional PTO days that employees can take off whenever they want. This can be a good option for companies that want to give their employees more flexibility without creating the ambiguity that can come with unlimited PTO.


Flexible Time Off


Flexible time off allows employees to take off additional time beyond their standard PTO allotment. This can be done by offering non-accrual days or by allowing employees to bank their PTO days and take them off in bulk.


4-Day Work Week


A 4-day work week is another alternative that can significantly improve work-life balance. This option has been gaining popularity in recent years, with companies like Dropbox, Microsoft, and Unilever all adopting it.


Essential PTO


This is a policy that combines a minimum number of PTO days with unlimited PTO. The minimum number of days is accrued just like a normal PTO policy, and employees can take any amount of PTO desired over the minimum. This policy can help to encourage employees to take time off while still providing some flexibility.


Tips for predicting, managing and reducing accrued vacation liabilities


Here are a few simple steps you can take to reconstruct a healthy Paid Time Off program and ways benefits managers can recession-proof their employee benefits package:


  • Calculate your predicted carry over liability, in both days and dollars (on a company level and per employee level) to better understand the liability on your books

  • Read up on your state’s PTO payout laws

  • Consult your state for more details and verification

  • Define and write your company’s Paid Time Off policy outlining how time is accrued, rollover restrictions, which days are off-limits to take time off, and how employees can cash out unused time

  • Make sure to include all of these details in your employee onboarding documents and handbooks


 

Want to predict and reduce your employees’ accrued time-off payouts while offering innovative cash-out benefits?


Sorbet’s complimentary Health Check uncovers the economics behind your Paid Time Off Policy ensuring you get a clear picture of actionable data with a simple, guided process.


Employees eligible for Sorbet's PTO payout:

  • Individuals 18+

  • Residents of United States cities where Sorbet is offered*

  • W-2-paying employees with a salary over $30,000

  • Individuals with accrued PTO days and a company policy that grants PTO carry-over and payout

*Current cities: Colorado, Florida, Illinois, Massachusetts, New York, New Jersey, Texas and Virginia


Email info@getsorbet.com to get in touch and coordinate your free Health Check.







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