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Could an Unlimited PTO Policy Be Right for Your Business?

Human Resources
Article
03/19/2019

Some employers across the country have implemented an unlimited paid time off (PTO) policy. In many cases, these employers are replacing individual vacation, sick, and personal time off policies by utilizing an unlimited PTO benefit.

What is unlimited PTO?

In many ways, it closely resembles a PTO policy but without a prearranged number of scheduled days off. An employee may claim as many days as they require (in terms of vacation, sick, and other days), provided they meet their performance objectives.

As with a more traditional approach, the employee's manager must generally sign off on PTO requests. Also, an organization's recognized employment schedule and/or flex-time benefits typically remain unchanged.

One of the motivations of employers who adopt unlimited PTO over traditional vacation, sick, or personal time is to help ease the burden of administration and tracking of time off by type and time taken by having one simple policy for everyone. Employees can use the time as vacation, sick time, personal time, or for whatever need arises. This flexibility allows employees to manage and use their time in a way that best fits their needs and wants.

The approach may also curtail the potential abuse of leave benefits. For example, some employers encounter employees who call in sick when they need to take care of a personal matter or just want the time off.

Pros and cons of unlimited PTO

Increasingly, more companies are focusing on results-based flexibility strategies, which may involve giving employees the ability to work wherever and whenever they would like; as long as the job is getting done and specific results are achieved, employees can choose when to use their time off.

When examining this type of practice, organizations must consider many factors, including but not limited to business operations, company culture, specific job duties, and/or customer needs.

An unlimited PTO policy can help:

  • Build trust between employer and employees.
  • Serve as a powerful recruitment factor.
  • Reduce situations where employees feel obliged to come to work when they're ill (presumably because they want to save time off for vacation), which may potentially affect the health of coworkers.
  • Reduce administrative time and resources spent monitoring individual time-off accrual or assessing individual employee vacation time needs.

According to the Fair Labor Standards Act (FLSA), in most cases, employers need not pay for time not worked, such as vacations, sick leave, or federal or other holidays. These benefits are generally matters of agreement between an employer and an employee (or the employee's representative). Although the FLSA does not mandate offering these types of benefits, many employers do provide paid time off as a recruitment and retention tool and as a means of enhancing work/life balance.

There can be obstacles to consider and overcome when adopting an unlimited PTO policy.

Some state laws regulate certain aspects of paid time off. For example, some states will require that any earned but unused paid time off must be paid out upon an employee's termination/separation. Some states may regulate the accrual of paid time off, consider paid time off as a form of vested wages, or even require that these policies be provided to employees in writing. It's important to understand these state regulations when providing PTO benefits, especially practices that allow for unlimited paid time off. Employers should consult an employment attorney if they have questions regarding unlimited PTO policies.

There can be other disadvantages to consider when contemplating adding an unlimited PTO policy. These may include:

  • Assuming a culture of a flexible, results-based workplace can be difficult — change can be uncomfortable.
  • Creating and providing a written policy outlining the unlimited PTO benefit provisions that is clearly communicated and direct to all affected employees.
  • Resentment from employees toward colleagues whom they perceive may be misusing the policy, and this abuse — perceived or otherwise — is not handled fairly and consistently among all employees
  • Managing the benefit in a consistently fair manner.
  • Not determining if unlimited PTO is feasible for the organization. Working environments where coverage is critical, such as call centers, manufacturing facilities, healthcare establishments, or retail stores may not be able to adopt this type of benefit easily.
  • Possible employee discontent over the inability to accrue time to be paid out, where applicable by law.
  • May make it difficult to discipline employee based on absences.

As noted, offering unlimited paid time off does not release an employer from remaining compliant with federal, state, and local laws and regulations.

Effectively implementing unlimited PTO

A successful unlimited PTO policy requires solid guidelines, good management, and support from senior leaders and human resources. Different companies with the similar policies can experience dissimilar outcomes. Key action steps include the following:

  • Making sure the policy is clearly communicated to employees and disseminated in a manner that conveys company expectations.
  • Understanding state and federal wage and hour compliance when developing these polices and flexibility strategies. Offering unlimited paid time off may create additional compliance issues that will need to be addressed.
  • Speaking with an HR subject matter expert or an employment attorney to review these compliance components.

Embracing an unlimited vacation policy requires clear communication and documentation. How far in advance must employees get time off requests approved? What is the approval process? Is there a maximum number of days that employees are permitted to take off in a row? What arrangements must be made — or work completed — before an employee is free to leave? Define your policy so that guidelines are clear, and then put the documentation and processes in place to ensure it is enforced consistently across the board.

Finally, if you're considering an unlimited PTO policy think about the potential benefits and shortcomings from your employees' perspective. Would they look at this benefit as greatly attractive or too confusing to deal with?

Whatever your decision, it's crucial to effectively communicate any changes to benefits in a way that resonates with your employees. This article offers valuable tips on how you can go about getting the process started.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.