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Unlimited Paid Time Off (PTO) Policies: What’s the Catch?

Human Resources

Employers who provide paid leave benefits such as vacation, sick or personal time may be faced with many decisions regarding eligibility, benefit amounts, tiered allotments and accruals as well as policy parameters regarding the actual use of time.  Some organizations are replacing individual vacation, sick and personal time off policies by utilizing an unlimited paid time off (PTO) benefit.

Unlimited PTO policies have been entering the discussion when employers develop or re-examine their paid time off policies. At this point unlimited PTO is most popular with startups and large organizations.

Understanding Unlimited PTO Policies

Employers often adopt unlimited PTO over traditional vacation, sick, or personal time to help ease the burden of administration and tracking by having one simple policy. Employees can use the time as vacation, sick time, personal time, or for whatever need arises. This flexibility allows for 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.

Reasons to Offer Unlimited PTO

Many companies are now 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 done and specific results are achieved, employees get to choose when to use their time off.  Some organizations are now introducing unlimited paid time off policies that have no distinct accruals or allotments of time and employees can use as much or as little time as long as they achieve their results.

When examining this type of practice organizations must take into consideration many factors, including but not limited to:

  • business operations;
  • company culture;
  • specific job duties;
  • technological resources;
  • client or customer needs

It is also critical to clearly communicate expectations and targeted results as well as understand any potential wage and hour compliance concerns with unlimited paid time off policies.

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 require 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.

Some state laws will regulate certain aspects of those benefits when they are offered. For example some states will require that any earned but unused paid time off must be paid out upon 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 is important to understand these state regulations when providing paid time off benefits, especially practices that allow for unlimited paid time off.   Employers should consult an employment attorney if they have questions regarding unlimited PTO policies.

Are you looking to adopt an unlimited paid time off policy?

Here are some things to consider: 

  • Make sure the policy is clearly communicated to employees and disseminated in a manner that conveys company expectations.
  • Understand 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. .
  • Speak with an HR subject matter expert or an employment attorney to review these compliance components.
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.
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