How Does Unlimited PTO Work? Learn the Pros and Cons

Feeling like you need some time off? From across the Atlantic, we might find ourselves looking longingly at the EU’s approach to vacation. While every EU worker gets a guaranteed four weeks of paid vacation, there are no federal laws guaranteeing paid time off in the US.

Based on the most recent data from the Bureau of Labor Statistics (BLS), a typical private sector worker gets just eight sick days and 10–14 vacation days per year, after one year of service. That’s significantly less than the minimum of 20 paid vacation days enjoyed by their EU counterparts. Across the EU and UK, the typical worker gets an average of 24 paid days off.

But is this norm on the brink of changing?

Unlimited paid time off (PTO) once drew employees to startups and tech firms, but more companies are starting to implement unlimited PTO policies. In June 2022, Glassdoor found that employee reviews mentioning unlimited PTO leapt 75% compared to the pre-pandemic period. Just two years later, Society of Human Resource ManagementSHRM data pointed to a potential benefit of unlimited PTO: employees with unlimited PTO take 16 days per year, compared to employees with more traditional PTO policies (14 days per year).

But not everyone agrees that unlimited PTO benefits workers—or encourages them to fully use their flexible PTO benefits. In this article, we'll break down exactly what unlimited PTO is, how it compares to other common policies, and the pros and cons for employees.

Flexible Time Off: How Does Unlimited PTO Work?

With an unlimited PTO policy, employees don't begin the year with a fixed number of paid days off. Instead, they request days off from their manager, who approves or denies PTO at their discretion.

This unstructured freedom is unlimited PTO's prime attraction. SHRM data notes that companies that offer unlimited PTO unofficially cap vacation at three to six weeks—far more time off than the BLS average. (Although less than some EU countries.)

However, the same SHRM report found that employees with unlimited PTO policies take about the same amount of time off (16 days) as those with more traditional PTO policies (14 days).

Plus, an unlimited PTO policy comes with the risk of inequality. In the absence of a formal policy, managers may resort to approving or denying requests based on individual employees’ performance.

Unlimited PTO: Pros and Cons

Pro: Employees (Probably) Won’t Take More Vacation Days

This is probably an employer’s number one concern, so let’s get it out of the way. Unlimited PTO doesn’t mean you’ll show up during the fourth quarter to an office resembling the Empty Quarter.

Employees with unlimited PTO use about the same number of vacation days as those with traditional PTO policies—in some cases even fewer. Flexible time off equals no balance to use up, employees feel less motivation to spend PTO, and discretion is also a huge factor; assuming you trust your managers, you can trust they’ll say no to requests that leave you understaffed.

If your company culture doesn’t respect unlimited PTO, you could notice your employees experience burnout. While you don’t want them taking 365 days’ holiday (they won’t), it’s important to encourage workers to use their PTO days. With strong guidance in place, employees can feel comfortable utilizing unlimited PTO without abusing it.

Pro: It Makes Financial Sense

Aside from the possibility that your employees will take fewer days off (an obvious financial benefit), there’s the very real benefit of eliminating accrued hours that need to be paid out when an employee leaves. With an unlimited PTO policy, there are no hours earned, and therefore no balances to carry over or pay out.

Pro: No December Rush

Unlimited PTO policies can help you avoid the December or end of work year rush, as people try to bank on their use-it-or-lose-it days. This can help to avoid too many employees being off at once or feeling stressed about getting time during December. Instead, unlimited PTO lets people place things in early, without the worry about ‘losing’ days they’ve accrued.

Pro: It’s Good for Employees

Unlimited PTO can help tackle absenteeism, as people are more likely to request time off in the right circumstances. If unlimited PTO is respected, it can be a good way for workers to request the odd day off. That sense of flexibility and autonomy can take a lot of pressure off an employee’s life, and they can feel more in control of their time off.

Pro: It’s a Great Recruiting Tool

If companies like LinkedIn and Netflix have it, people are going to want it. As recruiting tools go, unlimited PTO or flexible time off policies are far cheaper than catered lunches, and they’re a great way to broadcast your company’s progressive values.

Pro: It’s Easy to Implement

…as long as you have a great HR program. Here’s our shameless plug: if you’re using the right system, switching to flexible time off shouldn’t involve a lot of paperwork beyond writing a memo to all employees.

BambooHR makes it as easy as going in and making an update to your PTO system with the options you want to add or subtract. Learn more with a free, no-obligation demo today!

Con: It’s Not Really Unlimited

When you replace traditional PTO with discretionary PTO, you remove the objective component of earned vacation time. In both systems, there are reasons why employers might not grant time off: deadlines, presentations, performance issues, meetings, and conferences, to name a few.

But while traditional PTO still requires approval, there’s also a certain sanctity to the idea of earned hours. Without that, any reason for denying a vacation request, legitimate or not, is likely to breed resentment around the new system.

Con: Employees Feel Pressured to Work

…and not in a good way. Time off is essential for positive culture, and whether it’s the shadow of a motivated boss or a perceived competition with coworkers, employees with a flexible vacation policy could feel pressure to work instead of taking time off. That pressure can come entirely from within; customers have informed us the mere sight of a negative hour balance was enough to discourage them from requesting leave.

Con: It Can Be Harder to Track

Flexible time off policies are modern and abstract; not so the federal government. If you’re not tracking hours, you may also have no way to track federally mandated leave like FMLA. That puts you in a position worse than the one you were in, back to the days of paper tracking and filing.

A well-designed flexible paid time off policy should be able to log hours quietly without creating a negative psychological impact on the employee.

Con: Current Employees May Not Welcome Change

Veteran employees who’ve been building up vacation steadily over the years may have been planning to use their accrued vacation hours as a severance bonus. If the change to a new system coincides with flat earnings or downsizing, younger workers might question your intent.

Common Types of PTO

Discretionary PTO

Employees decide when they take time off, but it can’t alter their work schedule on a consistent basis. Their time off also can’t cause excessive burdens on their co-workers.

Floating Holidays

In addition to a set schedule of annual paid days off, some companies offer floating holidays. These paid days off can be taken at an employee’s discretion and may loosely correspond to public holidays.

Vacation Pay

Vacation pay is a form of compensation paid to employees to take pre-approved time off work. When companies offer vacation pay in their PTO package, sick time is usually separate.

Volunteer Time Off

Volunteer time off is a kind of PTO that empowers employees to give back to their communities, and get paid to do it. This kind of PTO shows your organization’s commitment to corporate social responsibility. It’s a win-win-win for employees, employers, and the communities in which you live and work.

*Note: Volunteer time off shouldn’t be confused with voluntary time off, which is unpaid.

Flexible Time Off

Also called FTO, flexible PTO, or flexible vacation, this is time off that employees can take when they choose to and generally don’t have to accrue or count the hours. It can be used for vacation or sick time as needed.

FTO vs PTO

FTO is a type of PTO policy. Depending on the company you work for, FTO may or may not be unlimited.

Paid Holidays

Many US companies offer paid time off on federally recognized holidays such as New Year's Day, Labor Day, Christmas, and Thanksgiving.

Sick Days

Employees can take off using sick days when they are ill or if a family member is ill, in some cases. Some companies differentiate between sick time and vacation time.

Unlimited PTO

Also called unlimited vacation, employees can decide when and take as much time off as they need without accruing hours and in some cases, getting management approval.

Paid Time Off Accrual

PTO accrual is the accumulation of PTO hours, carrying unused leave from one year to the next. This can be tricky for HR and could leave employees with an inflating amount of vacation days.

Implementing an Unlimited PTO Policy: Future Implications

Depending on the uptake of unlimited PTO policies by companies, societal norms about vacation days and work could change. Consider the impact home working during the pandemic had, and how that has shifted the landscape of the office today. It could lead workers to further prioritize their work-life balance and flexibility, as has been the trend in many places.

This isn’t a bad thing but could cause companies to fall behind that can’t keep up with the demands of workers. Not every role can offer this type of unlimited vacation policy either. For example, manual jobs may be restricted in what they can offer.

Unlimited PTO comes with pros and cons too, and the system could be open to abuse by ‘workaholic’ company cultures. Employees can feel guilty or pressured, thereby not taking any of their unlimited vacation. In some instances, they may end up with less holiday. Worst case, people may feel pressured to work during their days off for these reasons.

Used right though, and an employee’s work-life balance can be radically improved. With flexible time off, even those odd jobs or unexpected events can be handled easily. It all depends on the implementation, trust, and a culture that allows unlimited PTO to be used as intended.

Editor’s Take: Should Your Company Offer Unlimited PTO?

Despite its growing popularity, unlimited PTO may not be the best choice for every company. It’s important that you understand the many implications before introducing unlimited vacation to your company.

At first glance, the concept of unlimited PTO sounds like a dream for employees and employers alike. Employees would be free to take as much time as they need, while employers gain a recruiting tool that improves employee happiness and costs almost nothing to implement. What could be better?

Unfortunately, unlimited vacation isn’t so simple from a policy or a practical standpoint.

If you’re thinking about switching to an unlimited PTO policy, take the time to consider why  you want to do so.

At the end of the day, any PTO policy should be designed to promote employee wellness. Encouraging employees to take time off, setting good examples at the executive and managerial levels, and being upfront about the parameters around your policy can help your company reach this goal—no matter which PTO policy you choose.

If you’re considering changing your PTO policy, it’s important to think about how you’d manage a new system with unlimited vacation. Our easy-to-use system makes it simple to manage PTO requests—no matter what your policy looks like. Learn more with a free demo today!