Unlimited Vacation: The Benefits & Drawbacks of Progressive PTO

It used to be the norm that most employees would have a certain amount of vacation days and a certain amount of sick time. But these days, the lines between vacation and sick time are blurring and many employers are lumping all the time its employees take off from work into PTO. But what does that mean and how will it affect your company?

PTO/Vacation Policy Definitions

While it may seem that flexible, unlimited and discretionary PTO are the same thing, there are slight differences that you should know about before you make changes to your time off policy. No matter if you call it vacation time, sick leave or just PTO, before you make changes to your current policy, you need to know which will work better for you. Here are some common terms and their definitions so you know which would be best for your company:

Flexible Time Off :

Also called 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.

Unlimited Time Off :

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

Sick Days:

This is time employees can take off when they are ill. This can also be used if a family member is ill. Some companies differentiate between sick time and vacation time.

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.

(Definitions may differ by the company)

At first blush, the concept of unlimited vacation (also known as flexible time off, discretionary PTO, etc.) sounds like a dream, not only for employees but employers as well. Employees would be free to take as much time as they need without worrying about accruing hours, 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, either from a policy or a practical standpoint. We discovered as much when creating an unlimited vacation tool for BambooHR. Our development team spends a lot of time talking to customers about what they like, dislike, and what problems they want to be solved, and the feedback they received is enlightening.

If you’re thinking about adding a similar policy at your company, take the time to consider why you want to do so. Here are four reasons we’ve uncovered in favor of such policies.

4 Benefits of Unlimited Vacations Policies:

1. Employees likely won’t take more vacation days

This is probably employers’ 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.

2. 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. This is a double-edged sword, however, as we’ll discuss later.

3. It’s a great recruiting tool

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

4. 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.

But there are drawbacks as well to unlimited PTO programs. Here are five reasons we learned to think hard before going that route.

5 Drawbacks of Unlimited Vacation Policies:

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1. 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.

2. 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 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.

3. It’s hard 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.

4. Employees may not want it

Older, 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 employees might question your motivations.

Despite its growing popularity, unlimited PTO may not be the best choice for everyone. From our informal research, we’ve found it favors companies with strong cultures and younger, more policy-flexible employees who haven’t already stashed away large PTO balances. Perhaps more importantly, a well-defined policy is key to keeping your people happy while realizing the benefits of flexible PTO. 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 reduce uncertainty at the employee level. And having a great PTO tracking software designed to make both traditional and modern PTO policies fit seamlessly into your business certainly can’t hurt.