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Is Unlimited PTO an Option Today?

July 8, 2022

By Anthony Kaylin, courtesy of SBAM Approved Partner ASE

With the holiday behind us and the pandemic winding its way leading to more normalcy, the ability to rest and essentially take it easy is creating an opportunity to recharge and become more productive.  With most organizations offering limited time off, depending on the number of years the employee has worked, time off can range from 10 days to 25 days according to ASE’s 2022 Michigan Policies & Practices Survey.

Yet according to the Bureau of Labor Statistics (BLS), many employees do not take full vacations, leaving days on the table.  In a use it or lose it situation, the employee loses out.  However, according to the ASE survey, a majority of companies pay out all or a portion of unused time.  This could be a strong reason why employees do not use PTO time.

There are a number of companies that bucked the trend on PTO, with many providing unlimited PTO, mostly in the IT sector, from Netflix, Sony Electronics, Twitter, and LinkedIn.  For most of these employers, employees still have to schedule time off, and it has to be approved by their managers.  But other than that, as long as work is being done, employees have the freedom to take time off without rigid limits.

The idea of unlimited PTO is a scary proposition to most employers.  However, a recent Mercer survey, Mercer’s Survey on Absence and Disability Management, found that 20% of the 405 responding organizations offered unlimited PTO to at least some employees in 2021, up significantly from 14% of respondents in both 2015 and 2018. While 8% offer this benefit to executives only, employers are just as likely to offer it to all exempt employees (8%), and an additional 4% offer it to all employees.

Growing acceptance is coming slowly.  New era, new benefits, new expectations from the new workforce, particularly for work/life balance. A new reality for many organizations has set in – remote work and the 24/7 nature of technology have blurred the distinction between work and not working.  Further, it creates an ease in recordkeeping and expense savings with the deletion of vacation-related liability accruals.  Moreover, unlimited PTO should satisfy requirements under most states paid time off laws like in Michigan.

Unlimited PTO has shown that there is increased communication between employees and management to ensure work is completed.  It also alleviates issues of employees feeling like they have to go to work sick, which is a serious issue, especially in today’s environment.  Studies have shown that productivity goes up when the employee feels like they own and control their own time.  The grand majority of employees do not abuse it and use about the same as they do today, maybe a little more. 

Some downsides are employee misuse: 1) Employee expecting accruals when terminating for payout if policy so dictates, 2) Employees not being there when needed, 3) Finally, some employees fear use and  end up taking less than the standard two weeks as they feel uncomfortable declaring their work is done and their schedule is free.

If after investigation, an unlimited PTO seems like a policy worth implementing, Mercer recommends the following. 

  1. Engage all stakeholders on the potential policy.  An unlimited PTO needs to fit within the organization’s processes as to how to get work done.  Just because it is asked, management does not have to approve, but there needs to be clear guidelines for approval or denial. 
  2. Anticipate employee reaction.  If employees assumed payoffs for unused vacation or at termination, there may have to be some financial incentive to convince employees to buy-in.  While the majority of employers in the Mercer survey have opted to have accrual balances forfeited where allowed by state wage laws (58%), others have paid out existing balances (44%). Mercer recommends considering various accrual transition approaches – including financial and employee relations implications – as an important part of your design strategy. 
  3. Finally, set the guidelines and train, train, and then offer more training for managers and employees to understand how the new approach works.  Then follow-up with surveys to see how it is working.
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