I Gave My Employees Unlimited PTO — The Effect This Had on My Business May Surprise You
(This column originally appeared in Entrepreneur)
Key Takeaways
An unlimited PTO benefit can positively impact your business in a number of significant ways. Here are 11 ways it's impacted mineFor years, my company has offered an unlimited paid time off (PTO) plan, and if you run a business—particularly a small business — you should seriously consider doing the same. Maybe you've considered this in the past and shrugged it off as a fad or unrealistic. It's neither of those things. An unlimited PTO benefit can positively impact your business in a number of significant ways. Here are 11 ways it's impacted mine.
1. I'm part of a growing trend
Approximately 20% of corporate respondents in a survey from asset management firm Mercer say that they offer unlimited paid time off to at least some employees compared to 14% just a few years ago. Well-known companies such as Sony, HubSpot and the accounting firm Grant Thornton offer this benefit. Lesser known organizations do it, too.
"How, when and where we do our jobs has dramatically changed," an HR executive from Microsoft — which offers unlimited PTO to its employees — explained in a memo. "And as we've transformed, modernizing our vacation policy to a more flexible model was a natural next step."
HR platform Namely found that of the more than 1,000 companies asked, 34.5% offered an unlimited PTO plan, a number that has significantly risen over the past few years. This is not a fad. It's real life, and it's catching on in corporate America.
2. Why do I offer PTO? My workers want it
In poll after poll, workers say that they would choose more flexibility and work-life balance over higher compensation when searching for new jobs. The Society for Human Resource Management found that companies offering four-day work weeks, remote working arrangements and generous vacation plans are in high demand. Health insurance and retirement plans consistently rank among the most requested benefits by workers. But flexibility? That's become a must-have benefit, too.
3. My employees usually don't take more time off than before
Some business owners think that their workers will abuse their unlimited PTO plan and take an excessive amount of time off. Actually, the opposite is true at my company. Some studies show that there's no evidence that employees under unlimited PTO plans take more time off than those with more traditional plans. Others have found employees taking less time off.
No one knows why for sure, but a common assumption is FOMO—Fear of Missing Out. This has mixed benefits. On the one hand, the fewer vacations taken, the more work gets done. But then again, we want to make sure our employees are not feeling burned out, which could lead to productivity issues down the line.
4. I don't have to pay out unused vacations
A closely followed ruling in California found that "not all unlimited paid time off policies give rise to an obligation to pay "unused" vacation when an employee leaves" and that "employees and employers are free to contract for unlimited paid vacation, consistent with the Labor Code and governing case law."
There is no law (yet) regarding the type of plan you offer, and—with the exception of some states like Illinois, Maine and Nevada—you can write it any way you want, including limiting the payout of unused vacation.
Paying out unused vacation can be expensive. But how do you even calculate such an amount under an unlimited PTO plan? This is why many employers include provisions in the plan that restrict these kinds of payouts when an employee moves on.
5. It's been a great recruiting tool
With children, older parents, busy schedules and the demands of life, who doesn't want "unlimited" PTO? Everyone wants this, of course. It's all about flexibility—and the ability to take a longer-than-usual vacation or an extended period away. Offering this kind of benefit to prospective employees has helped put my business ahead of the competing businesses down the street that do not offer it.
6. It's been a great retention tool
Just because you have an unlimited PTO plan doesn't mean everyone's immediately eligible. Many companies hold it out as a carrot. For example, your plan may say that employees are eligible to participate only if they attain a certain level of experience, title or years with the company. Because of these advantages, having an unlimited PTO plan can significantly help a company retain employees longer.
7. It ends the sick time argument
What's vacation time? What's sick time? Was the sick time legit? Is there a doctor's note? Companies that offer both vacation and sick time off must differentiate between the two and ensure that employees follow the rules. Sometimes, this results in a dispute, which is never good. Having an unlimited PTO plan ends this debate.
8. Administrative time is slashed
Did that person take a day off? A half-day? A quarter-day? Companies that dole out specific vacation days have to account for these rewards—which are usually different depending on the employee's position and compensation — and then account for what is used as it is used. With an unlimited PTO plan, all of this bookkeeping goes away for my company.
9. It's a display of respect
People hate being treated like children. They're averse to micromanagement. And managers hate doing this, too. Leaving the PTO decision up to my employees' discretion gives them the respect that they can make mature and professional decisions like any competent adult. Unlimited PTO plans work when they're combined with the deliverables expected for each job. As long as that employee's getting their work done and available when they're needed, who cares where they are?
10. It can complement — not replace — your existing PTO plan
Although I don't do this because we're so small, it's perfectly acceptable to offer your workers more than one vacation plan. Many of my clients who have unlimited PTO plans provide them along with their traditional use-it-or-lose-it vacation plans. Some offer unlimited PTO plans to senior management or workers who can work from home. Others may choose not to because they can't afford to have their workers out of the office.
11. Most importantly, it's easy to control
Oftentimes, owners and managers worry that employees will take too much advantage of the "unlimited" part of their PTO plan. But this is easily controlled. My company's "unlimited" PTO plan is unlimited to the extent that a manager approves the time off. Some may not care if a worker is out for a month. Others may want to limit the times that an employee is away. Make it the responsibility of the manager to decide and they can keep control over how their staff is using their vacation plans.
Many of my clients offer unlimited PTO plans, and my company does the same. Have I convinced you yet?