Unlimited Paid Time Off: A Good or Bad Idea?

Despite positive aspects of unlimited vacation policies, they're not for every organization

By Joanne Sammer Dec 15, 2014
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Unlimited vacation policies are getting quite a lot of media attention. There is little wonder why. The idea of taking time off whenever an employee needs or wants to is compelling. For HR managers, such a policy has the potential to free up staff resources from tracking accrued paid time off and to attract high-potential employees.

Yet, policies for unlimited vacation—or, more broadly, unlimited paid time off (PTO) with sick leave and personal days to boot—are still rare. The Society for Human Resource Management’s (SHRM’s) research shows that less than one percent of employers offer such a policy. “This is anything but an emerging trend,” said Bruce Elliott, SHRM’s manager of compensation and benefits.

Why Go Unlimited?

That might be changing. Unlimited vacation gathered a new round of attention when billionaire Richard Branson explained on his blog last September why his company, Virgin Group, implemented an unlimited vacation policy for its approximately 170 employees. That policy, inspired by a similar policy at Netflix, allows employees to decide when to take time off and how much time to take without any required approvals from managers. The only requirement is to make sure everyone is up to date on the employee’s work and that the employee’s absence will not damage the business. The rationale is that employees will manage their own time well because it is in the best interest of their careers to do so.

Whether this type of approach might work for other employers on a broad scale is an important question. Some employers have already adopted unlimited vacation time with good results. These organizations include some start-ups, rapidly growing companies with innovative cultures and other organizations that see this approach as a natural extension of the modern corporate environment where work routinely gets done outside of the traditional 9 to 5 timeframe. The change can potentially lead to a more engaged workforce because management is trusting employees to manage their own time in a way that serves their personal needs while still getting the work done.

While these organizations undoubtedly see unlimited vacation as a key selling point for their current and potential employees, and a way to build loyalty to the organization and engagement among workers, there are some financial benefits, too. PTO, particularly in programs that allow employees to roll over and bank unused time, can represent a significant accrued expense for the organization. Also, with unlimited vacation there is no rush at the end of the year to take unused time that does not carry over.

No accrued expense for banked time, and

no end-of-year rush to take

unused vacation days.

Some employers with unlimited vacation policies point to the administrative time saved because HR staff no longer has to track and police the use of accrued vacation time for each employee. Ask.com calculated that its unlimited vacation policy saves 52 hours a year in administrative time.

Unlimited vacation also is a compelling benefit for many workers. A 2012 survey of 2,094 adults sponsored by Ask.com found that 69 percent would be more inclined to take a new job if the company offered unlimited PTO.

Not for Everyone

Despite the positive aspects of unlimited vacation policies, they may not work for every organization. For example, there are still administrative issues to be worked out with such a policy. “While unlimited vacation policies may sound easy to administer, they actually raise some difficult issues,” said Jacklyn J. Ford, a partner with law firm Vorys in Columbus, Ohio. “For example, an employee whose leave qualifies under the Family and Medical Leave Act needs to track that leave so that their job remains protected for the duration of qualifying leave.”

Employers need to work out the nuts and bolts of the policy to see how it will work in a real workplace situation. “Employers also have to think long and hard about how ‘unlimited’ they are willing to allow the leave to be,” said Ford. “How they will decide when the unlimited leave has been excessive or otherwise abused?”

Others see structural limitations to such a policy. “Do I see it happening at a General Motors plant? No, absolutely not,” said Elliott. “It’s unionized and having a high percentage of nonexempt hourly workers makes it difficult to manage and administer.” In addition, he suggested that younger workers in the Millennial generation who are not used to working within the limited vacation period paradigm might be better able to adapt to this approach than older workers.

Some jobs simply require people to be present, making unlimited vacation difficult to implement. This can also create tension if workers in some jobs can take more time than those in other positions. “Some jobs require a certain amount of face time, while others could in theory be done entirely remotely,” said Ford. “Those different types of jobs might have very different expectations for what a reasonable unlimited amount of leave might be.”

As with any policy change, employers should proceed with care. “In the end, the success or failure will depend on the degree of preplanning the employer does and the trust relationship it has with its workforce,” said Ford.

A Cautionary Case

There are several reasons why employers need to think carefully before rolling out an unlimited vacation policy. And remember, there is no guarantee that employees will react favorably. Consider the case of Tribune Publishing, owner of newspapers including the Los Angeles Times, which unveiled a “discretionary time off” policy for salaried, nonunion employees in November. In this case, the company proposed to replace a fixed paid time off allotment with a new policy that “gives employees, subject to the professional judgment and approval of their supervisor, the freedom to decide when and for how long to take time off,” according to a company memo.

Employees, however, greeted the announcement with suspicion, telling media blogger Jim Romenesko that the policy “removed the monetary value of the vacation days that long-term staffers have accrued. Traditionally, staffers cashed those days out when they left the company.” Tribune Publishing ended up rescinding the plan just a week after its announcement due to employee backlash.

In covering the controversy, the New York Times noted: “That policy, which drew so much anger among employees, is the very one that Netflix, Virgin and other companies promote with pride. Only they don’t call it discretionary time off. They call it unlimited vacation time.”

Clearly, communication and preparation are critical before implementing an unlimited vacation policy. But employers must also know their workforces and understand how they might react. “Do your homework,” advised Elliott. “Take a look at accrued paid time-off balances and current vacation patterns. Building trust is paramount to a successful rollout of this plan because it is supposed to be an enhanced benefit.”

Joanne Sammer is a New Jersey-based freelance writer.

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