Should Your Company Offer ‘Unlimited Paid Time Off’ to Employees?

Across the world, many companies and start-ups – primarily in the technology space – have started offering their employees ‘unlimited paid time off (PTO)’. Unlimited PTO incentivises talented workers to join these employers and also provides a nice bit of employer branding for the company.

However, offering unlimited vacations as an employee benefit also could run into complications. Employers need to strike a balance between keeping people happy and managing the operational risks and administrative complications that come with offering unlimited paid leaves.

The applicability of such policies in different geographies and sectors is also still unclear. Societal and cultural factors affect workplace productivity, attendance and engagement. Hence, while an unlimited paid leave policy sounds fancy, its implementation may not be realistic in all contexts.

If you are considering an unlimited vacation policy, here are the pros and cons of unlimited PTO that you need to be aware of.

The basic premise of unlimited PTO

The concept of unlimited PTO is based on trust. Companies that vouch for such a policy are essentially saying that as long as employees are productive, they don’t want to micromanage how the work is done. They are also acknowledging that people need time off for domestic chores, to spend time with their children or parents, or just to be with themselves for their mental or physical health.

Also read: How To Prevent Work Stress From Affecting Your Family and Relationships

Who is adopting unlimited PTO and why?

After the pandemic, employers went out of their way to demonstrate their concern for the wellbeing of their people. And unlimited leave policies were a part of that. However, in some cases, it was the pressure that forced them to change.

"We offer it [unlimited PTO] because all of our peer companies do, and we don't want people to compare us to other companies unfavorably," said Jonathan Wasserstrum, founder and CEO of SquareFoot, a commercial real estate and technology firm based in New York.

This statement pretty much shows how, in the employment market, unlimited paid leaves are being treated as ‘Veblen goods’ – the term for goods whose demand rises along with their increasing cost (in this case, to the company).

Pros of unlimited paid time off:

As an independent adult, no employee asking for leave wants to be reminded of their school days, when an absence from the class required a letter from their parents and the approval of their school teachers.

At work, such strict rules are seen as undesirable, especially in the post-COVID-19 workplace. The freedom to take responsibility and ownership over one’s work and time off creates a sense of work-life balance that is quintessential in this hyper-competitive era. Hence a clear benefit of unlimited PTO is that employees can determine how they want to plan and distribute their holidays across the year without waiting for someone’s permission to do so.

Cons of unlimited paid time off:

Human resources personnel are responsible for managing employee leave applications, their approvals, and their roll-over paid leaves. If companies where unlimited paid vacations are the norm, team leaders and managers might find it difficult to keep tabs on the number of leaves rolled over or exhausted by their employees. Hence, the distribution of time offs has to be monitored frequently when employees are given the liberty to take unlimited PTO. Paid time-off taken at a stretch requires another work buddy to handle the job and can definitely hamper workflow. In the holiday season, unlimited paid time offs might create massive confusion, dips in productivity, and therefore losses for the company.

However, some start-ups are pulling it off. To overcome the above issues, some companies have introduced ‘master calendars’ which track employees and makes sure a minimum employee strength is maintained in the office at all times.

Check out this article on How to Send the Right Message about Workplace Wellness to Your Team

Company implementation of unlimited paid offs and how has that played out!

Netflix and LinkedIn are among the companies that have implemented unlimited paid holiday policies. Others like Roku, Evernote, Kronos, Buffer, and Kickstart have also adopted these policies. To justify its decision, Netflix said - “Just as we don't have a nine to five policy, we don't need a vacation policy." Meanwhile, LinkedIn came up with the term ‘discretionary time off’ in 2015 and that’s served it well.

Evernote has had brownie points on Glassdoor for having the happiest and most satisfied employees ever. And, this is what Roku has to say, "We believe you can be highly productive at work and still have plenty of time for life outside of the office."

Then again, there are companies which have announced unlimited PTO policies, but then revoked it too. But not for the reasons you assume. One US-based company replaced unlimited vacations with a ‘flexible working policy’. The reason? Vacation utilisation was actually dropping under the ‘unlimited holiday’ scenario because employees were anxious about their vacation limits, as well as about meeting deadlines in the time they had left.

And let’s not forget that if unlimited PTO could also lead to tense conversations at work. If even a tiny task goes wrong due to an employee’s absence, there could be a scenario where the person’s manager or colleagues feel resentful. And this could lead to even greater pressure being piled up on the whole team.

Customising your approach is the key

Offering unlimited PTO is not only about flexibility or talent acquisition; it is about empowering employees to balance their professional and personal commitments without one affecting the other. These are still early days for the concept and therefore we don’t have conclusive data on whether unlimited vacations will work in every context. Hence, companies must carefully consider the cultural, professional and other nuances, and then roll out such initiatives on a test basis before they plunge headlong into this journey.

Also read: Is a 4-day workweek good for employee wellbeing?

Are you an HR or business head, an entrepreneur, or a team leader? If the well-being of your team is a priority, Manah can be your go-to partner. Do check out our services:

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