Unlimited PTO Pros and Cons: Is It Good or Bad?
- Unlimited PTO is popular with employees but can be dangerous
- The core problem with unlimited vacation is that it's never really unlimited
- Unlimited vacation can lead to less time off, management headaches, discrimination, and lawsuits
- Before choosing unlimited PTO, ask yourself why you're interested in it to begin with
Is Unlimited PTO a Trap? Maybe.
Unlimited PTO (paid time off) gets a lot of press. It's popular with employees who can take as much vacation or sick time as they like, whenever they need, without worrying about it. HR teams like it because it's easier to manage, helps with recruiting, and eliminates a major financial liability. But an increasing number of news outlets and thought leaders warn against it. Why?
The reason is simple: unlimited vacation sounds like a dream, but can quickly turn into a nightmare.
“It’s just a lot easier to get an unlimited PTO policy going,” says Adam Gordon, Co-founder of PTO Genius. “But that’s exactly where the problems start: these policies tend to be improperly documented and poorly implemented. That’s when it gets risky.”
“In a time when companies want to be more inclusive," he warns, "an improperly-managed unlimited policy can end up creating a great deal of inequity, potentially opening you up to serious legal risk.”
What is Unlimited PTO?
First, let's align on terms: what is unlimited PTO?
Unlimited PTO is a type of self-managed paid time off (PTO) policy that lets you take as much paid time off as you need, whenever you need it, with no limits on how much you take. Sometimes, an unlimited PTO policy includes vacation time, sick leave, personal days, and other types of PTO under the same umbrella. In other cases, a company may implement unlimited sick leave but have a separate vacation policy that puts a cap on how much you can take in a year.
Unlimited PTO vs. Discretionary Time Off (DTO) vs. Flex Time Off (FTO)
Unlimited PTO is not the same thing as discretionary time off (DTO) or flex time off (FTO). Under a DTO policy, you can take time off at your own discretion, but you accrue that time off with hours worked, or you draw down from a PTO bank. Similarly, flex time off policies give you the flexibility to take time off for whatever reason, but you don't have an unlimited amount of time off available.
Flexible vacation policies are popular with employees because they give you ownership and control over how you use your time off. Discretionary time off is also popular for similar reasons. However, neither policy type is unlimited in the same way as unlimited PTO.
Pros: Why is Unlimited PTO Good?
Unlimited vacation policies are popular with employees because they give more freedom and flexibility. HR teams like unlimited PTO because it's easier to manage, and eliminates a major financial liability.
Pro: Unlimited PTO Gives More Freedom and Flexibility
In theory, unlimited PTO policies can improve work-life balance and well-being. Employees feel free to manage their lives–going to doctor’s appointments and children’s sports games, for example–without worrying about using up their vacation or sick days.
Pro: Easier PTO Management
From an HR perspective, unlimited PTO policies are simpler and easier to manage. No tracking accruals, no updating PTO balances, no accounting for time off in payroll. This frees HR to focus on other important initiatives like engagement, employee wellbeing, and Diversity, Equity and Inclusion (DE&I).
Pro: Unlimited PTO Eliminates a Financial Liability
Finance departments love unlimited PTO. Under a traditional policy, accrued-but-unused PTO represents an enormous financial liability (almost $2,000 per employee, on average). Unlimited PTO eliminates this liability because employees no longer accrue their PTO.
Pro: Unlimited Vacation Can Help With Recruiting
In a competitive job market, your company needs to stand out as a great place to work. An unlimited PTO policy can be seen as a vote of confidence in your employees and a draw for job candidates who prefer more time off over more money.
Cons: Why is Unlimited PTO Bad?
Unlimited vacation or PTO policies are never really unlimited, create new headaches for HR and managers, increase risk of discrimination, and can even open a company to lawsuits.
Con: Unlimited PTO is Never Really Unlimited
Unlimited PTO is supposed to mean that you can take as much time off as you want. But the reality is that unlimited time off is never really unlimited.
Think of it this way: would you approve of an employee taking 6 months off? How about 3 months? 2 months? Even 6 weeks? If it were you requesting it, would your manager approve? How would your coworkers feel?
The point is, there’s always an upper limit on what’s “acceptable”. If your PTO policy doesn’t set that limit, your company culture will. And the unwritten upper limit under an unlimited policy may be lower than the clear-cut limit defined by a traditional policy.
This happens for a few reasons:
Lack of clarity: Employees aren’t sure about how much time off is too much time off. They worry about appearing less dedicated, so they don’t take time off.
Lack of ownership: Since PTO isn’t accrued as they work, employees don’t feel like it “belongs” to them. If they don’t feel like they’ve earned it, they don't use it.
Lack of encouragement: Managers fall into the same trap of taking less time off. This sets a bad example that their employees feel pressured to follow.
The misalignment between the idea of “unlimited” PTO and the reality of it can lead to frustrated employees. The BBC has called out “the smoke and mirrors” of unlimited PTO, while Robert Sweeney, CEO at Facet, went so far as to call unlimited PTO a “scam”.
Con: Unlimited Vacations Create Unlimited Headaches
Unlimited PTO policies need clear definitions and guidelines. Otherwise, they open the door to operational risks and management headaches. For example:
Overlapping vacations: Employees might not consult their teammates before taking time off. What happens if a crisis arises and no one is there to resolve it? You could say this is on managers to prevent, but your managers need guidance.
Policy abuse: How much PTO is too much? If most employees take 15 days but one takes 30 days, are they abusing your policy? Context matters, of course, but that’s precisely the point. Do you want to have to be the one to decide? If you solve this problem by setting an upper limit on how much PTO employees can take at a time, your “unlimited” policy isn’t really unlimited.
Harder to track: Employees may not bother to put in formal PTO requests. This can lead to compliance and auditing nightmares if you don't maintain a reliable record of time off requests and approvals. Inefficient tracking of time off can also lead to time theft, which affects 75% of businesses in the U.S. every year.
Harder for HR to manage: Under an unlimited policy, managers who micromanage or improperly manage their employees’ time off put your company at risk. As your organization grows, this risk grows exponentially and becomes virtually impossible for HR to mitigate.
Brian de Haff, Co-founder and CEO at Aha!, says that he’s never seen an unlimited PTO policy implemented well. In fact, he encourages people not to accept unlimited PTO policies.
Con: Unlimited Policies Can Increase Risk of Discrimination
What if a manager denies one employee's vacation but approves another’s? This could be considered leave discrimination: unequal and inconsistent access to time off.
Imagine two employees under an unlimited PTO policy. They have similar jobs but different managers:
Employee #1 has a good relationship with their manager and takes PTO at their discretion.
Employee #2’s manager frequently denies their leave requests, or reluctantly approves their requests but later denies them a promotion.
In this example, Employee #2 may be a victim of leave discrimination: they have unequal access to a benefit to which they’re entitled. This opens the door to an employment lawsuit.
Furthermore, If they happen to be a minority or protected class, this could be a violation of workplace discrimination laws as well.
Remember: Compared to traditional PTO policies which set clear expectations and guidelines, unlimited policies are usually more general. That’s by design, because the point is to simplify PTO management and give employees more flexibility. But that ambiguity can lead to legal nightmares.
As the example above shows, you become dependent on managers to do the right thing, which is difficult, if not impossible, to guarantee.
Con: Unlimited PTO Increases Your Risk of Non-Compliance
Another very important and related risk comes from the interaction between unlimited PTO and other leave types, such as FMLA.
Let's say an employee needs to take time off to care for a sick family member. This probably falls under the Family and Medical Leave Act (FMLA). But the employee doesn’t know about FMLA, so they request two weeks of standard PTO.
Unfortunately, their manager doesn’t know that this is a request for protected FMLA leave. All they know is that there are important deadlines coming up, so they deny the request. Or maybe the PTO is automatically approved, but the manager doesn’t tell HR that it’s for FMLA.
In the first case, you’ve likely violated FMLA. In the second, problems could arise down the line around the employee’s return to work. In either case, HR might not hear about it for weeks or months, creating huge compliance headaches that could take weeks to resolve.
Con: Unlimited PTO in California is Especially Hard to Manage
California's paid sick leave and PTO payout laws make unlimited PTO policies especially hard to manage.
First, the state's mandatory paid sick leave law requires that employers grant 1 hour of paid sick leave for every 30 hours worked. The law allows for policies that do not accrue sick leave, but front-load it at the beginning of the year instead. However, employers must keep careful record of sick leave accruals and usage so that they can demonstrate compliance with the law, should they be audited or investigated.
Second, California PTO payout laws require employers to pay out the value employee's unused accrued vacation time at employment separation. In theory, unlimited PTO policies eliminate this need because vacation doesn't accrue under an unlimited policy. But the employment law firm Fisher & Phillips points out that it's not so simple.
In McPherson v. EF Intercultural, Inc., a California appellate court found that even when an employer says they offer "unlimited" vacation, if the reality is that employees are expected to take vacation within a certain range, the company can be liable for paying out unused vacation at separation.
The court's ruling does not invalidate unlimited PTO in the state of California. Instead, the appellate court allows for "truly unlimited PTO policies". But this ruling does add complications and important considerations for any California employer with an unlimited policy.
Start Here Before Implementing Unlimited PTO
So, is unlimited PTO a trap? Maybe. Unlimited vacation can be a good option for some organizations, but it can also be a terrible (and potentially crippling) choice for others. The ambiguity of its “unlimited" nature can lead employees to take less time off, resulting in burnout, engagement, and turnover issues.
For employers, ask yourself this question before implementing unlimited PTO:
Why am I doing this?
If your answer is, “Because my employees are asking for it,” that’s a good starting point! Do your due diligence by reading articles like this one, and make sure your policy is clear, consistent, and compliant.
If your answer is something like, “To improve employee experience,” or “To reduce financial liabilities,” there are other ways to achieve these goals without the risks that come with unlimited PTO.
For example, to improve your employee experience, work on building a company culture that encourages time off. Research shows that taking time away from work makes people happier, healthier, and more productive. Try some creative ways to improve engagement and make sure your executives and managers set a good example.
To improve your employees’ financial wellness while reducing your financial liabilities, look into setting up a PTO conversion program. PTO conversion gives your employees new ways to use their PTO based on their own needs and priorities: contributing to retirement savings, paying down student loans, covering financial emergencies, and more.
An effective unlimited PTO policy starts with the basics: here's everything you need to account for.