Unlimited paid time off (“PTO”) is one of the new “it” workplace policies.  Adopted as both a means to attract and retain employees as well as to avoid having to coordinating and track specific grants of paid PTO or vacation– a task which can be arduous, particularly for smaller businesses – some employers have done away with traditional accrual-based PTO and vacation policies and instead offer employees the opportunity to take as much PTO as they wish.  Under these policies, employees can technically take as many paid days off as they choose, for any reason, including vacation, sickness, or personal reasons.  Some may think this makes great sense, and others may think it is crazy.  To a certain extent, these policies are a bit of both.  Before deciding to implement an unlimited PTO policy, it is important that employers consider the potential benefits and drawbacks of such a policy and have a clear plan for implementation.

Benefits of Offering Unlimited PTO

There are several benefits to unlimited PTO policies.  For example, unlimited PTO provides employees with the freedom and flexibility to control their own schedules and allows them the opportunity to relax and rejuvenate when needed, which often leads to increased productivity.  Unlimited PTO can be a powerful recruitment tool that can help employers attract and keep top talent, and can be substitute for arduous recordkeeping associated with diverse state- and city-specific paid sick leave requirements.  Further, under a typical PTO accrual system, employers are often required to pay out accrued, unused vacation time to employees who retire or quit before using that time.  However, offering unlimited PTO eliminates the accrual of time off, which in turn can eliminate the employer’s obligation to pay employees for unused PTO.

Drawbacks of Unlimited PTO

Unlimited PTO policies are not without their drawbacks, however.  For example, providing employees with an uncapped amount of PTO creates an opportunity for potential abuse and misuse.  Further, without controls in place to stagger the use of PTO, employers may be left short-staffed.  In addition, some studies have shown that offering unlimited PTO policies may actually discourage the use of PTO, as employees are fearful of appearing to be taking advantage of the policy, which can lead to burnout and overall employee dissatisfaction.  Finally, transitioning to an unlimited PTO policy from an accrual-based policy can be problematic where employees have accrued, unused PTO left over from the previous accrual-based policy and are operating in states that prohibit forfeiture of accrued PTO.  Even still, employers can mitigate many of these drawbacks if they hire employees they trust, communicate their expectations explicitly at the outset, and adopt a clear plan of action for transitioning to and implementing an unlimited PTO policy.

Tips for Implementing an Unlimited PTO Policy

For a transition to an unlimited PTO policy to be successful, employers should consider the following key elements. First, the employer needs to decide what to do with the current PTO that employers have accrued, particularly in those states that prohibit forfeiture of accrued PTO.  Employers typically have three options: (1) pay employees for their remaining unused time off before switching to unlimited PTO; (2) track the accrued time separately and pay out the accrued balance to employees upon their termination of employment; or (3) provide employees with a reasonable amount of time and notice to use the accrued time before the new policy takes effect.  Further, employees should implement a system to track the use of unlimited PTO moving forward to ensure employees are not abusing the unlimited PTO policy.  Clarity and consistency are essential in accomplishing a smooth transition.  Moreover, employers should give employees advance notice of the change and managers should be educated on how to administer the new policy.  As the landscape of state law regulation of paid sick leave, paid personal leave, and other paid leaves becomes increasingly complex, employers will need to be vigilant to ensure that even an unlimited PTO policy complies with state (and local) laws.  Consulting with counsel to ensure compliance and a smooth transition to an unlimited PTO policy will help avoid bumps along the road.