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Unlimited PTO: Does it (Ever) Work?

March 11, 2019

Of all the human resources strategies used for HR development, unlimited paid time off is probably the last that an employer would suggest to their HR professionals. While unlimited PTO may sound like an irresponsible fantasy, many employers swear by it. Here is what you need to know in order to make an informed decision.

How it Works

While unlimited PTO may sound like a reckless business practice, it’s not nearly as free-wheeling as it seems.

First and foremost, unlimited PTO isn’t the result of a free-for-all mindset that institutes a revolving door policy. Even under the umbrella of unlimited PTO, employees are still expected to follow company procedures for requesting time off.

One of the first notable cases of unlimited PTO in the US occurred when KRONOS CEO Aron Ain instituted the policy among his staff. Ain reports that during the year in which they instituted this policy, they saw their greatest financial gains up to that point in time – a win that Ain attributes PTO changes.

The driving factors behind this policy, however, are important to note. Unlimited PTO was not granted in an effort to loosen restrictions, but as a means of recruiting and sustaining top talent. Unlimited PTO tends to be most effective when there is a baseline of trust between employers and employees. It can be a competitive device to help recruit top-performing employees who are already quite self-motivated.

That being said, the implementation of unlimited PTO may yield varied results.

Pros

In a competitive business world bent on high productivity, a reprieve may be what your employees need most. From a psychological standpoint, offering your employees unlimited PTO may help ease the stress of your top performers and encourage them to take time off as needed rather than forcing them to strategize about when they will use their time. This emphasis on work-life balance inspires the type of morale you find at companies like Google and Netflix – and it is a likely factor in their colossal success.

Offering unlimited PTO can also help circumvent the scheduling issues that can arise from more traditional PTO policies. Most businesses may experience a sudden spike in PTO taken near November and December because employees are scrambling to take time off before it expires (in cases where their time does not roll over). When employees know that they have more expansive opportunities for time off, they may also be more likely to choose disparate dates for their vacations, which helps employers avoid a mass exodus near the end of the year.

Unlimited PTO may encourage employees to take off time who may not do so otherwise, especially highly-motivated employees.  When employees take advantage of this opportunity, not only can it leave them refreshed and revitalized, it can also eliminate some potential complications for your payroll professionals. It can be trying to navigate payouts for unused PTO in the event of an employee’s dismissal or when an employee has banked their vacation time. Unlimited PTO makes this issue irrelevant and could save your company money.

Cons

The most obvious risk of instituting unlimited PTO is the potential abuse of the policy. As honorable as your employees may be, such an open invitation may be a bit too much for some to handle and they may take undue advantage of the policy. In extreme cases, this may result in severe understaffing with the compounded loss of productive work time and revenue.

When offering unlimited PTO, managers might find themselves with an added set of challenges. If supervisors are tasked with mitigating the daily operations, they may find it more difficult to ensure that shifts are properly staffed. They may also bear the weight of compensating for the work that remains in another employee’s absence.

If your business has held a traditional PTO policy (as it likely has), there may be some employees who have issues with shifting to a different program. Employees with a rigid work ethic may prefer powering through the work day and cashing in unused PTO. For these employees, unlimited PTO actually means losing an expected bonus.

Making a Decision

There are a number of factors to consider if you are thinking about implementing unlimited PTO:

Knowledge of Your Staff

Unlimited PTO is not a policy to help motivate unmotivated employees who already struggle to work with integrity. It should be a method for allowing self-motivated and highly productive employees some creative space for rest.

Business Size

For small businesses, unlimited PTO may not be logistically possible. For a coffee shop with six employees, every staff member is essential and unlimited PTO could end up exhausting the employees who are working while another relaxes.

Time-contingency of Daily Operations

Completing daily operations in a timely manner is important for all businesses, but it may be essential for some. If your business focuses more on project-based tasks, timelines may be a bit more flexible. If your operating hours are rigid, loss of productivity during these hours can be detrimental. In these cases, employers should take added precautions when considering unlimited PTO.
As Massachusetts works toward improved working conditions for employees, PTO policies are a key component to consider. If your business is reevaluating its human resource practices, the payroll and HR experts at Commonwealth Payroll & HR are ready to help in any way necessary. Call us today at (978) 599-1500.

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