What does unlimited PTO mean?

Unlimited Paid Time Off means there is no hard cap on the number of PTOs offered to employees. i.e. it is unlimited! They can take as many days of time off as they need, as long as they finish their work on time. It is about providing a flexible work environment and treating your employees as responsible adults who can manage their time.

This certainly does not mean employees can take time off whenever they want or eliminate all procedures around PTO. Although considered a rare benefit, it is gaining a lot of traction, and an increasing number of companies are using the terms ‘unlimited vacation’ or ‘Open PTO’ mainly to attract and retain talent. 

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How does Unlimited PTO work in an organization?

Follow these steps to ensure that unlimited PTO works seamlessly: 

1. Inform your employees about the new PTO policy in your organization.

Explain the objective of moving to unlimited PTO and why you think it will work in your organization. The success of unlimited PTO lies in the trust that you place in your employees. Foster a culture of trust and accountability in your organization. When your employees feel in control, they will work better and happier.

2. Provide clarity on the specification

Set a limit on the number of days that can be taken off at a time. Unlimited time off does not limit the number of days an employee can take off in a year. However, it certainly does not mean that employees can take a year-long paid vacation. Set a cap on the number of PTOs an employee can take at any time. By doing so, the team goals and productivity remain unaffected.

3. Create a formal written unlimited PTO policy that is easily accessible for employees

This is more like a handbook that employees can refer to when they have questions on the time off application procedure, the number of allowed days, time off approval, and so on.

4. Ensure that your employees provide advance notice on the PTO

This is not about the emergency or casual leaves your employees may need to attend the parent-teacher meeting or their friend’s wedding. When it comes to long vacations, ensure that your employees give at least two weeks’ prior notice. This will help you plan team goals better and avoid mass absenteeism.

5. Setup a leave approval process

This can help track the absenteeism trends and ensure that employees do not abuse the time off policy.

6. Use a tool that can help you manage and track unlimited PTO from one place

Use a tool that helps manage unlimited PTO from one place, both for the employees and the managers. With time off tracking software, you employees can apply for leave, view their time off trends, and plan their holidays better.  

Pros and Cons of Unlimited PTO

Pros

Cons

Employees feel the company trusts them with their choices and become more responsible in using their PTO

The fear of being judged, measured, or valued based on time-off history may haunt the employee

Fosters loyalty for the organization and improved employer-employee relationships.

Lead to employee burnout, since employees don’t take enough time off due to a subconscious fear of being judged.

The employer need not pay out the unused PTO when an employee resigns.

Mass absenteeism among team members can occur leading to pending work and low team pending.

Employees feel trusted, are more productive

Employees may not take enough time off if the management does not take enough time off and set a poor example.

It is a great tool for attracting, recruiting, and retaining talent.

It becomes difficult to track leaves and spot absenteeism trends.

Increases employee autonomy and reduces stress at work

Employees can abuse the policy and take frequent time off

Teams will come together and collaborate better to ensure that team’s productivity is not affected.

It can lead to conflicts if the team does not function on transparency and trust as its core values.

Should your company give employees unlimited PTO?

Very few companies globally have Unlimited PTO as their employee leave system. It is a relatively new concept that some companies are trying to implement successfully.

Although most organizations are skeptical about Unlimited PTO, most employers who shifted to the Unlimited PTO system say that their employees took fewer days off after the switch.

So, is Unlimited Time off the right type of PTO policy for your company?

It depends on the industry you belong to. 

Not all companies are suitable for the Unlimited PTO system, not yet. For example, the Healthcare Industry would need its employees to work regularly as their role affects people who depend on them for critical reasons.

 On the other hand, organizations that thrive on the creativity and productivity of their employees to run their business can implement unlimited PTO to encourage their employees to focus on the results rather than on the number of work hours.

Unlimited PTO vs Limited PTO - things to consider

Capping on the number of days

Unlimited PTO: As the name suggests, there’s no limit to the number of PTOs allotted to the employees. However, there would still be a procedure associated with applying PTO which is unique to the company. This excludes the public holidays and mandatory leaves as prescribed by the government.

Limited PTO: Companies usually provide a fixed bank of PTOs or have the traditional PTO policy wherein there is a fixed number of sick leaves, casual leaves, adoption leave, etc which are either accrued over the year at a certain frequency or given at the beginning of the year.

Measuring the efficiency of the PTO policy

Unlimited PTO: It is difficult to account for the lost time, productivity, and time off trends as there’s no limit to the number of PTOs an employee can take unless companies use the time off software that can handle unlimited PTO policy.

Limited PTO: It is easier to stay on top of time off trends in your company and measure the cost-effectiveness of the time off policy.

Incentivization

Unlimited PTO: There’s no scope for incentivizing unlimited PTO. 

Limited PTO: Companies can boost employee morale by incentivizing their good work with an extra PTO.

 

Application across industries

Unlimited PTO: Not applicable to all industries, particularly those where the employee is accountable for critical tasks, such as factory employees, scientists, medical workers, etc.

Limited PTO: Can be applied across industries.

Encashment of PTO

Unlimited PTO: Does not allow encashment of leaves, thereby reducing the burden on the organization at the time of job termination.

Limited PTO: Although not mandatory, most companies allow encashment of leaves that have been accrued over time, or at the time of resignation.

Abusing the PTO policy

Unlimited PTO: The likelihood of employees abusing unlimited PTO is high since it is quite difficult to track the PTO trends.

Limited PTO: Since it is easier to track PTO in a limited PTO policy, employees tend to adhere to the rules effectively.

Productivity and mental well-being

Unlimited PTO: Unlimited PTO policy helps boost employee morale because it provides a sense of authority and autonomy, thereby increasing employee happiness and productivity. That said, without any clarity on PTO best practices, employees sometimes feel pressured to work more and take less time off.

Limited PTO: Employees have to stick to the PTO allotted by the organization. Some companies have a use-it-or-lose-it policy that encourages employees to use their time off before the year ends and take the much-needed time to rejuvenate themselves. 

FAQs on unlimited PTO

Is unlimited PTO really unlimited?

Yes, there’s no limit to the number of PTO employees’ can avail in a year. However, most companies have a procedure and approval process, and set a limit for the number of PTO employee can take at a time. Also, some companies ensure that employees compulsorily take some time off. This is because unlimited PTO is known to discourage employees from time off, leading to burnout.

How does unlimited PTO work for non-exempt employees?

Unlimited PTO may not be the best option for non-exempt employees as you are required to pay them for every hour they work, even on a vacation. It is best to have a separate PTO policy for non-exempt employees. Incorrect implementation can even lead to a lawsuit.

Is unlimited PTO paid?

Yes, unlimited PTO is paid PTO that all exempt employees can utilize during their tenure with the company.

How does unlimited PTO work with maternity leave?

Maternity leaves are usually handled separately since it is mandatory leave under FMLA act. Unlimited PTO is a fairly new concept, there are no laws around what is right and what isn’t. Hence, running both in parallel can lead to complications
 

Is unlimited PTO paid?

Yes, unlimited PTO is paid PTO that all exempt employees can utilize during their tenure with the company.

Is Unlimited PTO legal?

Yes, unlimited PTO is legal. That said, it is a fairly new concept that is yet to be vetted by state and federal laws.

Do people abuse unlimited PTO?

Yes. It is one of the drawbacks of unlimited PTO where employees take as much time off as they want such that it affects their performance at work.