For an overextended employee, more time away from the office sounds like a dream. But business owners are finding there’s plenty of upside in offering unlimited paid time off, or PTO, for them as well: easier, faster and more cost-effective recruitment, higher employee engagement and eliminating the financial liability of accrued time off from the books.
While just 1 to 2 percent of companies offer the benefit, according to the Society for Human Resource Management’s 2016 “Employee Benefits” report, many workplace experts feel that may change in the not-too-distant future. Millennials, the workforce’s youngest and largest representative generation, consistently rate work-life balance and flexible schedules as top priorities, according to a recent Deloitte survey.
That’s apparent as early as the interview as candidates size up a company. “Unlimited PTO is an awesome tool for recruiting top talent, because it sounds awesome,” said Jabez LeBret, co-founder and chief marketing officer of legal consulting firm GNGF and CEO of Trial3D. “To look across the table at a candidate and say, ‘We offer unlimited time off’ versus three weeks delivers a dramatically different perception.” And there’s little downside for employers, he said: Rare is the employee who pushes the envelope on how much time they’ll actually take beyond two or three weeks away from the office.
In fact, unlimited vacation paradoxically flies in the face of another workplace trend of people using little of their annual PTO allotment. Roughly 55 percent of American workers left vacation days on the table, Project: Time Off found in its most recent annual survey of PTO usage. Long hours and an always-on culture mean that even when the reins are taken off, most people won’t stray far from traditional norms. And companies have used that to their advantage, dangling the promise of unlimited PTO as a way to save the HR hassle and expense of tracking and recording time, and safeguard themselves from the expense of paying out for unused vacation time when employees leave.
That’s what Neela Seenandan witnessed at her previous employer. Now the co-CEO and managing partner of executive recruiting firm Hanold Associates, she said her last company offered unlimited vacation policies for senior executives in the wake of millions of dollars paid to departing colleagues for accrued time. “I think for folks who understood the financial benefit of making the switch, there may have been some resentment,” she said.
At Hanold, Seenandan and her co-CEO, Jason Hanold, do offer an unlimited policy. But she said to offer the policy as a true perk, the management team also actively counters tendencies to self-limit vacation time. Employees are encouraged to take time away from the office, and managers are trained to not bombard those on vacation with constant emails and messages. Seenandan credits the successful implementation of the policy to the managers and leadership team who demonstrate that it’s genuinely acceptable — even necessary — to take time off.
Getting Freedom Just Right
One unexpected benefit of giving employees the latitude to set their own vacations, Hanold said, is that it seeds an exponential level of trust. “Unlimited PTO speaks to an underlying element of trust in our employees to use their own discretion to make great judgments and get great work done,” he said. “And the policy appreciates that people have different cycle times for productivity.” If someone wants to spend a day refreshing or dealing with doctor’s appointments, no one in the HR team is going to waste energy tracking those hours or tallying them against comped hours for a grueling project the week before.
Still, that doesn’t mean no one is paying attention to who’s in the office and when. Though Hanold Associates doesn’t have a formal tracking system for PTO, Seenandan said she does keep an informal eye on who’s in and out. “The potential pitfall is that you have someone who comes in and abuses the policy,” she says. Frequent feedback — on everything from employee engagement and contribution to firm culture — “allows for course correction,” said Hanold. They haven’t had an employee take extreme advantage of the policy yet, something they attribute to the tight feedback loop on each person’s productivity.
A two-month trip isn’t going to be something that throws a wrench in an unlimited vacation policy, LeBret said. It’s the gray zone — frequent three-day weekends, early departures, long lunches — that can snowball, causing drag on the company. “People tend to feel like they can come and go with this kind of policy,” he said. “So we get people working from home, checking-out early or showing up late more than one would like.”
The key to balancing an open-ended vacation policy with a real need to have the team collocated to get work done comes down to communication, LeBret said. At GNGF, that means frequent one-on-one meetings with managers, explicit work hours and a policy that each employee needs approval to take more than two days off in a row. “If someone has an appointment, let’s not make it a challenge,” he said. “But we need clear policies or you create an environment where you run into frustrations, particularly if you have deliverable dates that have to be met.”
On the legal front, clear policies can also help ensure that unlimited vacation is applied equally across the workforce. “The logical extreme is that a company could allow one employee to take six paid weeks off to traipse around Europe, and then deny pay to a new mom who takes six weeks off to have a baby or a man who needs six weeks off after heart surgery,” said Lorrie Peeters, a labor and employment attorney who currently serves as counsel to Caffarelli & Associates Ltd. “To me, that’s a policy that both discourages people from taking job-protected medical time off and effectively disadvantages them for doing so.”
Unlimited PTO policies have yet to be fully vetted by the courts — not unusual given the small number or organizations that have just recently embraced this approach to vacation. But companies considering it should think through not just the day-to-day implementation, but how this might play out for future scenarios and employees, Peeters said.
Kate Rockwood is a freelance journalist based in the Chicago area. To comment, email email@example.com.