Workplace Fairy Tales: Why There’s No Such Thing as “Unlimited” PTO

John Hollon Benefits, Compensation/Cash Money, Culture, Employment Branding and Culture, Holidays, Managing People, Policies, Retention, SHRM, Vacation, Work Life Balance

It drives me crazy when I hear people touting “unlimited” PTO.

That’s because “unlimited” time off is really just one big fairy tale.

I know, I know; that sounds harsh, because there are a number of companies that will defend “unlimited” PTO to the death, and on the surface, it sounds like a good idea. But what often gets lost in the discussion is what employees have to give up when their organization decides to go to an “unlimited” PTO system.

HR Dive published an article recently on The Perks and Pitfalls of Unlimited PTO that caught my attention because of these back-to-back quotes that capture both the good and the bad for employees when their management team decides to join the crowd and jump on the “unlimited” PTO bandwagon.

The good and bad of “unlimited” PTO

  • The good: “The notion of unlimited PTO has a lot of appeal to employees; it sounds good,” Rich Fuerstenberg, a senior partner at Mercer, told HR Dive. He said he believes it helps with attraction and retention of employees, whether they are mid-career or just out of college: “If your vacation policy for new hires is two or three weeks, they will wonder, ‘What if I want more time?’ Unlimited means you don’t have to negotiate.”

OK, that sounds really nice. Who wouldn’t want unlimited time off that they don’t have to negotiate? Sounds pretty good, doesn’t it.

Well, it does until you consider this:

  • The bad: “It’s great to not have to pay out [accrued vacation] when people leave,” Maggie Grover, a partner at Wendel, Rosen, Black & Dean LLP told HR Dive. Because people are so connected and working even when they’re technically off, they tend to take fewer full vacation days. So even if you cap a vacation bank at 1.5 or 2 times the annual accrual amount, the payout at the end of the employment relationship can still be significant. (Not every state, she noted, requires employers to pay out accrued vacation.)”

Yep, unlimited PTO sounds great, but to get that “unlimited” time off you have to buy into losing the ability to earn accrued vacation– vacation that employees frequently cash out when leaving for a new job.

As the website accountingtools.com notes, “Accrued vacation pay is the amount of vacation time that an employee has earned as per a company’s employee benefit policy, but which has not yet been used or paid. This is a liability for the employer.”

No more vacation to cash out

It’s always refreshing when someone is frank and honest, so my hat is off to Maggie Grover for telling HR Dive that companies want to get away from paying out accrued vacation when people leave. In my experience, getting away from paying out accrued vacation time is frequently the real driving force behind an organization making the move to “unlimited” PTO.

In fact, this July 2018 post on the RiseSmart blog (a Randstad company) titled 5 Pros and Cons of Unlimited PTO for Employers and Employees lists this as a “pro” under the category of “Companies Enjoy the Savings.”

The posts states, “with an unlimited PTO policy there is no accrual of time off. So, if an employee leaves or quits the company, the employer has no obligation to pay them. This significantly reduces the costs of having to pay employees for unused PTO and may be one of the most compelling factors for companies considering an unlimited PTO policy.“

There may be other good reasons for going to “unlimited” PTO, but companies just love to avoid paying out money whenever they can do it– even if it does mean ditching a longstanding employee benefit.

I’ve cashed out accrued vacation a number of times in my career, and it was always nice to get a few weeks of additional vacation pay rolled into my final check. Sometimes, I held up taking vacation for a number of months when I knew I was going to be leaving just so I could get a bigger final payout to help with my transition to the new job.

Once, I even got paid for several weeks of vacation time I had already taken. That’s because the thug who was my boss was so busy trying to intimidate the staff and me, that he just didn’t bother to track the vacation time of those he was bullying. But, that’s another story for another day.

Yes, “unlimited” PTO is a fairy tale

Here’s my take: Employees LOSE the ability to accrue vacation time when their company opts for an “unlimited” time off policy, but somehow, that fact seems to get glossed over when management and HR start explaining all the benefits of the cool “unlimited” PTO system they just put in place.

Are there some big upsides to “unlimited” time off? You bet, although as you might have gathered, I’m a skeptic when it comes to “unlimited” PTO because, as many studies show, employees often end up taking no more time off in an “unlimited” system than they did in an accrual system. And, I’ve found that employees frequently have a different definition of what “unlimited” means than their managers do.

This means that companies –managers and HR professionals – have to spell out all the dos and don’ts surrounding any new “unlimited” PTO policy, and there are a lot of those kinds of things to work out, as this 2014 article from SHRM’s HR Magazine makes clear.

But this brings me back to my point: Although it may work in some places, “unlimited” PTO is largely a fairy tale because no one really gets “unlimited” time off, and, people lose their ability to accrue paid vacation in the deal.

Somebody, somewhere is going to zing me about this because they work for a company where employees love “unlimited” PTO. If that’s the case, I’m happy for them, but it doesn’t change my position that “unlimited” PTO is mostly a way for companies to reduce accrued costs.

In fact, it’s more of a marketing tool than anything else. It sounds nice to the uninformed, but like so many things in life, it turns out to be a lot less than it seems when you really dig into it.