I CAN HARDLY contain myself when I hear people touting the wonders of “unlimited” PTO.
That’s because “unlimited” paid time off is really just a big fairy tale.
I know … that sounds pretty harsh because there are a number of companies that have gone to “unlimited” PTO, and they will defend it to the death. On the surface, it sounds like a good idea.
But what often gets lost in this discussion is exactly what employees have to give up when their organization decides to adopt an “unlimited” PTO system.
HR Dive recently published an article about The Perks and Pitfalls of Unlimited PTO that caught my eye, primarily because of these great quotes that zero in on both the good and the bad things employees experience when their management team decides to jump on the “unlimited” PTO bandwagon.
Good and Bad of “Unlimited” PTO
- The good: Unlimited PTO “has a lot of appeal to employees; it sounds good,” said Rich Fuerstenberg, a senior partner at Mercer. 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.”
Sounds pretty good, doesn’t it? Who wouldn’t want unlimited time off that they don’t have to negotiate over? It seems like a pretty good deal where everybody wins.
Well, it certainly 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, she said, 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 all that “unlimited” time off you have to forfeit your ability to earn accrued vacation — vacation that employees can cash out when they depart for a new job.
“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 vacation time to cash out
It’s refreshing when someone is frank and honest, so thanks to Maggie Grover for telling it like it is and clearly stating what should be perfectly clear — that companies want to stop paying out accrued vacation to employees when they quit. That’s the real driving force behind an organization making the move to “unlimited” PTO, despite how it gets marketed to their workforce.
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” —
“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 want to avoid paying out money whenever they can do it — even if it does mean ditching a long-standing employee benefit.
I’ve cashed out accrued vacation many times in my career, and it was always nice to get some additional pay rolled into my final check. Sometimes, I didn’t take vacation for a number of months when I knew I was going to be leaving — just so I could get a bigger payout to help my transition to the new job.
One time I even got paid for several weeks of vacation time I had already taken. That’s because the bully/thug who was my boss was so busy trying to intimidate everyone that he didn’t bother to track the vacation time of those he was bullying. But, that’s another story for another day.
“Unlimited” PTO? Just a Great Big Fairy Tale
Here’s my take: “Unlimited” PTO may sound really good, but employees LOSE the ability to accrue vacation time when their company opts for an “unlimited” time off policy. Somehow, that seems to get glossed over when management touts all the benefits of the trendy “unlimited” PTO system they just put in place.
Are there some upsides to “unlimited” time off? Of course there are, although as you might have gathered, The Skeptical Guy is, well, pretty skeptical when it comes to “unlimited” PTO. That’s 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. In some cases, they even end up taking less. And, I’ve found that employees often have a different definition of “unlimited” than their managers do.
This means that companies — executives, managers and HR professionals — have to spell out all the dos and don’ts surrounding any “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.
And this brings me back to my original 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 the “unlimited” PTO policy. If that’s the case, great. I’m happy for them, but it doesn’t change my position that “unlimited” PTO is mostly a way for companies to reduce their benefits 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 the more you know about it.
A version of this post originally appeared on the Fistful of Talent blog.