Companies are getting more innovative with their benefits programs, especially with the ongoing talent shortage. This means that more companies are looking for ways to get a competitive edge to attract top talent. One solution companies have tried is an unlimited PTO policy. While an unlimited PTO policy seems great in theory, there has to be a perfect storm of variables to align for it to succeed. In most cases, it is more of a burden than a benefit.
While unlimited PTO saves a company money by removing the liability on their balance sheet, it creates bias and more burnout in employees. Hence, companies should look at other alternatives, such as convertible PTO, to give them a competitive edge and increase employee satisfaction.
Drawbacks of unlimited PTO
When a company switches to an unlimited PTO policy, several things happen:
- The company no longer has to pay out accrued or vacation leave upon termination
- The company no longer maintains unpaid vacation balances as a liability on the balance sheet, which can total millions of dollars
- The company no longer has an obligation to employees to protect the amount of time off each year that was previously covered by the leave accrual policy
Workers take less time off because they don’t have a protected set of days they can claim each year. Additionally, employees also show high dissatisfaction rates on public forums such as Glassdoor, Blind, and Fishbowl, calling their unlimited PTO policies a “scam.” They cite various issues, such as feeling like they have reduced compensation, rejected requests, and a cap on the number of days they can take.
Unlimited PTO creates bias
More than just the drawbacks, an unlimited leave program creates bias. In our 2021 study that we conducted with Lighthouse Research & Advisory, we found that women are 43% less likely to use all their leave in a year when compared to men. Additionally, nonwhite employees are 19% less likely to take all their leave each year than white workers. Lastly, only 56% of workers making less than $49,000 a year use all of their vacation time, but 72% of those making over $125,000 do.
While the benefit seems to be offered fairly, it doesn’t create equitable utilization. Workers cite issues like job security and manager perceptions, which prevent them from using the benefit to the fullest extent. This extends to unlimited leave; Unlimited PTO is often a discretionary benefit doled out by managers, who can exhibit favoritism and bias in administering the policy. Select individuals or groups of people can benefit more than others.
Hidden problem with unlimited leave
The last problem with unlimited leave is the expectation for employees to be on call for work—even when they are on vacation. Disconnecting from work is hard enough, and companies with an unlimited PTO policy don’t make it any easier. Our new study with Lighthouse Research & Advisory found that three in four employees admit that they are employed at companies where they are expected to work even when they are on vacation.
Culture is a key enabler for an unlimited PTO policy to work. For unlimited PTO policies to work, you must have a supportive culture that allows people to fully disconnect from work. Managers are responsible for championing the PTO policy, so it’s up to them to encourage employees to take PTO and reassure them that they have the work covered. Employees shouldn’t feel guilty or be punished for being unavailable while they are on PTO—it’s called time off for a reason.
An alternative to unlimited PTO
Before rushing to a PTO model because you think it’s what’s best for your company, consider alternative PTO models you can offer your employees. More innovative companies are looking to flexible PTO programs, like PTO Exchange, that allow employees to convert their unused PTO balances into benefits they care about, like emergency cash, retirement contributions, or student loan repayments. Employees can still keep the value of their PTO while creating custom benefits packages that meet their individual needs.
Learn more about PTO Exchange by requesting a demo.
Download our new report, “Biased, Burdensome, and Burned Out: The Real Story of Unlimited Paid Time Off” today.
Published on May 15, 2023 by Rob Whalen