Employees may be lured by the idea of unlimited paid time off but the reality is unlimited paid time off is often an egregious fabrication that employers tell their workforce.
What is usually lost in the conversation is what employees are forced to give up when their organization decides to implement an unlimited system. There are plenty of legitimate business reasons to stop offering — and stop being enamored by — the allure of the unlimited PTO promise.
“It’s great to not have to pay out [accrued vacation] when people leave,” said Maggie Grover, a partner at Wendel, Rosen, Black & Dean LLP in an interview with website 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.” And just to note, not all states require employers to pay out accrued vacation.
Recognizing that this is a large financial obligation, many companies are relieving themselves from these obligations by offering unlimited policies.
Employees also can’t save or accrue “unlimited” vacation time to use next year. When it comes time to transition from the company, the employer has no obligation to pay out the extra hours of productivity that were used in lieu of taking a break.
According to outplacement firm RiseSmart, an unlimited PTO policy “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.”
Unlimited vacation is a work-around, plain and simple. By offering this perk, companies get away from tracking and accruing a liability that in some states, once accrued, is considered earned wages. And once wages are considered earned, they must be paid out at departure or termination.
Less Time Off for Employees
Some studies show that American employees today often end up taking little or no more time off in an “unlimited” system compared to when they have a set number of days off each year.
In a study by HR platform Namely, research suggests that employees with “unlimited” vacation actually take fewer days off (13) on average than those with a limited number (15).
Unlimited PTO Is No Win-Win for Today’s Talent
Unlimited PTO sounds generous on a job description, but employees by and large end up getting paid less with no value attributed to their PTO while companies gain more of their employees’ productivity.
This latest benefits trend is harming the workforce and leading mass groups of employees to forfeit the second most important job benefit with no way to monetize or reutilize the value of their PTO.
Companies need to ask if they’re making these changes for employees or for their bottom line. If, let’s say, employees are using 100 percent of their PTO and a company wants to decrease expenses, then perhaps such a program makes sense. However, this is generally not the case today. Employees thus leave billions of dollars worth of unused PTO on the table.
Are benefits a meaningful way to attract, engage and retain employees? Absolutely.
Will unlimited PTO be a mainstay of the future of work? Absolutely not.
Instead of unlimited, employers — and talent — should be thinking in terms of flexible, diverse and portable benefits to mirror the workforce today.