The war for talent is only going to continue for the foreseeable future. Thanks to changing demographics and the retirement of baby boomers, there are fewer workers available to fill open positions. In an effort to track in-demand, highly skilled employees, many businesses are turning to benefits like unlimited paid time off (PTO).
With unlimited PTO, employees are able to take as much or as little time off as they need. For workers, this type of flexibility is incredibly attractive. However, businesses also benefit because they don’t have to pay out remaining PTO balances when workers move on to a different employer. Additionally, unlimited PTO is an excellent benefit to list in your job postings. However, there are also some important drawbacks to consider before you start offering unlimited PTO to your employees.
The Benefits of Unlimited PTO
Adopting unlimited PTO helps to improve your talent acquisition, empower workers, and improve morale. Plus, it can end up saving your company money in the long run.
Attract Talent
With unlimited PTO, you can attract top talent. 70% of workers report wanting a job that has unlimited PTO. In a tight labor market, your ability to offer this benefit can help differentiate your company from a competitor.
Improve Morale
When workers get time off, it helps to improve their morale and prevent burnout. Properly planned vacations have a 94% chance of having a good ROI on the worker’s energy level and outlook at work. Because you’re providing an important job benefit, this kind of PTO reinforces the idea that you care for your employees. Plus, vacations can help to alleviate mental health disorders, like anxiety and depression.
Demonstrates Trust in Your Employees
Unlimited PTO shows that you trust employees to make their own decisions. As long as their work is complete, they can take time off when they need to. They don’t have to have to feel like their time with loved ones has to be carefully approved and doled out by their employer.
Empowers Workers
With unlimited PTO, you can empower workers to make their own choices. Other than enriching your company culture, this empowerment can increase employee satisfaction and motivation.
Avoid Paying out PTO Balances
For the employer, unlimited PTO can actually save money. Workers normally have to be paid for any remaining PTO balances when they leave your company. With unlimited PTO, there is no remaining balance to be paid out. On average, employees tend to take about as many days off or less as they do with traditional PTO, so your company will likely spend less money overall.
Boost Productivity
By encouraging employees to rest and rejuvenate, you can boost their productivity. In fact, one study found that workers who took 10 days of vacation or less had a 34.6% likelihood of getting a raise or bonus over the next three years. Among workers who took 11 days of vacation or more, the likelihood of a raise or bonus shot up to 65.4%. By taking leave, employees were more likely to perform better at their jobs.
Increase Flexibility for Your Workers
With unlimited PTO, workers have the flexibility to handle emergencies, mental health matters, and vacations when it works for them. If a new project falls through, they can take time off to be with their loved ones. They don’t have to feel constrained by having a set number of vacation days.
Increase Employee Retention
When employees are satisfied and motivated by their jobs, they are less likely to quit. Just under 10% of workplaces offer unlimited PTO, so the odds are low that a new employer would have the same benefit. For all of these reasons, your business is likely to enjoy better worker retention after it adapts an unlimited PTO policy.
The Drawbacks of Unlimited PTO
Before you adopt an unlimited PTO plan, take some time to carefully think about whether this decision is right for you. While there are many benefits to this type of policy, there are also some drawbacks to consider as well.
Increased Burnout Among Some Employees
One of the biggest drawbacks to unlimited PTO is that many people simply won’t take enough time off. Early adopters of unlimited PTO found that people were taking less time off than before. This can increase the likelihood of burnout among your staff members. Other than impacting your company’s productivity, higher burnout can also decrease your employee retention rate.
Potential for Employee Abuse
One of the biggest concerns that employers have about unlimited PTO is the potential for abuse. Employers are worried that, if they give workers access to as much leave as they want, workers will take advantage of the situation.
Fortunately, this fear rarely happens. In reality, most employees take less PTO with unlimited PTO than they normally would.
The potential for abuse is one of the reasons why Asure prefers self-managed PTO. This type of plan offers unlimited PTO, but the PTO is tracked. Thanks to the tracking, you can make sure no one is abusing the system and leaving all of their work for their co-workers to complete.
Tracking Issues for FMLA Leave and State-Mandated Leave
Unlimited PTO doesn’t always have tracking options, which makes complying with state-mandated leave and the Family and Medical Leave Act (FMLA) difficult. However, self-managed PTO makes tracking much easier.
Even if a company normally provides unlimited PTO, many organizations don’t pay for all of an employee’s FMLA leave. By tracking workers’ leave requests through self-managed PTO, you can make sure your company is in compliance with leave-related laws and you’re only paying for the leave reasons your policy requires.
Perceived Fairness Among Older Staff Members
During a Mission to Grow interview on “Unlimited PTO: The Positives and Negatives of Unlimited Paid Time Off,” Asure’s vice president of HR Compliance and Consulting, Mary Simmons, talked about what the drawbacks of self-managed PTO were like when Asure recently adopted a new PTO policy. “A downside of it would be that you do have employees who feel like it’s inequitable,” she says. “What do you mean? Jane just started, and she has unlimited PTO. I’ve worked here 30 years to earn my eight weeks.”
It’s important to address these concerns as you implement your unlimited PTO policy. If you have many tenured workers, you may want to reconsider the policy and ways to address any perception of unfairness.
Difficulties Managing Team Projects
Many of the disadvantages involved in having unlimited PTO are related to the way the PTO is tracked and managed. If your business lets employees take PTO whenever they want to, you can end up having too few workers to manage the workload. Even when enough workers are available, co-workers may have to cover the missing employee’s workload.
You can mitigate this concern by tracking PTO and ensuring it is taken in a fair way. For instance, employees should be required to complete their workload before they go so that their co-workers don’t have to do their tasks for them.
Workers Feel Always on Call
With unlimited PTO, workers have a tendency to feel like they are always on call. Because the time off isn’t directly allotted to the employee, managers think they can call the employee with questions anytime they want.
To avoid a culture where workers feel like they’re always on call, train your managers on when it is appropriate to call workers who are on vacation. Unless there is an absolute emergency, employees should be left to enjoy their vacation time in peace.
Ways To Prevent Issues with Unlimited PTO
If you want your unlimited PTO to be as effective as possible, there are a few steps you should take.
Create a Clear Policy: Before unlimited PTO is started, you need to make a clear policy. For instance, you should clearly state that workers must be caught up on their workload to take time off. Additionally, you may want to black out busy weeks or months so that you are properly staffed. Many workplaces also have rules about how many workers can take time off at the same time.
Communicate Your Policy: Once the policy has been finalized, add it to your employee handbook and onboarding materials. You may want to discuss it in a company-wide meeting, a newsletter, or departmental meetings.
Train Managers on the Rules: It’s important to train managers on your unlimited PTO rule. They should also be taught to refer employees to the HR department if the leave is needed for FMLA-related purposes.
Build a Request and Approval Process: The best way to prevent any problems with your unlimited PTO is to standardize it and formalize your policies. There should be a clear request and approval process in place that employees are taught to use.
Investigate Cases of Abuse: Cases of PTO abuse aren’t just bad for your bottom line. They also hurt employee morale. Other workers have to take on extra work if someone else is shirking, so create a system for investigating instances of PTO abuse.
Encourage Employees To Take Leave: Some employees won’t take leave unless you require it. To make sure your workers get enough time off to recharge, you may want to consider requiring them to take a minimum amount.
Discover the Best Practices for Creating Unlimited PTO
The best way to make your unlimited PTO plan as flawless as possible is by taking a self-managed approach to implementing it. Self-managed PTO plans use planning and tracking, which prevents unexpected problems, perceived unfairness, and compliance issues.
If you’re interested in learning more about unlimited PTO and self-managed options, Asure can help. To learn more about setting up unlimited PTO at your company, reach out to our team of small business HR and payroll experts today.