Flexible Employee Benefits: The Pros and Cons of an Unlimited Vacation Policy

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A growing trend among employers is the practice of offering workers unlimited paid time off (PTO). High-profile companies, such as LinkedIn and Netflix, have begun to adopt this policy in the hopes of both attracting competitive candidates and improving employee performance. While some argue for the policy’s effectiveness, others insist that the concept is both untenable and unrealistic for creating positive business outcomes.

Four Benefits of Unlimited PTO

Improved Retention

As the economy improves, companies are looking for ways to find and keep top-notch talent, especially in in-demand sectors such as tech. Offering unlimited PTO can help them with this goal. Workers are drawn to jobs where they can enjoy flexibility in their work schedules and where they feel as though their employer respects their need for work/life balance. And as more companies implement the policy, pressure mounts for other companies to also offer this perk in order to stay competitive. 

Limited Financial Liability

Though it may seem counterintuitive, offering employees unlimited paid time off actually translates into a sound business tactic. The Society for Human Resource Management (SHRM) explains that providing unlimited vacation may actually result in less financial burden. With traditional PTO, every unused vacation hour converts into dollars that must potentially be paid to employees (such as when they leave the company). In larger organizations, this can add up to millions of dollars in liability. Unlimited PTO limits this issue.

Increased Efficiency

When Netflix implemented the policy, managers were able to stop tracking time off, Bruce Elliott of SHRM writes in a New York Times article. “They stopped chasing employees to fill out their time cards, stopped paying for unused vacation time,” Elliott says. “The time is better spent on strategic priorities such as recruiting and retention efforts.”

When company leaders no longer use their work hours to catch up on maintenance tasks (such as time sheet management), it frees them up to focus on efforts that move business forward.

Better Productivity 

In a survey of SHRM members, 69 percent said that employees taking more of their available vacation time would lead to increased productivity. The majority of those surveyed (67 percent) agreed that taking more vacation time off would increase employee engagement at work, and 77 percent of talent leaders believed that employees who use their vacation time are more productive than those who do not. With this logic, giving workers as much vacation time as they want will lead to better productivity and more engaged employees.

Three Cons of Unlimited PTO to Consider

Ambiguity Leads to Confusion

“Unlimited” is a concept that can be difficult to realistically define and implement. It can be misleading to employees, as “unlimited” doesn’t actually translate into “endless vacation.” It more accurately means “as many days within reason.” Employers can also find it difficult to implement the policy fairly, which can lead to resentment among employees. Finally, the details of these issues are sometimes communicated poorly or not at all, leading to general confusion among workers.

Decreased Productivity 

While some argue that unlimited PTO makes workers more productive, others argue that it actually decreases productivity. Even when employees do get unlimited PTO, they don’t always take advantage of the perk because of the ambiguities listed above. This is often due to a fear of being replaced, an overly demanding workload or simply a lack of personal certainty about the policy. These factors can lead to burnout, which in turn can decrease productivity. In fact, a survey by Glassdoor found that 61 percent of employees said they work on vacation, and the average American only takes about half the vacation days offered. 

Limited Feasibility 

Some companies (like restaurants or retail establishments) require that a certain amount of people be at their place of work at any given time. In these cases, unlimited PTO is unreasonable. The policy ultimately works best where the workload is self-directed (versus customer facing) and tangible outcomes can be measured. 

Best Practices for Unlimited PTO Policies

Nathan Christensen, CEO of MammothHR, offers some advice in Fast Company for employers that are considering adopting an unlimited vacation policy.

  • Consider changing its name. Using words like “flexible” or “self-managed” instead of “unlimited” conveys to employees the expectation that they will still be expected to work, instead of simply taking unlimited free days.
  • Provide clear guidelines for how time off is approved.
  • Emphasize contributions of employees rather than the amount of time they physically show up to work.
  • Frame the benefit in the context of company values.

Clearly, there are both pros and cons when it comes to deciding if implementing an unlimited vacation policy is an effective benefit. Business degree programs like those at Touro University Worldwide can help, educating business professionals on innovations in the industry and how to evaluate policies to ensure they work for companies. The fully online programs include a Master of Business Administration and Master of Science in Human Resource Management.

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