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Unlimited Vacation – Good or Bad?
By VICKY BROWN
Well, it’s spring, and that means summer is (literally) right around the corner. With the budding of the buds and the sunning of the sunshine, everyone’s thoughts begin to turn to taking time off. And without a doubt, if it hasn’t already, the subject of unlimited vacation or unlimited paid time off (PTO) is bound to come up.
But the topic can be so confusing, and you’re probably getting all sorts of mixed messages – it’s wonderful because you don’t ever have to track anything ever again. It’s awful because what are you supposed to do with Jimmy who has decided to take every Friday off for the rest of time?
Well, like most things in life and business, it’s a mix of positive and negative – so in this episode we’ll dive into what it is, what are the complications, and if you do decide to implement unlimited PTO – how?
So to start off – what the heck is unlimited PTO anyway. Well it’s the concept that an employee can elect to take as much paid time off as they wish, as long as they follow some basic protocols – this like getting manager approval, or advance notice. They don’t actually ‘earn’ or accrue time off in the strict sense. So there’s no need for tracking – and in fact tracking may provide it’s own challenges that we’ll take about later.
And PTO isn’t separated by vacation and sick – everything is all rolled into one – paid time off. Again, that presents some issues as well.
OK – so that’s what it is. But why is unlimited PTO a thing anyway? Well oddly it kind of all started in Silicon Valley – I say ‘oddly’ because most of the difficulties with unlimited PTO are actually around CA and similar state laws. But anyway – back in the doc.com days a lot of tech companies started putting unlimited PTO programs in place. And during the years, we’ve seen a number of small businesses and high profile companies adopt the concept – Netflix, Best Buy, The Virgin Group just to name a few.
The thought was, give employees more flexibility, and simply hold them accountable for productivity – and let the rest take care of itself. And that’s actually the right thing a true leader should be thinking – but again, it has to get married to things like employment law restrictions, and a knowledge of what might actually happen when the program is implemented. Will it really benefit the team, and the organization?
Now, solidly in the pro column are things like – it helps with recruiting; and of course the team appreciates the trust and flexibility it shows.
But unfortunately, while the concept of unlimited PTO sounds great, it does come with significant legal and practical risks, especially in states like California. It can turn out to be a double-edged sword for businesses, with several challenges that can transform that dream everyone had of limitless vacation – into a logistical, and legal nightmare.
Let’s start with- why are you taking time off? Now I know that sounds like a question that would be eliminated from the process if you have unlimited PTO. But the issue is, there are more reasons to take time off rather than vacation time to rest and recharge.
“…you have to carefully train your managers so that they are fair and consistent when they decide to grant or deny a vacation request.”
Are they taking time off because they’re actually sick? Well, if your state has mandated sick leave laws (and these days, more and more states are putting these in place) well then the process needs to follow the sick leave mandate process. For instance, you may have a notice requirement on your unlimited PTO – something like, you have to give your manager a minimum of 2 weeks notice before taking time. Well, that can’t really be applied to time that falls under sick time – because most of the mandates, and particularly the CA sick leave law, specifically allows the employee to notify you employee in advance if the sick leave is planned, which might happen with something like scheduled doctors’ visits. But, If the need is unforeseeable (things like an unanticipated illness or a medical emergency), they only have to give notice as soon as practical, which very well might be same day notice.
And add to that, the state requires that employers (even those with unlimited PTO plans) separately track sick leave accrual and use. So you still have that admin part to take care of.
Now aside from sick time, there are other reasons for time off that may cross into other regulations – maybe all or part of the leave qualifies for FMLA or American with Disabilities or some other protected leave. Well, aside from the impact that might have on time, generally those leaves have notice requirements as well. For instance, if someone is taking, what you think is just unlimited PTO – but it turns out it’s to take care of a personal medical condition – well that may fall under FMLA. And FMLA has a clock that immediately starts running, that requires you to provide certain notices to the employee within a certain time frame. And if you don’t you open the company up to fines and penalties.
So, all that to say – these assortment of laws and their requirements mean you can’t be in the dark about what type of leave this really is – or you might miss something critical.
Now, on to the fun one. Some states – California for instance – although they don’t require you to offer vacation time, if you do, there are specific guidelines in place – particularly for non-exempt employees.
You see, in California, vacation time is considered wages. And those wages are earned through the accrual process. That’s why you’re required to pay out anything that hasn’t been taken, when someone leaves.
There are also guidelines around use it or lose it (you can’t), and rolling over unused time. So, if you’re going to put your non-exempt employees in an unlimited PTO program – you’re going to have to carefully navigate how you do it, the language you use, and the day to day administration (oh yes, there is administration). I’ll just say – put your labor counsel on speed dial.
Now aside from all the legal hoops, you have to be aware of equity. Meaning you have to carefully train your managers so that they are fair and consistent when they decide to grant or deny a vacation request. That process can so easily give rise to discrimination or favoritism claims because someone feels their manager is biased in managing the process.
And it’s also a good idea to look at the metrics – are highly placed employees, or a particular group, approved or denied more than another group. Listen, while actually tracking the amount of time taken could have a negative legal impact on the validity of your unlimited PTO program (hello, counsel?) – knowing what’s going on with the program is vital. Who’s taking time, and how often.
But it’s such a good thing for my team – even with all the potential down side, we should definitely do it….right?
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Well, you might be surprised to know that reports show that employees in unlimited PTO policies actually tend to take less time off. And of course, there’s the possibility of a little twinge of resentment from the employees who are seeing their colleagues take quantities of time off. Because, let’s be honest – in every group there’s that ONE person. The one that will take full advantage, at every opportunity. And that can cause some resentment with the rest of the team. Now, I’m not saying it’s impossible to handle, just be aware and ready – because you very well will probably have to address that situation or something similar.
Now, there are other options. You could consider alternatives to unlimited PTO policies. You could offer floating holidays as part of the package. The number of floating holidays can vary depending on your policies, and maybe even the employee’s tenure. And floating holidays don’t come with the baggage that accompanies unlimited PTO policies.
Alright, so you’ve weighed the upside and downside, and decided an Unlimited PTO policy is the way to go. As you’re putting the program in place, keep these best practices in mind:
- Think carefully about what you want to actually call it. Something like Flexible or Self-managed PTO may be better than Unlimited. And it may even help when it comes to curbing abuse.
- Carefully craft the program with the help of your counsel. When and how are employees to request time. What is the criteria managers will use for approving or denying (for instance, do you have a blackout period when no time off is granted). How will you know the nature of the time off request – so you can know if some other employment law program should apply. What are you going to do with existing vacation time.
- Create the manager training program and guidelines. And train, train, train. Remember, your managers hold the bulk of the baton for making sure the plan stays on this side of the legal line.
- Clearly communicate the program.
- The reason for implementing a new program.
- Things like the fact that the program is a partnership. The company provides Self Managed time off, and conversely you fully expect that the employee will be continue to be productive, work to their potential and meet all deadlines.
- What happens to existing time off
- How will they request time etc.
So my key takeaway here is, you might find that a Flexible or Self-managed PTO program (see what I did there?) is just the thing for your team. But don’t do it on a whim – look carefully at all the pros and cons. And (I’ll say it again) absolutely consult with your labor counsel – there are far too many regulations in the patchwork of labor laws that you need to consider.
But once you’ve done all that – make it happen. And drop me a line to let me know how it’s going.
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