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To Give or Not to Give Unlimited Vacation

 

According to the Bureau of Labor Statistics, 77 percent of private-sector employees received paid vacation time according to 2018 stats. Employers provide paid vacation or PTO as a way of encouraging employee productivity and remaining competitive in the job market.

Typically, employees accrue vacation/PTO, up to a certain maximum, based on their length of service. But not all employers put a cap on vacation/PTO. This perk is known as unlimited vacation/PTO.

What is unlimited vacation/PTO?

With unlimited vacation/PTO, employees can take however many vacation or PTO days they need, provided they are meeting their performance goals. However, it does not mean that employees can take off from work whenever they want. Generally, vacation/PTO requests must be approved in advance by the employee’s manager, as with traditional vacation/PTO.

What are the advantages of unlimited vacation/PTO?

  • Builds trust in employees while promoting a culture of responsibility.
  • Typically seen as an attractive benefit during the recruitment of top talent.
  • Minimizes the chances of employees coming to work sick and spreading contagious illnesses because they are saving their vacation time for later use.
  • Unlimited vacation/PTO does not accrue, so you might not need to pay out vacation time when an employee terminates.
  • You do not have to spend time administering or tracking vacation/PTO accruals.

What are the disadvantages of unlimited vacation/PTO?

  • Employees can choose to abuse the policy — and it might be difficult to discipline or terminate them since they are allowed to take as much time off as they need.
  • You will have to track vacation/PTO taken in order to monitor abuse of the policy.

Interestingly, studies show that employees with unlimited vacation/PTO rarely take more time off than do the employees with allotted days off.

What types of companies typically offer unlimited vacation/PTO?

According to the Society for Human Resource Management (SHRM), unlimited PTO is usually offered by small startups, tech companies and nonprofits that don’t pay their employees competitive salaries. (Unlimited vacation is used to make up for the pay shortage.) High-level executives may also receive unlimited vacation/PTO.

How popular is unlimited vacation/PTO?

Although unlimited vacation/PTO has been frequently discussed, the practice remains rare. According to SHRM’s 2016 Employee Benefits report, only 1 percent to 2 percent of companies provide unlimited PTO. Since the 2016 report, unlimited PTO has slightly gained momentum. Per SHRM’s 2017 Paid Leave Benchmarking report, 4 percent of employers now offer unlimited PTO.

Considerations

Unlimited vacation/PTO can be a fabulous perk. But that doesn’t mean it’s right for every company. For many employers, the benefit comes with too many administrative and managerial challenges. It’s just not worth the risk.

But if you’re leaning toward the idea, you’ll need to consider whether unlimited vacation/PTO is right for your company’s culture and whether your employees can be trusted to not abuse the policy.

 

 
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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