Unlimited Vacation Policy: What Is It And How Does It Work

By Chris Kolmar - Dec. 3, 2020

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Unlimited paid time off sounds too good to be true, but more and more companies are starting to see the benefit of implementing this policy. After all, well-rested employees who feel their company trusts and respects them perform better.

Big names like Netflix, GrubHub, and General Electric have all instituted unlimited vacation policies, blazing the trail for smaller businesses who may have been wary of doing so in the past. Since 2015, job postings including “unlimited paid time off” have tripled, with tech jobs and start-ups being the most likely to offer the benefit.

Undoubtedly, offering unlimited paid time off is an intriguing proposition. In this article, we’ll go over what an unlimited vacation policy looks like, the benefits for both employers and employees, and potential downsides to look out for.

What Is an Unlimited Vacation Policy?

An unlimited vacation policy, also known as unlimited paid time off (PTO) or an open vacation policy, allows employees to take as many sick, personal, or vacation days as they want, as long as they complete all their work. Offering unlimited vacation days is a trendy perk used to attract talented workers, especially millennials and Gen Z, who have higher benefit expectations.

The word “unlimited” is a bit of a misnomer, as most companies offering this benefit will place certain limits on employees’ ability to take off work. Typically, employees still have to request time off, get approval from management, and give longer notice when taking consecutive days off. You can’t just book a month-long trip around the world and tell your boss you’re leaving the next day.

Unlimited vacation policies only function with salaried, exempt employees. Clearly, a company could not provide an hourly wage to an employee who takes unlimited time off. With an unlimited vacation policy, salaried employees’ performance is measured by completed work rather than time spent on the clock.

The United States lags behind most developed countries in terms of vacation time, with your average American worker receiving 13 days of vacation time and 7 paid holidays each year. Compare that to Europe, which mandates a minimum of 20 paid vacation days per year, not including the 10+ paid holidays that most European countries have.

Offering unlimited PTO bolsters employees’ work-life balance, keeping it in line with the rest of the developed world. It isn’t restricted to just vacation time, either; the policy allows for workers to spend more time with their family, take time to recover from an illness, or just recharge their batteries by relaxing at home for the day.

Unlimited PTO enables workers to stop worrying about accruing vacation days and spending them conservatively. However, employees still need to anticipate their team’s needs and work out scheduling, and employers still typically track which days you’ve taken off.

So is an unlimited vacation policy the Holy Grail of all workers or a trap that leaves employers feeling abused and employees feeling burnt? We’ll start by covering what’s in it for employers.

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The Benefits of Unlimited Vacation Policies for Employers

Companies don’t offer unlimited vacation days for altruistic reasons. Organizations are starting to see the value in allowing more autonomous schedules, whether that takes the form of flexible scheduling, remote work opportunities, or unlimited paid time off.

Here are some of the most significant benefits employers get by adopting an unlimited vacation policy:

  • Saves money. With a traditional PTO system, companies must pay employees for a set number of vacation days, whether an employee takes them or not. With an unlimited PTO policy, companies are no longer obligated to pay employees for vacation days they failed to take.

  • Simplifies administrative duties. Under regular PTO regimes, HR must track the hours and reasons employees take off from work. They also need to account for accruals and carry-overs. With an unlimited PTO system, HR only needs to manage approvals and track the days that employees take off.

  • Increases productivity. A company with an unlimited vacation policy doesn’t have to worry about how many hours each employee is working – they can instead focus on the results, thus simplifying the methods for evaluating employee productivity. Additionally, employees feel more compelled to work to their fullest potential when they feel comfortable taking time to recharge after a big project.

  • Helps recruit talented employees. According to MetLife’s 2020 Employee Benefits Survey, 70% of employees are interested in unlimited paid time off, making it one of the most popular emerging benefits. No matter where your potential hire is coming from, an unlimited vacation policy automatically beats what they’re accustomed to. Additionally, HR doesn’t have to worry about negotiating paid vacation time with candidates.

  • Promotes health and wellness. While employee wellness may not seem like an immediate perk for an employer, consider that healthy employees cost less to insure.

  • Offers greater freedom for professional development. If your employees take some of their paid time off and dedicate it to additional education opportunities, that can only foster a more robust workforce.

  • Removes the “December rush.” When a company offers annual PTO without rollover, employees typically try to use up some or all of their vacation days before the year finishes. With an unlimited PTO system, employers don’t have to worry about a rush of requests for time off in December.

The Benefits of Unlimited Vacation Policies for Employees

Seeing as recruiters use unlimited vacation policies as a perk for potential employees, it’s clear that workers find this benefit attractive. Here are some of the compelling benefits for employees working in a company that offers unlimited paid time off:

  • Focuses on results. For an employee, being judged based on your work rather than your time commitment can be liberating. Knowing that you can keep your nose to the grindstone one week to get a consequential project finished and then take a day off the following week to recharge your batteries is a massive boon for continuous, sustainable productivity.

  • Allows for work-life balance. Unlimited time off allows for employees to take off for any reason they see fit. For example, you don’t have to choose between missing an important family event or getting on your boss’s bad side.

  • Boosts autonomy and morale. Employees like to be treated with respect and trust. You know what work you need to do and how much time it will take, so why should an arbitrary PTO system stand in your way from taking a day off when things are slow? Ultimately, employees feel more satisfied with their job when given this autonomy.

  • Improves communication. Unlimited PTO policies only work when management and employees coordinate effectively. You need to know what tasks and goals different departments, teams, and team members are undertaking to make informed and responsible decisions about when to take time off. A side effect of this necessity is that employees feel more interconnected and communication improves.

  • Enhances time management skills. If you know that you’re coming into the office 8 hours a day, every day of the week, you might feel less compelled to finish up a project quickly. However, when your time is your own rather than the company’s, practicing efficient methods for completing your work will allow you more time off, guilt-free.

  • Promotes health and wellness. When employees don’t feel bad taking a day off because they’re a little sick, there’s less of a chance of contagious illnesses decimating an entire department at once.

  • Allows for professional development. If you’re an employee who’s trying to upskill, unlimited time off allows you to take classes, earn a certification, or independently develop new skills. All of which will make you a more valuable employee and a more fulfilled individual.

Downsides of Unlimited Vacation Policies

We’ve ticked off the “pros” column for both employers and employees, but that doesn’t mean unlimited vacation policies don’t come with notable “cons” as well. Here are some potential downsides of an unlimited vacation policy:

  • Trust is key. You might not see this as a con, but depending on the company you work for and how much faith employees have in management (and vice-versa), an unlimited vacation policy might fall apart

  • Abuse is possible. A corollary to low trust is high abuse. Management can be left scratching their heads for recourse if employees start taking massive chunks of time off. However, this downside doesn’t typically play out in practice. In fact, employees who work for companies with unlimited paid time off often take less time off than those who work for companies with traditional PTO policies.

  • Potential for burnout. While an employer might reasonably assume that abuse of this policy is the bigger threat, the opposite is actually true. If a company or management creates a culture where taking less time off is seen as a sign of loyalty, employees may become competitive about taking as few days off as possible. Though it may seem counterintuitive, having unlimited freedom can actually create more burnout.

  • Vacation time is no longer a reward. Some senior-level employees may balk at the idea of a new hire getting the same amount of paid time off as they do after years of service. This is more of a problem in established companies that change to an unlimited PTO policy than start-ups that institute the policy from day one.

  • Unclear expectations. With an unlimited paid time off policy, employees can be unsure how many days off they can “really” take. And if your direct supervisor prides himself on taking as few vacation days as possible, then his subordinates may feel an implicit pressure to follow suit.

  • May conflict with mandated leave policies. The most typical example of this is parental leave, which the Family and Medical Leave Act (FMLA) mandates as a minimum of 12 weeks of unpaid leave. A company must establish and communicate a clear unlimited PTO policy, or employees might start asking for 12 weeks of paid leave in this scenario.

  • Schedule conflicts. Most of a company’s staff has to turn up most days, or nothing would get done. When employees are empowered to take unlimited time off, the potential for scheduling conflicts grows. That “December rush” we discussed earlier might just get moved to the summer without a proper system in place for adequate staffing.

  • Tricky to implement. For an established company, implementing an unlimited paid time off policy might produce more administrative headaches than it resolves. For example, paying off accrued PTO to current employees (or facing some serious backlash). Or creating tension between hourly, nonexempt employees and salaried, exempt employees by offering different PTO policies to each.

  • No pay for unused paid leave. We discussed this as a potential perk for employers, but an unlimited vacation policy results in a de facto pay cut for employees. Most Americans don’t use all their allotted PTO in traditional PTO systems, but they at least get to carry over those unused days to the following year or receive compensation for the days they didn’t take off. Obviously, this is impossible to do in a company that offers unlimited paid time off.

How to Ensure an Unlimited Vacation Policy Succeeds

Ensuring that an unlimited vacation policy succeeds is up to both the employer and employees. It’s a policy that works best with results-focused companies where flexible scheduling is easily manageable. In a business where scheduling is key, hourly and salary employees work side by side, or performance challenges are already prevalent, an unlimited vacation policy might not be the best fit.

For any company looking to successfully implement an unlimited vacation policy, or an employee working at such an organization, these tips will come in handy.

  • Put your policy in writing. Your employee handbook should cover the fundamentals of your unlimited vacation time policy: eligibility, request protocol, approval methods, and disciplinary actions for abuse. You don’t want to confuse employees, so clarity is essential.

  • Continue monitoring time off. You still need to make sure your office is adequately staffed and no one is abusing your system. Continue tracking days off and managing a schedule that ensures enough staff is present to continue work.

  • Give notice. If you’re an employee at a company with unlimited PTO, it’s still proper etiquette to give sufficient notice when you’ll be absent. That way, vacation times can be staggered appropriately, just as in a traditional PTO system.

  • Ensure good communication between management and employees. Employees need clarification on the purpose of unlimited vacation time. They also need to know their employer’s expectations and any implied limits on the term “unlimited.”

  • Lead by example. As a manager, it’s critical that you don’t set a precedent by taking very few days off each year. Your subordinates are watching you as a general guideline for how best to navigate unlimited time off. If you’re setting an example of never taking time off, your employees will follow suit and burn themselves out.

  • Encourage employees to take time off. Don’t make employees feel guilty about taking time off. If you notice an employee is trying their best to stand out as a hard worker by eschewing paid time off, encourage (or even force) them to take some time off.

  • Make it part of a broader program of flexibility. Unlimited vacation time is just one possible perk to increase employee’s flexibility. If you establish this policy alongside remote working options, employees won’t necessarily need to take a day off just because they can’t make it into the office

  • Define success standards. Many people are naturally competitive, and establishing this policy might incentivize employees to take as little time off as possible to demonstrate their work ethic. Clarify that you measure success based on the quality of results, not hours logged. That way, employees won’t feel guilty about taking a personal day as long as they’re performing well.

  • Talk about it often and adjust other elements of your business. Make sure that everyone is on board and understands the policy’s goals. Also, be open about the fact that accrued paid time off is not possible with this system. Since this equates to less pay, consider redirecting those funds towards other employee benefits, like bigger 401(k) contribution matching or tuition reimbursements.

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Chris Kolmar

Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.

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