Paid time off, or PTO, can be the biggest headache for a small business owner. Tracking it, coordinating work schedules, and forget it about holiday time. Many business owners are now balking the traditional accrual or bucket PTO systems in favor of an unlimited PTO system that, ideally, will relieve them of these headaches of counting. But is unlimited PTO, also known as open PTO or flexible time off (FTO), more trouble?
In this article, we will explore:
- What is Unlimited PTO
- Sample Unlimited PTO Policy
- How to Roll Out Unlimited PTO
- What are the Pros & Cons of Unlimited PTO
- What are the Federal Laws around Unlimited PTO
- What are the State Laws about Unlimited PTO
- Case Studies
So, your first question might be, “Does unlimited PTO really mean unlimited? Like as much as they want?”
Please note that unlimited PTO policies are usually only used in salaried situations where payroll and staffing needs are more stable and predictable (versus an hourly situation like a clothing store or daycare where a certain number of employees are required to make sure work goes on).
What is Unlimited PTO
Yes, “unlimited” technically means unlimited PTO, or an open vacation policy, where employees can take as many days off as they choose to or need to. Unlimited PTO is becoming increasingly popular as companies grow weary of tracking days, tracking accruals, answering requests from employees to go over (or be paid out for extra)… many business owners look at the research and case studies and decide to see what will happen. Unlimited PTO is also a very trendy recruiting tool in today’s ever competitive talent market, and it is a way for companies to differentiate themselves to millennials and Gen Z, who are increasingly picky about their benefit expectations.
However, companies usually put parameters around the “unlimitedness” of the policy in order to protect themselves (as they should), especially if they are in a state where PTO is paid out upon term or layoff. An unlimited PTO policy should also still come with guidelines on how to request time off (i.e. anything more than 16 hours or 2 days of PTO consecutively should be requested off at least 4 weeks ahead of time), and each policy should also still come with a caveat that an employer can reject a PTO request due to workload or other employees’ already having requested off.
Let’s look at a sample unlimited paid time off policy.
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Unlimited Paid Time Off Policy
Unlike many employers with formal paid vacation, personal and paid sick-time policies, the Company has no formal policy regarding the amount of time that its salaried employees can take during a year for their absences from work. As a result, employees do not accrue vacation pay or other paid time off and this is considered an unlimited paid time off policy.
Included within the Company’s unlimited paid time off policy are paid sick days. Requests to use sick days should follow the procedure stated below. Since these days are included within this policy, they do not roll over or accrue. Please note that, even with the Chicago and California sick leave laws, if a company has an unlimited PTO policy they do not have to enact a separate paid sick leave policy. Thus, the Company does not have a separate sick leave policy.
However, attendance may be required at certain times and time off grants are still at the discretion of the Company. To request time off from work, written notice to your direct supervisor is required (email suffices as written notice). For planned PTO, such as a vacation or other known event like a wedding, advance notice of 4 weeks is recommended to ensure that PTO is likely to be approved. For unplanned instances, such as an illness or bereavement leave, notification on the day of by 8 am CST is best practice, or as soon as possible.
No single absence will be paid for more than 15 consecutive days without approval from the CEO. Paid time off for all eligible employees must be recorded in the appropriate time/attendance system.
Should your PTO request exceed 15 consecutive business days, please contact the CEO & your manager to ensure proper procedures and documentation are followed. Examples of this may include:
- the birth and care of the newborn child of an employee;
- placement with a child for adoption or foster care;
- to care for an immediate family member (spouse, child, or parent) with a serious health condition; or
- to take medical leave when unable to work because of a serious health condition.
Please see the individual policies on these topics for more information.
Paid Leave for salaried employees may not be used as a means to extend other types of
leave, such as FMLA, Parental, Short- or Long Term Disability, leaves required by state law, and other extended leave situations.
The Company expects all employees to maintain the high caliber of performance expected of all employees. Therefore, if performance declines because of use or abuse of the PTO policy, the Company reserves the right to review an employee’s use of PTO and take disciplinary action if necessary, up to and including termination of employment.
While employees may take time off subject to work demands and management’s discretion, they do not accrue any vacation time for purposes of payout at termination and/or payment during leaves of absence.
How to Roll Out Unlimited PTO
For this section, we will focus on HOW to actually enact an unlimited PTO policy at a high level. We will focus on the before/ composition of the policy, tips for how to roll it out, and what to do after it takes effect. Please note this isn’t a comprehensive step-by-step guide to rolling out a policy, but a rough guideline.
Let’s start from the beginning — the “before” phase.
Before You Roll Out Unlimited PTO
First and foremost, unlimited PTO requires planning. Whether you are an organization of 100 people and have an HR manager, or a small business owner doing it on your own, you need to carefully evaluate and be able to answer and consider the below questions:
- Question 1: What would you do with the current PTO employees have accrued? How do you want to handle the people who have been “saving” up time?
- This is a huge question- especially depending on which state your business resides in (see below table). The main questions your management and employee base will have are going to revolve around what happens to the time they have saved up. You will want to make sure you have a clear answer to this question, as well as a clear answer to how much it might cost you, before creating your unlimited PTO policy.
Our top 3 suggestions:
- Cut checks to employees for remaining time off.
- Give employees a reasonable period to use the accrued vacation time before the new policy takes effect.
- Track the accrued time separately from the newly implemented vacation policy and pay the accrued balance to the employee upon termination of employment.
- Question 2: What is the current procedure for requesting time off and how much notice in advance is required?
- You’ll then want to consider if this still works with an unlimited policy. If you have a loosey-goosey “just text me” policy right now, you will likely want to implement more of a standard request. This could also lead to the next point:
- Question 3: How will you track the unlimited PTO to prevent abuse and to instill trust?
- If you were going by emails and a sloppy Excel before, you will want to consider implementing an HRIS like BambooHR or Zenefits to help you to track paid time off and keep people honest.
- You will also want 1 or 2 “point people” to be in charge of tracking this. People will have a lot of questions and 1 person who can administer this function will be useful to make sure the policy is working.
Other questions to consider:
- Why does unlimited PTO make sense? Can you link this new policy to your mission, vision, and values? This will be important to get your top people on board, and also when you are explaining it to the entire employee base.
- Have you done the math? What will it cost the company to execute this policy in comparison to prior years of paid time off?
- What are your concerns with this new policy? Listing these out for discussion with your senior people can help to show that you are carefully considering this new policy, and the team might have solutions for your concerns, which will build even more trust.
Now that you’ve answered these questions, you’ll need to create the actual policy. Use the above policy as a free template, or get in touch with our expert HR team if you’d like some customized help.
Tips for a Successful Unlimited PTO Rollout
Now that you have an actual policy, you need to roll it out. How have you rolled out policies in the past? You will want to make sure that this is organized and has clear dates for when it starts and the requirements around it. You may even consider making a 1 sheeter for each employee that states their current PTO balance, how it will be taken care of (i.e. date it needs to be used by or payout date), and a copy of the new policy.
Furthermore, in order for an unlimited PTO policy to work for your business, MammothHR suggests some tips for success:
- Try using a different term other than “Unlimited PTO” such as, “Personalized PTO”, “Flexible PTO”, “Self-Managed PTO”, or “Responsible PTO” to better reflect the policy.
- Incorporate the policy into your company’s mission, vision and company values.
- Emphasize the policy is a two-way street by letting employees know their personal time is valued, but they are also expected to live up to expectations and performance should not suffer.
- Provide clear PTO guidelines to minimize probability of a request denial (i.e. how to and the timeline for requesting PTO, as well as the right to reject it if works requires)
We would also add here that the training and communications to staff and management is KEY to the rollout of an unlimited PTO policy. Consider having several training sessions with open Q&A, as well as creating documents people can hang onto such as the policy itself, FAQs, and best practices for both employees and managers.
After the Policy is in Effect
Schedule feedback sessions for leadership for 90 days after the policy is in effect. You will want to compare days off in the prior years to this first 90 day period. It is highly likely that it will be similar or even less; however, this kind of data will be invaluable to assuage fears in leaders (and to nip abuse of the policy in the bud).
Let’s look at unlimited PTO’s potential pros and cons next.
What are the Pros & Cons of Unlimited PTO?
As with any policy, you’ll want to look at your company culture, your employee base, and assess the pros and cons of how it would impact your business operations, team, management, and bottom line prior to rolling it out. Remember, unlimited PTO is traditionally used in salaried, full time employee environments like law firms or consulting firms, versus hourly businesses where a certain volume of workers is required (i.e. a restaurant or daycare).
Let’s discuss the pros of unlimited PTO first.
Pros of Unlimited Paid Time Off
While the pros of this policy might make many business owners and HR managers nervous, the reality is that the pros and cons easily overlap with unlimited PTO. A lot of it depends on company culture and the implementation of the policy itself. For example, the pro that employees are more likely to feel valued could easily turn if the managers hold it against employees who actually take time off (“You’re asking for PTO again, Megan? Didn’t you just have a week off last month?”.
As you read through the following list of pros, notice how they parallel the cons list below it:
- Employee happiness increases with unlimited PTO
- Easier to attract and maintain top talent, aka makes hiring easier!
- Company appears to be more modern, pro-employee and with changing times
- Financial benefits to the employer include less administrative costs and sometimes even less paid time off paid out/ taken as a whole
- Employees are more likely to feel valued by their employer
- Sick employees are more likely to stay home and take sick days, which leads to less “everyone in marketing has the flu” issues
- Unlimited PTO has proven to enhance morale, productivity, and employee health
- Allows employees to balance personal/work life, which is a highly valued benefits for many Gen Z and millennial employees
Let’s now explore the downside of an unlimited PTO policy.
Cons of Unlimited Paid Time Off
Most of the cons list revolve around company culture and the implementation of the unlimited PTO policy. For example, if the policy is rolled out with little thought, managers or company leaders may be afraid of the downside (think of your VP of Sales being terrified that s/he won’t meet their quota because of Account Executives taking time off). Making sure to use data, and connecting WHY the policy is occuring, is absolutely crucial to the below cons being avoided.
Unlimited PTO can have the negative side effects of:
- Requiring a lot of trust between employer and employee (hint: think about when you should roll this out!)
- Risk of abuse from employees (even though data shows this is unlikely)
- Risk of employee burnout (if they are fearful to use it or use less time off than before)
- Transition to an unlimited PTO policy can be problematic, especially if employees have unused PTO time from the previous policy
- Can place strain on a business is everyone wants the same time off (hint: you can mitigate this with the wording in your policy and with some simple planning!)
Aside from pros and cons, each employer should carefully review the laws around paid time off, and unlimited paid time off, prior to implementation.
What are the Federal Laws around Unlimited PTO
In the United States, paid time off has very little regulation. By FEDERAL law, as an employer, you have no obligation to give any vacation, holiday, or sick paid leave, regardless of size. The only regulation is around FMLA, the Family Medical Leave Act, for employers of 50+ full time employees (or the equivalent thereof). This law states that someone with an FMLA-approved cause can have a certain amount of unpaid time off depending on their situation and their job is protected.
State laws, on the other hand, have a lot to say about paid time off, both vacation and sick time.
What are the State Laws about Unlimited PTO
Below we have a comprehensive state table on if you were to enact an unlimited PTO policy and what you should be aware of.
However, you should also note that there are several states and cities with paid sick time policies (if you are in one of these, you should already be aware!). However, unlimited PTO can easily cover the sick time law in your city or state as long as you include wording of such in your policy (see example above).
Need help making sure your policy is compliant? Send us a message to ask about our hourly, contract-free HR consulting services.
|State||PTO Payout Policy||Unlimited PTO Policy|
|Alabama||Not required||Employers may choose to offer unlimited PTO|
|Alaska||Required only if outlined in policy||Unlimited PTO policy must outline that vacation days are not measured, therefore, not payable at departure|
|Arizona||Not required||Employers can create their own policy if they choose to|
|Arkansas||Required only if outlined in policy||Unlimited PTO policy must outline that vacation days are not measured, therefore, not payable at departure|
|California||Required to pay all accrued vacation PTO||Unlimited PTO policy must outline that vacation days are not measured, therefore, not payable at departure|
|Colorado||Required to pay all accrued vacation PTO|
|Connecticut||Not required||Employers may choose to offer unlimited PTO|
|Delaware||Not required||Employers may choose to offer unlimited PTO|
|Florida||Not required||Employers may choose to offer unlimited PTO|
|Georgia||Not required||Employers may choose to offer unlimited PTO|
|Hawaii||Not required||Employers may choose to offer unlimited PTO|
|Idaho||Required only if outlined in policy|
|Illinois||Required to pay all accrued vacation PTO|
|Indiana||Not required||Employers may choose to offer unlimited PTO|
|Iowa||Not required||Employers may choose to offer unlimited PTO|
|Kansas||Not required||Employers may choose to offer unlimited PTO|
|Kentucky||Not required||Employers may choose to offer unlimited PTO|
|Louisiana||Required to pay all accrued vacation PTO|
|Maine||Required only if outlined in policy|
|Maryland||Required only if outlined in policy or if policy is silent on the issue|
|Massachusetts||Required to pay all accrued vacation PTO|
|Michigan||Required only if outlined in policy or if policy is silent on the issue|
|Minnesota||Not required||Employers may choose to offer unlimited PTO|
|Mississippi||Not required||Employers may choose to offer unlimited PTO|
|Missouri||Required only if outlined in policy|
|Montana||Required to pay all accrued vacation PTO||Unlimited PTO policy must outline that vacation days are not measured, therefore, not payable at departure, any previous vacation accrual must be paid out|
|Nebraska||Required to pay all accrued vacation PTO||Unlimited PTO policy must outline that vacation days are not measured, therefore, not payable at departure, any previous vacation accrual must be paid out|
|Nevada||Not required||Employers may choose to offer unlimited PTO|
|New Hampshire||Not required||Employers may choose to offer unlimited PTO|
|New Jersey||Not required||Employers may choose to offer unlimited PTO|
|New Mexico||Not required||Employers may choose to offer unlimited PTO|
|New York||Required only if outlined in policy or if policy is silent on the issue|
|North Carolina||Required only if outlined in policy or if policy is silent on the issue||Any vacation policy MUST be outlined in detail, unlimited PTO policy must outline that vacation days are not measured, therefore, not payable at departure|
|North Dakota||Required only if outlined in policy||Unlimited PTO policy must outline that vacation days are not measured, therefore, not payable at departure; all paid leave is considered vacation unless otherwise stated|
|Ohio||Required only if outlined in policy or if policy is silent on the issue|
|Oklahoma||Required only if outlined in policy|
|Oregon||Required only if outlined in policy or if policy is silent on the issue|
|Pennsylvania||Required only if outlined in policy|
|Rhode Island||Required as long as employee has completed at least one year of service|
|South Carolina||Required only if outlined in policy|
|South Dakota||Not required||Employers may choose to offer unlimited PTO|
|Tennessee||Required only if outlined in policy|
|Texas||Required only if outlined in policy|
|Utah||Required only if outlined in policy|
|Vermont||Required only if outlined in policy|
|Virginia||Required only if outlined in policy|
|Washington||Required only if outlined in policy|
|West Virginia||Required only if outlined in policy or if policy is silent on the issue|
|Wisconsin||Required only if outlined in policy|
|Wyoming||Required only if outlined in policy|
Unlimited PTO Case Studies
So what does unlimited PTO look like? While there is a lot of anecdotal evidence out there, we thought we would include 2 case studies here (if that’s your thing!).
CASE STUDY #1
Kronos began implementing an Unlimited Vacation Policy in 2016 using a system called myTime. The roll-out of this new system was not easy and involved educating all employees on the process.The CEO of Kronos believes the old way of giving time off is outdated, especially with today’s technology many employees do not stop working when they leave the office. Employers need to focus on results over office time in order for this kind of system to work effectively.
The implementation of unlimited PTO gave Kronos a huge financial savings that they used to provide additional benefits such as increased maternity and parental leave, increased 401k matching, and tuition reimbursements. One of the big complaints from employees about unlimited PTO is that it is only implemented to help the company’s bottom line by avoiding PTO payout to employees. This was Kronos’ way of showing employees that their goal is to better the workplace, not for their own financial benefit.
Another concern about unlimited PTO is that employees will take advantage of time off or be fearful of taking too much time off with repercussions. Kronos found that employees on average took fewer days than their entitlement allowed under the old policy, and with the new unlimited PTO policy employees took only 2.65 extra days on average.
While this new policy wasn’t greeted with 100% positivity by employees, Kronos saw an increase in employee engagement and a decrease in voluntary turnover as a result of unlimited PTO. Ultimately, it may not work for every company, but it has a good chance of working as long as there is a trusting employee/employer relationship.
CASE STUDY #2
MammothHR implemented a successful unlimited PTO policy. It started with a one year trial, brought on by the fact MammothHR is a small business that wants to have a vacation policy that encourages trust and allows for less red tape when taking time off.
By the end of the year trial period, unlimited PTO became the #3 most valued company benefit among employees behind health benefits and 401k. The overwhelming positive feedback over this new policy oddly had no effect on the actual number of days employees took off. It stayed roughly the same, an average of three weeks per year.
MammothHR discovered it wasn’t the time off that created the difference, but the flexibility that employees truly valued. It gave employees the ability to freely live their lives outside of work, knowing they didn’t have to stick to a rigid PTO policy. It also put trust in employees, giving them the autonomy to get their work done in the way that best suits their lifestyle.
The bottom line is that unlimited PTO can be an edgy, awesome and exciting benefit to offer for a business, but the caveat is that it requires more planning and rollout time than a normal “you get 15 days” policy.