All About Unlimited PTO: Pros and Cons and More

Sondem/AdobeStock

AnnaMarie Houlis

Most of the developed world offers paid time off. In fact, the United States is the only developed country that doesn't require paid vacation or holidays off, which means that a quarter of Americans don't even have a single day off in the calendar year. But even when they do have vacation days, many Americans don't take them. The average American employee who can take PTO took just 17.2 days off in 2017 — 52 percent of Americans were left with unused vacation days, according to Project Time Off.

Many companies started implementing unlimited paid time off to encourage employees to take vacations and days off when they need them. Of course, there are pros and cons to having unlimited paid time off, however, as there are arguably some pitfalls to these policies.

Here's what you need to know about unlimited paid time off.

What Is Unlimited Paid Time Off?

Typical paid time off policies included allotted compensated vacation, sick and personal days (as well as holidays) that are credited to employees' "banks" usually ever pay period. Employes actually pay employees even if they aren't working for an average of 10 paid holidays, two weeks of vacation, two personal days and eight sick days per year. Paid time off is typically accrued over time, as hours earned are put into a bank based on hours worked.

Many companies are now offering unlimited paid time off, which means that employees don't have a limited number of days that they can take off. Rather, they're entitled to take as many days off throughout the year as necessary, so long as their managers approve that time off. The policy is usually based on trust that employees won't take advantage of it — and that trust can feel empowering for a lot of employees.

Statistics show that unlimited paid time off policies, unsurprisingly, lead to happier employees. And research from economists at the University of Warwick suggests that happier workforces are 12 percent more productive, and they're far more creative and have better analytical skills. In fact, 40 percent of our capacity for happiness lies within our power to change, so having the ability to choose the duration and timing of our paid time off increases happiness.

What Is the History of Unlimited Vacation?

Unlimited vacation time is a fairly new idea. Startups, mid-size companies and non-profits began offering unlimited paid time off as a way to attract and retain talent. For startups and non-profits, especially, being able to offer an attractive benefit can make up for lesser funds to pay higher salaries.

Only in recent years did companies start offering unlimited vacation. It originated in Silicon Valley, as part of the emerging startup scene. Startups like Dropbox, Hubspot and Stitchfix, for example, are three companies that offer unlimited paid time off policies that allow employees to be autonomous while getting their work done and still making personal time off decisions for themselves.

But what was once a trendier benefit that startups were offering has become more widespread; companies of all sizes and value have begun offering unlimited paid time off, as well. Though the total number of companies offering unlimited vacation days is still relatively small, research from the Society for Human Resource Management (SHRM) indicates that unlimited (or at least unstructured) paid time off programs are growing ever more popular. The current research estimates the total percentage of companies in the U.S. offering unlimited vacation time at around two percent, and a survey by HR association WorldatWork indicates that one percent of large companies are offering a vacation policy with no cap.

That said, there's been a lot of controversy surrounding these types of policies in the last few years as they've grown more mainstream.

Is Unlimited Paid Time Off a Good Thing?

In a Havard Business Review article, The High Price of Overly Prescriptive HR Policies, Sue Bingham writes: “If you believe employees need strict rules and enforcement to be productive, hiring and retaining high-performance people will be a challenge for you. You hired these people for their tenacity and talents. Get out of the way and let them be great. Deal with any people who choose not to meet expectations on a case-by-case basis.”

Bingham makes a point. But while, on the surface, unlimited paid time off seems like a great idea — trust, autonomy and flexibility can all lead to happier and healthier workplaces — there are certainly pros and cons to everything.

Let's break them down.

What Are the Pros of Unlimited Paid Time Off?

The pros of unlimited paid time off are plentiful. These pros include the following.

Studies show that unlimited paid time off increases employee happiness.
When employees do take time off, they come back rejuvenated and motivated.
Employees (and human resources) will spend less time managing their accrued time off, which can save a lot of time for employees who are just taking a few hours off here and there for doctor's appointments and the like.
Human resources representatives save time fielding inquiries from employees about how much time they have accumulated or have left for the year. For example, Ask.com told Inc that it saves about 52 human resources working hours each year with its unlimited vacation policy.
The company faces less financial liability since, with unlimited paid time off plans, they no longer have to pay out accrued and unused paid time off when an employee leaves the company. In fact, research from Oxford Economics found that the average vacation liability per employee is $1,898, which adds up to $65.6 billion in accrued time-off liabilities across U.S. companies.
Employees with flexibility are more likely to consistently show up at work and are, therefore, far less likely to unexpectedly call out, which makes managing responsibilities and covering absences easier for everyone.
The freedom of unlimited paid time off plans gives employees autonomy and flexibility, which can feel empowering. In fact, statistics show that most people would favor flexibility and more paid time off over higher salaries. The 2017 State of the American Workplace Report from Gallup suggests that 53 percent of employees say it's "very important" to have a job that allows them more work-life balance. Other research from Glassdoor shows that nearly 80 percent of workers prefer additional benefits over income increases (that includes 90 percent of millennials).
Unlimited paid time off policies establish trust, which is the necessary glue to an organization.
Unlimited paid time off is great for working parents who have children at home, as well as all caretakers with loved ones at home, as they can take time to spend with and care for those people.

What Are the Cons of Unlimited Paid Time Off?

Unlimited paid time off does have its downsides. These cons include the following.

When employees are given two weeks to which they're entitled, they may feel more inclined to take it. When they have an unlimited amount of time that they're offered, many employees end up taking even less vacation time because they feel uncomfortable asking for it. An analysis of research compiled by Sage Business Researcher suggests, in many cases, employees feel discouraged to take time off and may even feel in competition to take fewer days off.
Many companies have started offering paid time off policies so that they don't have to pay employees for their earned vacation when they leave the company. Because of these ulterior motives, they may not actually encourage taking time off.
Some employees may take advantage of unlimited paid time off policies.
Not all companies can adopt unlimited paid time off policies. Certain industries in which staffing levels is directly related to product churn and, ultimately, productivity and profits, cannot grant everyone time off whenever they decide they want it. This means that these companies may struggle to compete with those offering the benefit.
Unlimited paid time off policies are based on trust, but Edelman Trust data suggests that almost one in three employees don't trust company leaders.
Vacation time no longer feels like an earned reward, which is largely what makes it feel so revitalizing for employees who need a break.
According to Project Time Off, women don't take off as much time as men because they're more fearful of the consequences of taking time away from the office. With even more time to take (and women taking less of it), unlimited paid time off policies can create an even bigger gender divide in the workplace.
Some companies might not communicate their expectations clearly, which can lead to confusion in the workplace about what's acceptable and what is not.

AnnaMarie Houlis is a feminist, a freelance journalist and an adventure aficionado with an affinity for impulsive solo travel. She spends her days writing about women’s empowerment from around the world. You can follow her work on her blog, HerReport.org, and follow her journeys on Instagram @her_report, Twitter @herreport and Facebook.