An infinite amount of paid leave is certainly an attractive benefit for job applicants. But, in practice, it has a paradoxical effect on work-life balance. Plus, how your unlimited time off policy is written can either protect your bottom line or hurt it.

• Unlimited PTO (UPTO) policies are trending due to their ability to attract good talent.
• Before implementing UPTO, you may be obligated to pay out accrued PTO
• Offering flexible vacation time may have more concrete benefits than limitless time off.

What Is UPTO?

Unlimited PTO (UPTO) is exactly what it sounds like: Employees are granted as much time off as they'd like, fully compensated. These open vacation policies are becoming more commonly available to salaried (or exempt) employees.

UPTO has become a trendy recruiting tool in today's talent market. The much sought-after benefit is a way for companies to differentiate themselves from their competition. It's also useful for attracting millennials and Gen Zers, who highly value work-life balance.

Why Offer UPTO?

There are two primary reasons why companies offer unlimited vacation time. First and foremost is to attract top-tier talent, since UPTO is a competitive benefit. UPTO policies also make workplaces more accessible. For example, there’s some evidence to suggest UPTO helps working mothers better balance their career responsibilities with family obligations.

However, workplace culture plays a major role in how UPTO is used. There is some evidence that workers with UPTO actually take less time off. Without a culture that prioritizes work-life balance, workers may not take advantage of the policy and may still be susceptible to burnout, fatigue, and disengagement.

UPTO also has potential cost-saving benefits. That's because a correctly written UPTO policy can prevent PTO payouts when an employee leaves the company. However, this isn't always the case — we’ll explain more later in this article.

UPTO: Pros and Cons

Pros

• Employee happiness increases with UPTO;
• Makes workplaces more accessible to all types of talent;
• Easier to attract and maintain highly skilled employees;
• Can reduce administrative costs and unplanned absences (like sick leave);
• Employees are more likely to feel valued by their employer;
• UPTO has proven to enhance morale, productivity, and employee health;
• Allows employees to balance personal/work life; and
• Can prevent employee PTO payouts in certain situations (more on this later).

Cons

• Time off may be underutilized, counterintuitive to work-life balance;
• Requires a lot of trust between employer and employee;
• Potential risk of abuse from employees (even though data shows this is unlikely;)
• Potential risk of employee burnout (if they are fearful to use it or use less time off than before);
• Transition to a UPTO policy can be problematic, especially if employees have unused PTO time from the previous policy; and
• Can place strain on a business if everyone wants a vacation at the same time.

We’ll explain more about the evidence behind these pros and cons in our case studies section.

Sample UPTO Policy

The following is an example of a UPTO policy. Before implementing a new PTO policy, you should check to make sure it’s compliant with local labor regulations (as well as any applicable collective bargaining agreements). We recommend consulting with a human resources expert and/or an attorney.

How to Roll Out UPTO

UPTO requires planning, whether you are a large organization with an HR team or a small business owner doing it all on your own. Before rolling out a UPTO policy, you need to figure out how UPTO works. Ask yourself a few questions:

Question 1: What will happen to the current PTO your employees have accrued?

How will you handle workers who have been saving up their PTO year after year? This will be the main question from your management and employee base as you roll out your new time off policy. Some ways to approach this:

• Cut checks to employees for their banked PTO days;
• Give employees a reasonable period to use accrued vacation before the new policy takes effect; and
• Track accrued time separately from UPTO in order to pay out the accrued balance when the employee leaves the organization.

Depending on which state you live in, you may be required to pay out these days. We’ve included a table below to help guide you.

Question 2: What is the current procedure for requesting time off?

If someone wanted to request time off right now, how much notice in advance would be required? If you don’t have a procedure in place right now, you should implement one. This will give people incentive to plan their time off in advance and prevent last-minute call-offs, which can hinder productivity.

Question 3: How will you track the UPTO in a way that builds transparency?

UPTO policies can have a big impact on workplace culture. When time off is limitless, it creates the potential for policy abuse. While it’s statistically unlikely employees will abuse UPTO policies, this looming threat creates a paradoxical situation for workers.

Consider this: employers who enact UPTO policies do so with the hope of attracting highly competitive talent. Such a talent pool is likely to derive a lot of satisfaction from their career and enjoy their jobs. They’re also likely to be anxious about being perceived as an underachieving slacker.

This creates a workplace culture in which UPTO policies actually decrease work-life balance. Because of this, it’s important to enact your policy in a way that encourages workers to take the time off they need. You may also consider implementing other employee engagement tactics alongside an updated PTO policy to prevent burnout and toxic work environments.

Similarly, implementing a PTO tracking system that prevents abuse will instill trust, allowing the policy to work as intended. There are lots of software options that can streamline the payroll tracking process for you, including OnTheClock.

Question 4: Why does UPTO make sense for your organization?

Can you link this new policy to your mission, vision, and values? This will be important to get your top people on board. You’ll also need to explain it to your entire employee base, so it needs to go beyond the desire to attract “more competitive” job applicants.

Question 5: Does UPTO make financial sense for your company?

What will it cost the company to execute this policy in comparison to prior years of PTO? Consider the cost of new software, administrative personnel, and management that these types of policies will require.

Additionally, keep in mind that these types of policies only work if your employees are mostly salaried and have roles tied to goal-related outcomes. UPTO policies don’t make sense for hourly workers who need to execute specific tasks on a deadline.

Question 6: Is your PTO really going to be “unlimited?”

If you’re reading this, you’re probably considering putting some limitations on your UPTO policy. In that case, it might be more accurate to internally refer to it as something other than “unlimited.” Examples include “flexible PTO,” “self-managed PTO,” or “personalized PTO.”

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).

UPTO and Compliance

One reason why UPTO plans may be attractive to employers is their potential to save costs. If employees are offered UPTO, then they don’t accrue annual PTO days. This means that, upon their departure, the company may not be required to pay out unused PTO time.

But it’s not so simple. Depending on where you live, your UPTO policy needs to be enacted in a specific way to accommodate PTO payout laws. Additionally, you may still need to pay out PTO that was accrued before the unlimited policy was enacted.

Federal Law and UPTO

In the U.S., PTO 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-plus 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 his or her job is protected.

State laws, on the other hand, have a lot to say about PTO, both vacation and sick time.

State Laws about UPTO

While there’s no federal requirement to offer any PTO, some states have more specific laws, with sick time being the most commonly regulated form of PTO. Additionally, some states, like California, require unused PTO to be paid out at the time of an employee’s termination. If you’re living in a state that regulates PTO payouts, you may be required to pay out any accrued time off before implementing an UPTO policy.

Below we have a comprehensive state table on if you were to enact a UPTO policy and what you should be aware of. Note that this isn’t a comprehensive legal resource, as several cities regulate PTO at the local level and that PTO policies can also be governed by collective bargaining agreements.

UPTO Policy By State

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UPTO Case Studies

So what does UPTO look like? While there is a lot of anecdotal evidence out there, we thought we would include two case studies here (if that’s your thing!).

Case Study #1: Kronos

Kronos began implementing an unlimited vacation policy in 2016 using a system called myTime. The rollout 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. Today, 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 UPTO gave Kronos huge financial savings that they used to provide additional benefits, such as increased maternity and parental leave, increased 401k matching, and tuition reimbursements. A common complaint from employees about UPTO is that it is only implemented to help the company's bottom line by avoiding PTO payout to employees. This was Kronos' way of addressing that concern, showing employees their goal is to better the workplace, not for their own financial benefit.

Another concern about UPTO 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 UPTO 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 UPTO. 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

MammothHR implemented a successful UPTO 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, UPTO became the third-most valued company benefit among employees (after health benefits and 401k). The overwhelmingly 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.

Case Study #3: Unlocking the Best and Unleashing the Best

In March 2022, an academic review of UPTO policies was published in Frontiers in Psychology. This study addresses the popularity of UPTO policies in the wake of the COVID-19 pandemic. It also addresses some of the contradictions of UPTO as a method for improving employee engagement and work-life balance.

One of the key findings of this study is how UPTO actually discourages workers from utilizing PTO, and from enjoying paid time off when it’s taken. The researchers argue that, when there are no boundaries around PTO, there is no cultural protocol on how or when to take time away from work. The result is that people are less likely to plan time off to facilitate work-life balance.

The researchers point out that how paid leave is used is also important to worker wellness. Previous studies on stress and recovery indicate that certain experiences during leave, such as detachment, relaxation, control, mastery, meaning, and affiliation, are beneficial for well-being. So, for example, while the flexibility of UPTO may make a workplace more accessible to a working mother, it is still important for her to take planned vacation time away from work.

Ultimately, the study determines that UPTO has both benefits and drawbacks. It has the potential to “unlock the best” by giving workers more autonomy to determine their own needs. But it can also “unleash the beast,” serving as a counterintuitive force that influences workers to adhere to social norms about what it means to be a “good worker,” deprioritizing their own wellness.

The Bottom Line

UPTO 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. When it comes to work-life balance, UPTO policies are more effective when paired with a workplace culture that prioritizes employee wellness. In other words, UPTO by itself may not be effective at improving employee engagement.

If you need software to streamline your PTO process, OnTheClock can help. We offer automatic PTO tracking that helps you manage requests, and a PTO calendar to help plan for your employees’ well-deserved vacations. You can try 30 days for $0 when you start your free trial.