Author: Thomas Rylko
Employers across all industries have seen an uptick in offering unlimited paid time off (PTO) as a benefit. While it's too soon to know precisely what's driving this trend, years of consulting with employers on leave policies lead me to believe employers are looking for ways to be competitive without adding expense. Unlimited PTO can help boost attraction and retention, especially for senior leaders, while lowering the cost of PTO on the balance sheet.
Unlimited PTO has pros and cons for both the employer and employee, and there's no one-size-fits-all answer to whether unlimited PTO makes sense for your organization. Organizations must consider four points to answer that question. First, however, let's get a few assumptions on the table:
- "Unlimited" doesn't really mean unlimited. Organizations typically put some parameters around their policy and may refer to it as "allowed PTO" or "paid open leave" to dissuade the perception of limitless time off.
- Your PTO policy doesn't have to be the same for all employees. While you must apply it fairly to avoid discrimination, you don't need to offer unlimited PTO to every employee.
- Introducing an unlimited PTO policy doesn't eliminate the need to track time. More on that later.
- You can change your mind. While I don't recommend taking a casual approach to big policy changes, you can revert to your previous policy if you determine unlimited PTO isn't right for the organization.
Gallagher's 2023 Benefits Strategy & Benchmarking Survey found only a small percentage of employers offer unlimited PTO, with a slightly higher percentage reporting they are considering it. However, the job posting platform Indeed reported that more companies are moving to an unlimited or flexible vacation policy.1 In March 2023, Forbes cited Indeed statistics, noting that job postings with unlimited PTO rose 178% from 2015 to 2019.2
Based on experience and the inquiries we receive, I'm confident Indeed's data reflects reality. Survey respondents tend to answer questions based on their general population. Unlimited PTO is seldom available (or appropriate) for all employees. In healthcare, organizations mainly offer it at a director level and above, which brings us to the first consideration for employers — who should be eligible.
Consideration #1: Eligibility for unlimited PTO
Most employers innately know that unlimited PTO doesn't make sense for everyone, but many struggle to find a good business case to support that. Our approach is simple: remove emotion from the equation and ask who are the "essential workers" who must be present physically onsite. This is a critical question in healthcare, where staffing impacts life and death outcomes. Generally, categorizing jobs as operational versus strategic is where to draw the line. Those overseeing operational functions must always know who is where and when. Conversely, higher-level positions focused on strategy can accommodate flexible levels of physical presence at work.
Consideration #2: Interplay with other time-off policies
Unlimited PTO seldom encompasses every situation. An employee sometimes will require an extended leave of absence — perhaps for a medical procedure. Disability leave can become an afterthought to employers considering unlimited PTO. Such situations may not come to light until the policy is live, causing HR to scramble for a response.
Is sick leave included in your definition of unlimited PTO? What about parental leave? Sabbaticals? Floating holidays? Employers must think through all types of leave and create policies that address the interplay between these and an unlimited leave policy. Consider how to fund each leave once you define what unlimited PTO encompasses. Pay attention to state and municipal laws that may dictate how you treat types of leave and stay cognizant of the federal Family and Medical Leave Act (FMLA).
Consideration #3: Impact on current balances (banked leave)
Assuming your current policy permits banking time off, you must decide what to do with existing balances. Options range from zeroing out previous PTO balances to freezing the value and keeping it on the books. Multiple factors come into play, many associated with the financial impact to the organization. Are you going to pay out previously earned PTO? All at once or over time? Consider the scenario where an employee eligible for unlimited PTO assumes a new position that eliminates that eligibility. Should the previously earned PTO be reinstated?
A total rewards consultant can help you work through such detailed questions. However, the best general advice is to not underestimate employees' sense of ownership of earned and accrued time. How you transition to unlimited PTO directly impacts workplace culture and employees' trust in the organization. Your organization may not recover quickly from major missteps.
Consideration #4: Value of tracking time with unlimited PTO
Instituting unlimited PTO doesn't relieve you of the obligation to track time. There are many business reasons to track time, including benchmarking, workforce planning, forecasting and compliance. Related to unlimited PTO, the adage "if you can't measure it, you can't manage it" says it all. Tracking for abuse is important. If an employee's work output or quality drops, you want data to support follow-up actions.
In my experience, however, instances of unlimited PTO abuse are rare. Instead, organizations should watch for employees who fail to take sufficient time off to recharge and avoid burnout. Various studies, including a 2022 survey from Namely,3 show that employees with unlimited PTO take roughly the same (and sometimes less) than those with a set amount of PTO. Some organizations require employees to take a minimum number of days off per year in their unlimited PTO policy.
Cultural alignment is key to success
Unlimited PTO: Attraction and retention
A March 2023 Gallagher Organizational Wellbeing poll examined the benefits that organizations currently use or are considering to strengthen their ability to attract and retain talent. The poll found that more than half of respondents indicated they increased their PTO (24%) or are considering doing so (34%).
Unlimited PTO is most successful when aligned with the organization's culture — where outcomes define productivity versus hours logged or widgets produced. Moving from prescribed to unlimited PTO involves clearly understanding your current and desired culture.
For organizations ready to embrace unlimited PTO, Gallagher's total rewards consultants are available to assist HR leaders in working through steps for best practice decisions specific to your organization, including:
- Plan design and interplay of various types of PTO
- Financial implications (opportunities and impact)
- Executive approval
- Comprehensive policy development
- Transition planning and internal communication strategy
- Timing and implementation
Well-designed PTO plans differ by industry. What makes sense in healthcare may not be effective in higher education or technology. Contact Gallagher's HR and Compensation Consulting practice for a customized approach to unlimited PTO, and all employee compensation and benefit offerings, for your organization.