Unlimited PTO: Unique Employee Perk or Risky Employer Pitfall?

The rise in remote work has increasingly prompted employers to embrace workplace flexibility in other areas besides just their employee’s work location. They’ve discovered that employees can thrive when they are trusted to manage their own time and work assignments. An emerging workplace trend that aligns with this flexible way of working is unlimited Paid Time Off (PTO), where employees can take as much paid time off as they wish as long as they meet job expectations. Employees can use PTO for vacation, sick leave, personal appointments, or other reasons.

In January, tech giant Microsoft announced that they will begin offering “Discretionary Time Off” or DTO to all salaried employees in the U.S. Coupled with the adoption of permanent hybrid work, DTO will, according to Microsoft executive Chris Capossela, “provide employees with the opportunity to determine how and where they work best.”

While unlimited PTO can increase employee engagement and is a valuable recruiting tool, the benefit can present risks if the employer does not administer the program carefully.

Some employers embrace an unlimited PTO plan to reduce administrative burden because they no longer have to track the accrued, used, and available PTO hours. While this may be true for some employees and locations, the Washington State Paid Sick Leave law requires employers to track and provide all non-exempt employees with their protected leave balances. This requirement thus eliminates the incentive for reduced administrative efforts. Employers may avoid this dilemma by offering unlimited PTO to their exempt employees only, as the state law does not cover them. However, Seattle employers must comply with the City’s Paid Sick and Safe Time Ordinance (PSST), which covers both exempt and non-exempt employees. The ordinance also contains similar recordkeeping and employee notification requirements.

Sick leave law compliance aside, there are also employee relations considerations. Traditionally, the longer employees work at a company, the more PTO they accumulate because accrual rates usually increase based on years of service. Implementing an unlimited PTO policy may cause resentment from tenured employees who have “earned” their accrual rate only to see new hires receive the same amount of paid time off.

An unlimited PTO plan may also have the opposite effect as intended. Studies have shown that people with unlimited PTO take less time off than those with traditional vacation benefits. Perhaps it is because a defined annual allotment provides employees with a benchmark of adequate time off. One solution some companies have implemented is having a minimum amount of time off employees must take.

Unlimited PTO places significant responsibility on front-line supervisors and managers to approve (or deny) requests fairly and consistently. Any perceived inequity between employees or departments can fuel charges of discrimination. Managers must also be vigilant about regularly holding employees to performance expectations to combat potential abuse. Manager training and consistent communication with HR are essential to the plan’s success.

Crafting a policy that minimizes legal risk and limits administrative burden while retaining the ‘luster’ for employees is no easy feat. Many employers will decide that a traditional PTO policy or separate sick and vacation balances make more sense for their workforce. But others may accept the challenge and embrace the new trend. Archbright members interested in implementing an unlimited PTO policy can find sample policies compliant in multiple situations in the mozzo Resource Library.