Why the Unlimited Vacation Policy is the Future of Paid Time Off

A warning to HR managers: you may find this new trend extreme.

In the US, there are no federal laws governing the amount of paid vacation days employees are allowed. The average number of vacation days given to workers sits around 10 per year, after 1 year of employment, significantly lower than most other areas of the world.

Yet while some companies continue to skimp over the amount of paid leave offered to their employees, this new trend veers in the other direction.

We’re talking about an unlimited vacation policy. This policy offers superior flexibility and autonomy to workers, making it a more progressive way to run a team.

And though doubters claim that this is a productivity killer, most organizations that use an unlimited vacation policy find the opposite is true.

Read on to learn more about how unlimited vacation is empowering a more positive workforce.

How Does Unlimited Vacation Work?

This kind of leave policy might also go by a range of different terms, such as open vacation, unlimited PTO, open PTO, flexible vacation or “use what you need” paid time off. 

These are all the same; employees simply have no cap on their paid time off allowance.

The idea is that employees can request and take paid leave as they normally would, but they won’t be limited to a certain number of days of paid leave per year.

In essence, an unlimited PTO policy could work a number of ways, depending on how the company wants to structure it, such as:

• No limit on all paid leave
• Unlimited sick leave, limit on paid vacation days
• Limit on paid leave, but unlimited unpaid leave days

The first option is the one that is trending the most today, and the one that’s getting the most attention.

The key to making unlimited vacation work is to switch from judging employees on attendance to judging based on production.

Realistically, it doesn’t matter if someone works 5 days a week or 3, if they both produce the same results.

An unlimited vacation policy puts that into practice. Employees are allowed to take essentially as much time off as they wish, as long as the work gets done.

This is empowering to the worker, as they’re less likely to feel like they’re being micromanaged. It’s also beneficial for the business because employees have a more solid incentive to get actual work done – if I hit my KPIs, I can go on vacation as much as I want.

In traditional workplaces, it’s all too common to see employees turn up every day and simply count down the hours until they clock out, and end up getting very little done.

What Does Unlimited Vacation Mean? Is it Really Unlimited?

Many see unlimited vacation as an “anything goes” leave policy, which is not quite accurate.

There is no hard limit on vacation days in an unlimited PTO policy. But that’s not to say that employees can jet off on leave any time they want, or that they can disappear on a six month paid vacation.

There are still conditions and fair use in place for employees in regards to paid leave. The exact conditions are up to the company to decide for itself, but here are some rules that may need to be followed:

• There still needs to be a time off request and approval process, and leave can be declined if it’s going to cause undue disruption to service, projects or deadlines.
• There may be a limit on the length of time one can take off all at once.
• A minimum number of days’ notice required for requesting leave (you can’t say “I’m on vacation from tomorrow, thanks”).
• Fair use: meaning, while there might not be a limit on the number of days you can take off, employees can’t take a crazy amount of leave, like six months of the year for example. The employer, manager, or HR team will track and address any cases where the unlimited vacation policy may be getting abused, and an employee takes more than their fair share.

So, the short answer is, unlimited vacation is unlimited… within reason. It’s not a free for all, and there are still rules.

Why Would You Give Your Employees Unlimited Vacation Time?

It’s fair to question why a company would be so generous in terms of paying staff not to work. On the face of it, it seems to make little economic or business sense.

But there are some significant benefits if you look a little deeper.

The flexibility and autonomy offered to employees is one selling point. Unlimited vacation gives people the freedom they need to be healthy, happy, and live their best lives.

It can go wrong if you offer it to the wrong people, but if you’ve got the right people in your team, it will elevate them to a whole new level.

Greater freedom for employees gives them more of an opportunity to build a positive work-life balance, which will almost certainly affect their work in a positive way.

Combine the personal benefits for employees with the company’s need to switch to performance-based KPIs, and organizations that institute an unlimited vacation policy most often see a boost in productivity, rather than any loss from the increase in paid leave days.

Is There Any Downside to Unlimited PTO?

No one’s claiming that an unlimited vacation policy is perfect. It comes with a few downsides and risks.

The most obvious risk is abuse. If you offer unlimited vacation days to employees, there’s always the chance that some people can take far too much time off.

To prevent abuse, it’s important to make sure your team is given clear, production-driven KPIs. That way, if someone tries to abuse the unlimited vacation policy, they only risk setting themselves behind.

However, this can also go the other way. There are a number of examples where employees in a company with an unlimited vacation policy to take less leave.

This is because the employee might feel more pressure to show up to work, due to fear of being seen as taking advantage of the system.

When you have a set number of vacation days, it’s clear how much time off you’re expected to take.

But with unlimited vacation, it’s difficult to know how much is too much, and when it might start to show you in a negative light.

What’s more, some companies end up putting pressure on employees to take as little vacation time as possible, even though it’s technically “unlimited”.

To truly get the most out of your unlimited vacation policy, make sure there’s no underlying pressure on employees to neglect their vacation days, and work to create a culture that doesn’t stigmatize asking for time off.

It also might be a good idea to set minimum expectations for annual leave, like HubSpot does with their “two weeks to infinity” unlimited vacation policy.

Is the Administrative Burden Better or Worse with Unlimited Paid Time Off?

Consider the burden on the company’s admin or HR team with an unlimited PTO policy, which can be positive or negative.

On the positive side, unlimited vacation requires less day-to-day management. Each leave can be counted under the unlimited PTO policy, rather than categorizing leaves as things like sick leave, bereavement, personal days, vacation, etc.

Also, unlimited time off means there are no unused vacation days at the end of the year needing to be used, paid out or carried over.

Not needing to pay employees for unused time off can also offer big cost savings to the company.

However, consider there may be some admin work involved in this area when switching over to an unlimited vacation policy.

If you have employees with accrued vacation time, this could cause an issue. The company would most likely need to pay out any unused vacation time before the new policy officially comes into effect.

The Verdict: Is an Unlimited Vacation Policy Right for Your Business?

Offering unlimited paid time off is not going to make sense for every company.

Such a policy may not work for service-based companies, as having staff on leave more often could affect their ability to serve customers or clients.

Along the same lines, unlimited vacation is not suitable for companies that pay their employees hourly, rather than a fixed weekly/monthly salary.

It may also be more difficult to transition to unlimited vacation if paid leave makes up a great deal of your company’s hierarchy/bonus structure.

But for many companies, any growing pains of switching to an unlimited vacation policy are worth it.

A flexible vacation policy empowers your team to get the rest and time away from work they need to stay healthy, happy, and productive.

As a result, you’re going to see these employees stick around longer, reducing turnover costs.

Recruitment is also easier with a more generous and open vacation policy. Top job seekers with multiple options will be more likely to take a job that offers unlimited vacation than one with a rigid and outdated paid leave policy.

It’s not going to be long until it’s commonplace to make employee wellbeing a priority. When that happens, unlimited vacation policies will be closer to the rule than the exception.