When is “Unlimited Time Off” a Real Benefit—or Just a Mirage?

When this appealing PTO policy can have a significant downside

Unlimited time off sounds like the ultimate perk. Employees can take time off in whatever amount they like, subject to manager approval. Companies implementing these policies can save money while having a powerful wellness, recruiting, and retention tool.

But the reality can conflict with these goals, depending on the workplace.

Fewer US workers are taking their paid time off (PTO), whether it’s via traditional schemes or unlimited ones. And many individuals who work at companies with unlimited policies encounter hurdles trying to use this benefit, which can ultimately lead to resentment and turnover.

Here’s a look at the policy, the overall state of PTO, and some tips on creating programs—and cultures—that work.

The state of paid-time off and barriers to using it

Adequate leave policies have clear benefits for employees and employers. Gallup research has found that “Making time for regular trips or vacations with family and friends is linked to higher overall well-being” and can boost workplace engagement that profits employers.

But unfortunately, research over the past few years reveals that many people aren’t using their PTO:

• A Feb. 2023 Pew Research Center survey of 5,188 US workers reports that “46% […] take less time off than offered”

• In 2023, the career site Zippia estimates that “55% of Americans don’t use all of their paid time off.”

• A 2019 Glassdoor survey “found that the average U.S. employee takes only 54% of their available time off” and “only 23% […] use all their vacation time.”

These numbers can get even worse with unlimited leave.

“Studies show that people actually take less vacation time when there is an unlimited PTO policy in place,” notes Jennifer Loftus, CEO of the SwingSearch recruitment agency.

The data above doesn’t seem to square with the results of a June 2022 Gallup survey, which revealed that “increased paid time off or vacation time (57%)” was the benefit most people would switch jobs to obtain.

Why the disconnect? The 2023 Pew survey digs into why people don’t use PTO:

• 52% “Don’t feel the need to take more time off”
• 49% “Worry they might fall behind at work”
• 43% “Feel badly about co-workers taking on additional work”
• 19% “Think taking more time off might hurt their chances for job advancement”
• 16% “Think they might risk losing their job if they take more time off”
• 12% “Manager or supervisor discourages them from taking time off”

All those reasons except the top answer point to issues with the company, its policy, and its culture, which can create unintended consequences. Among these impacts may be employee dissatisfaction and even resentment, especially when individuals are offered “unlimited” vacation that is anything but.

Why organizations opt for unlimited PTO policies

Unlimited time off is pretty simple. It’s an aspect of a “Results-Only Work Environment (ROWE)” model where the days off don’t matter as long as performance is high. Employees can schedule vacations at their discretion and subject to approval as long as they are on top of their responsibilities.

Workers may have enhanced well-being, and employers reap the rewards from that. In addition, many organizations save significant money in two ways:

First, unlimited PTO programs have accounting and operational advantages over limited ones:

• Some limited PTO schemes accrue the leave and pay employees for their unused leave at the end of the year or upon leaving the company; an unlimited policy avoids this accounting and expense.
  
  
• Other limited PTO programs have a “use-it-or-lose-it” rule to prevent such pay outs. But the organizations must still track and accrue the leave, and, more significantly, the plans often spur everyone to attempt to take vacation at the end of the year. Unlimited leave sidesteps this operational issue.

In addition, the fact that many employees don’t use their PTO enhances ROI when using an unlimited policy—companies may see it as a win for productivity and the short-term balance sheet. But this view doesn’t account for the potential longer-term effects of disengagement, burnout, and poor health outcomes.

Where this benefit goes wrong

Three items can make the ideal of unlimited PTO clash with reality:

1. Resistance to workers from management on taking leave
2. Poorly structured workloads and staffing that make using PTO difficult
3. A competitive culture that frowns on extended breaks

Here are a couple of real-world examples:

• The schedule of projects at a small company was unrelenting. A key employee faced burnout and tried scheduling some time off—though only after attempting to get ahead and quelling their anxiety about overburdening colleagues. But the manager denied the request because of this workload. As it turned out, the PTO wasn’t unlimited or very flexible, because the company wasn’t structured well. The policy became a source of resentment and mockery.
  
• More commonly, the employee doesn’t even ask for time off—or, at least, not as much as is theoretically available. This is because unlimited PTO can counterintuitively disincentivize people from using it; since the worker decides how much leave they take, that amount is perceived as a reflection of how much they care about their job. In contrast, predetermined leave puts everyone on the same level, and it’s considered normal and expected to use it.

Despite these issues, many organizations seem to implement effective unlimited leave programs, including big names like Oracle, Microsoft, and Sony. Some report great success. But other businesses don’t account for their cultures and structures—perceptions, key personnel, and workloads—when offering the benefit. And these oversights can turn an attractive perk into something very negative.

Implementing leave policies that work

The most important steps for designing any effective PTO policy are recognizing its value and clearly evaluating the benefits and the business’s needs.

From the organization’s perspective, there are generally two ways to look at vacation. Some employers see it as paying for something and not getting anything in return—it might be necessary, but it’s just lost productivity. The other, wiser way to perceive leave is as an investment. Providing adequate downtime can not only increase retention but also improve employee productivity and wellness.

Adopting an investment approach helps mitigate unforeseen negative impacts of liberal PTO policies, such as managers denying reasonable leave requests and workers being too scared to ask.

However, a mindset isn’t enough. Effective PTO policies rely on a clear and realistic business assessment, including the organization’s needs, culture, and structure.

An understaffed workplace where key employees can’t take a break signals problems that include the PTO policy but go beyond it. And a competitive environment that frowns on too much vacation is even more common. Business leaders should address these issues in light of ROI, redundancies for critical employees, compensation, and other benefits. People aren’t stupid. They’ll figure out if their organization has the policy just to enhance recruiting and manipulate the balance sheet.

Unlimited time off can be an effective benefit. But companies must always remain fair while considering the balance of business needs and the needs of employees. Any program must be practical and part of a holistic analysis of the organization and its comprehensive suite of benefits.

Karp HR Solutions helps businesses master the mix of finance and human resources. Contact us today for a free consultation.