How does unlimited PTO work?

Unlimited paid time off (PTO) is a policy where employees can take as much time off as they need without a specific cap or limit, as long as their work responsibilities are met. Employees can take time off whenever they need it without worrying about “using up” their vacation days or sick days.

This policy typically works best when employees and managers have clear communication about expectations and workload.

What are the benefits of an unlimited vacation policy?

While it may seem counterintuitive to let employees take unlimited vacation, the policy can have valuable benefits for your business:

• Improved health: Unlimited PTO gives workers the autonomy to manage their physical and mental health and maintain a better work-life balance.
• Increased productivity: When workers have a chance to rest and recharge, they may be more productive at work.
• Higher job satisfaction: An open PTO policy shows employees that you respect their time and choices, which can make them feel positive about the company.
• Cost savings: Unlike traditional paid time off, an unlimited vacation policy usually doesn’t obligate your company to pay out unused vacation days to employees when they leave.
• Easier recruitment: Because employees often value unlimited vacation, this benefit can help you attract top-notch talent. Depending on the industry, it may also give your company a competitive advantage in recruiting.
• Balanced staffing: With a traditional time-off policy, employees often lose vacation time if they don’t use it by the end of the year. Unlimited time off may result in distributed vacation days, which can help avoid a surge of time-off requests in December.

How to create an unlimited vacation policy

A detailed policy provides guidelines for employees, managers and human resources (HR) staff. It may be helpful to review a sample unlimited PTO policy or an unlimited PTO policy template as you write.

Use these tips to develop a comprehensive policy:

• Set up the request process: Explain how employees should request time off, including how far in advance workers need to submit requests. Note if you will allow exceptions for unexpected employee needs.
• Outline the approval process: Provide guidelines to help managers approve or deny requests. For example, a request might be denied if someone else from the same department has taken the day off.
• Establish communication policies: Tell employees how and when to communicate about upcoming absences to the team. Clarify whether absent employees are responsible for finding necessary coverage.
• Discuss the length of each time-off request: Communicate the maximum length of each time-off period, if applicable. You might limit requests to two weeks, for example, or implement more stringent approval requirements for anything over a week. Limits can help prevent misuse and reduce disruption. Create a procedure for requesting and approving extensions.
• Set minimum time off: Encourage workers to take vacation days by setting a minimum amount of time each employee has to take off each year.
• Develop a process for misuse: Describe how you plan to identify and investigate suspected misuse of the unlimited vacation policy, as well as the potential consequences.
• Check for compliance: Time-off requirements vary by state. Research applicable laws when creating your policy, and ask your legal counsel to review the document for compliance.

Encouraging employees to use vacation days

A healthy balance of work and time off can translate to higher productivity. However, employees may be hesitant to take time off if the PTO policy isn’t well-defined. Consider including a typical range or minimum set of days to provide an idea of your expectations and help employees feel comfortable submitting time off requests.

You may also need to shift company culture to place a higher value on employee happiness and engagement.

Ways to encourage vacation time:

• Communicate why you’re switching to unlimited vacation time
• Tell employees you want them to take time off
• Ask managers to be flexible and positive about the policy

Maintaining a healthy unlimited vacation policy

Here are some things to consider as you build a policy that benefits the business and employees:

• Maintain an employee-focused company culture: The shift from a traditional vacation plan to one that is open and unlimited should be supported by a trusting culture that values employee autonomy.
• Prioritize clear manager-employee communication: Supervisors and HR employees must maintain open lines of communication with employees to ensure that vacations are requested with ample lead time. Time off must be appropriately staggered among the team members so it doesn’t affect productivity.
• Monitor time off: If employees haven’t taken time off in a while, managers should ask how they’re doing and suggest that a break might be beneficial.
• Lead by example: Ask senior staff members to take time off. This practice can set expectations and help encourage employees to take vacations.
• Talk about the issue frequently: Executives and managers should educate employees about the company’s vacation policy and its benefits. Managers should emphasize the importance of a healthy work-life balance and trust employees to decide how much time off is necessary.

FAQs about unlimited time off policies

How can you prevent employees from taking advantage of unlimited time off?

A clearly defined unlimited vacation policy can prevent potential misuse. By explaining requirements and disciplinary actions, you can reduce confusion and let employees know what’s expected of them.

How do you transition to unlimited vacation time?

Work with your HR department to determine how to handle accrued time off that your employees have already earned. Review state law to determine whether you’re required to pay for that time.

You might pay employees for the accrued time when you start the unlimited plan, have employees use accrued time before you switch or schedule vacation pay when the employee leaves the company. Consider beginning a new unlimited vacation policy at the beginning of the calendar year when employees’ vacation time generally resets.