Unlimited Vacation Policy: Why Employers Should Consider It

Small and medium-sized businesses are beginning to realize the benefits of offering unlimited vacation days to their employees. Giving employees an opportunity to unplug and recharge—and to feel trusted to decide when they need to take time off—can result in improved employee engagement, as well as increased productivity.


Learn how to implement an unlimited time off policy to benefit both your employees and your company.


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What is an unlimited vacation policy?

Under an unlimited vacation policy, employees may take off as much time as they wish, as long as they’re still able to perform their functions normally and company business isn’t disrupted. Unlimited vacation time covers more than just vacation time—it gives employees time off to do just about anything that isn’t work-related.


That can mean visiting a sick relative, attending a child’s championship volleyball game, volunteering, taking time off for bereavement or staying at home to catch up on sleep. Companies are not only looking to employees to determine the number of paid days off, they’re also allowing them to decide how they’ll spend that time. Unlimited PTO takes the place of individual time off categories, such as sick time or personal days.


The benefits of unlimited time off

Companies have a lot to gain by implementing an unlimited vacation time policy, especially when you consider how it impacts employee engagement. Giving workers more autonomy allows for better physical and mental health, closer relationships, increased productivity and new, fresh perspectives.


Here are some of the ways companies can benefit from offering an unlimited time off policy:


  • It can save money. Because companies usually aren’t obligated to pay employees for a set number of vacation days, there’s no need to pay them for unused days at the end of the year or when they leave the company.
  • It’s less of a headache for HR. Given that employees can take paid time off for any reason, HR isn’t saddled with tracking the purpose of each request for time off. HR only has to have a reliable system for managers to approve requests for time off.
  • It’s good for recruitment. Because employees highly value the benefit of unlimited time off, having an unlimited vacation policy is an asset for companies that want to recruit a top-notch workforce. Since only a small percentage of companies offer unlimited PTO policies, those that do have a recruitment edge.
  • It can increase productivity. When an unlimited time off policy is implemented well, it shouldn’t reduce productivity, and it may even increase it. In fact, a year after Indeed rolled out its unlimited time off policy—during which employee vacation days increased by 20%—the company was still able to significantly increase headcount, open new offices and boost monthly visitors to its website.
  • It helps create a work/life balance. According to research conducted by Indeed, the most important contributing factor to job happiness is an employee’s ability to find harmony between the demands of work and their personal lives. This desire for work-life balance resonates with workers, regardless of age or location. Having unlimited time off can make it easier to maintain that balance.
  • It eliminates the December rush. With a traditional time off policy, employees often lose vacation time if they don’t use it by the end of the year. This can result in a lot of people requesting time off in December. Unlimited vacation time often results in spreading out the time off, so all your employees won’t be asking for time off at the same time.

Creating an unlimited vacation policy

If offering your employees unlimited vacation time seems like the right choice for your business, you should develop a detailed policy that outlines how the unlimited time off benefit works. Having a clear policy can prevent problems and help you transition to the unlimited PTO structure.


Use these tips to develop your small business vacation policy:


  • Establish the request process: Outline the process that employees need to follow to request time off, including the form they need to complete and how far in advance they need to submit the request. Even though it’s unlimited, the vacation time still needs to be approved. 
  • Outline the approval process: Along with the request process, you need an approval process that determines whether the employee can time the time off. For example, a request might be denied if someone else from the department is already off that day. Unlimited PTO doesn’t mean it’s free of restrictions.
  • Establish communication policies: Explain how employees should communicate with the team to let them know about their absences. This might include ensuring coverage for certain work duties while they’re gone.
  • Discuss the length of each time-off request: You might limit how long each time off period can last, such as one or two weeks, or you might require special approval for anything over a week. This can help prevent abuse and ensure employees get their work done.
  • Set minimum time off: If you worry that your employees won’t take much time off, set a minimum amount of time each employee has to take.
  • Create a tracking system: Determine how you’ll track vacation time and when you’ll run reports to manage the unlimited time off.
  • Establish abuse investigation processes: Describe the process you’ll take if you suspect someone is abusing the unlimited vacation policy, including the investigation process and consequences.
  • Check for compliance: Time off requirements vary by state. Review the applicable laws in your state when creating your policy. Have a lawyer review the policy before you implement it to ensure it doesn’t violate any laws. 

Convincing employees to take unlimited vacation days

More employers are realizing that productivity doesn’t come from hard work alone, it also comes from a balance of work and time off from work. Besides implementing new policies, employers should foster a shift in their company culture to one that places a high value on employee happiness and engagement.


While it might seem counterintuitive, companies that want to boost employee engagement should encourage workers to take time off. Convincing employees to work less might seem like an easy task, but many are reluctant to unplug. An Indeed survey of 2,000 full-time employed adults in the U.S. found that 59% of employees said they do work-related business while on vacation, and 20% didn’t take a summer vacation.


Ensure your employees understand your reasoning for switching to unlimited vacation time. Let them know that you want them to use vacation time, and ensure your managers send the same message. If managers complain about their employees taking time off, they might be less likely to use vacation time in the future.


Establishing a minimum amount of time that employees have to take off each year can ensure everyone gets the break they need.


Preventing abuse and keeping up productivity

Offering an unlimited time-off policy won’t work for every company. It takes resources and a commitment to make it work for employees who wish to access it. Employers should ensure that their company is ready before implementing an unlimited vacation policy.


Here are some things to consider:


  • The company culture must be employee-focused. The shift from a traditional vacation plan to one that is open and unlimited has to be supported by a culture that is trusting and values employee autonomy. If morale is low, employees are more likely to abuse the system.
  • There should be good manager-employee communication. Unlimited vacation doesn’t mean unplanned vacation. Supervisors and HR must have open lines of communication with employees to ensure that vacations are requested with ample lead time. As with a traditional policy, vacations must be appropriately staggered and scheduled, so they don’t hamper productivity.
  • Encourage employees to take time off. Many employees feel guilty about asking for time away from work. If employees haven’t taken time off in a while, managers should ask how they’re doing and whether a break would be beneficial.
  • Lead by example. Senior staff members need time off just as much as subordinates. They can help encourage employees to take vacations by taking time off themselves. Once employees see that business still hums along even when managers are out for a while, they’ll be more inclined to do the same.
  • Talk about the issue frequently. Executives and managers should educate employees about the company’s vacation policy and its benefits. Managers should help workers understand that the purpose is to help them maintain a healthy work-life balance and that they trust them to decide how much time off is necessary to stay productive while investing in self-care.

Unlimited vacation FAQs

The following frequently asked questions about unlimited vacation time can provide you with more information about unlimited time off.


What happens if someone takes advantage of unlimited time off?

Having a clear unlimited PTO policy should prevent most abuse. Your policy should cover the requirements for taking time off, as well as a standard disciplinary action plan that’s followed if employees don’t adhere to your PTO policy. For example, if an employee fails to request time off through your established method or doesn’t show up for work, you can follow that discipline plan. Your policy should also state that employees can take as much time off as they want, as long as their work gets done.


Do you have to pay for vacation time when an employee leaves?

State laws vary regarding paying for vacation time when an employee leaves. You shouldn’t have to pay out any vacation time to departing employees with unlimited PTO because your employees don’t accrue PTO. It’s important to review state laws regarding employment to understand your obligations.


How do you transition to unlimited PTO?

You’ll need to decide how to handle the accrued time off that your employees have already earned when you switch. Your state might require you to pay for that time. You can pay employees for the accrued time when you start the unlimited plan, have employees use accrued time before you switch or pay it when the employee leaves the company.


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