Is An Unlimited Vacation Policy Right For Your Business?

Unlimited vacation policies (also known as discretionary time off or unlimited PTO policies) have become increasingly popular as companies are constantly looking for new ways to attract and retain high quality employees. Companies such as Netflix and Virgin have led the way by adopting and implementing unlimited vacation policies which remove the restrictions of a set number of days (vacation, sick, etc.) an employee can take paid time off from work.

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Could an Unlimited Vacation Policy Work For Your Company?

Unlimited time off policies can benefit both employees and the bottom line, but is it the right fit for your business?

Before adopting an unlimited vacation policy, your company should weigh the benefits and pitfalls listed below. Furthermore, it’s important for a company to determine if such a policy would be a good cultural fit as well. The graphic to the right is from the Society for Human Resource Management (SHRM) and includes some great tips for deciding if an unlimited vacation policy is right for your company.

Benefits

• Empowers your employees by giving them the flexibility to create their own schedule and sends the message that you trust them to manage their own tasks and responsibilities.
• Can give your company a competitive edge when recruiting and attracting top-talent.
• Can result in less administrative work for the company as it relates to tracking time-off requests and vacation accrual balances.
• The lack of vacation accrual means you do not have to report a liability on your books and you can potentially avoid large PTO accrual payouts when employees leave the company.

Pitfalls

• Employees may be covered by State Disability Insurance and/or the Paid Family Leave Act, which would allow the employee to take paid leave, if eligible. This could lead to abusive activity against the company’s policy to the disadvantage of the company.
• If you convert to an unlimited vacation policy from another type of PTO policy, you may need to pay out your employees their accrued PTO to-date. This could be a heavy cash flow hardship for the company and should be considered before making a policy change.
• Each state has different laws and regulations regarding accrued vacation that may make unlimited vacation policies unlawful. These should be looked at prior to implementing a new policy.

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Implementing an Unlimited Vacation Policy

Before determining whether your company should adopt an unlimited vacation policy, the current PTO policy, size of the company, and future of the company should all be considered. If you do decide to make the switch, we strongly suggest consulting your legal counsel to assist in writing and creating your policy to avoid any legal woes in the transition.

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