Unlimited PTO: Perk or Peril?

Unlimited PTO: Perk or Peril?

In the midst of the current “Great Resignation,” employers are trying to devise new ways to entice talent to stay with them. Companies are increasingly exploring the option of providing unlimited paid time off (PTO) as one strategy.

Unlimited PTO sounds quite enticing. An employee can take as much vacation time or time off as they want and not have to deal with PTO banks, accruals, etc. For businesses, unlimited PTO provides one less administrative matter to track. Unlimited PTO is also a cost-saving technique. If an employee does not accrue vacation, then there is no need to pay out unused vacation days at the end of the employment relationship.

However, despite all the “positives,” unlimited PTO is generally not something I advise my clients to implement. If they do, they must tread carefully.

The Pitfalls of Unlimited PTO Policies

Not having a cap on PTO means that employers generally do not have to track employees’ time off. However, many cities, counties, and states have now implemented laws mandating particular amounts of sick leave for workers, meaning employers must track employees’ work time. While an unlimited PTO policy generally complies with most of these laws, the benefit of not having to track time disappears. Moreover, tracking PTO becomes important in order to properly pay wages and applicable overtime to non-exempt employees, whose wages are paid hourly.

Unlimited PTO can also intersect with other sorts of workplace leave laws, such as the Family and Medical Leave Act (FMLA). The FMLA allows employees to take up to three (3) months of job-protected leave. Employees may misunderstand an unlimited PTO policy to allow them to take as much time off as they want for purposes covered under the FMLA. And if employees fail to follow FMLA policies and procedures, it could create the appearance that the employer has not in fact made good-faith efforts to comply with the FMLA, opening the company to potential legal liability. Simply put, a carefully drafted policy is critical.

Further, indefinite PTO does not work for every business or position. Unlimited PTO makes sense for businesses in which performance is mostly based on deliverables with clear deadlines. However, an employee’s attendance is critical to their duties in many businesses, particularly in service-oriented roles. Offering an unlimited amount of PTO could harm an employee’s overall performance record, not to mention the business itself.

Even when unlimited PTO is a good fit for a business, the way it is administered can lead to conflicts, and even potential liability. Generally, a manager will wield more power in being able to approve or deny leave under an unlimited PTO policy, as opposed to under a policy of an accrued bank of leave time. inter-office relationships can result in favoritism, or simply the suspicion of treating some employees better than others. Such a situation can give rise to inequities, potentially forming the basis of discrimination claims.

Some managers, who choose not to take any leave, may send the wrong message to employees, making them more self-conscious about taking leave, resulting in burnout and potentially resentment toward the workplace. Employers also run the risk that some employees will abuse the policy, taking excessive amounts of leave, which the employee is “technically” allowed to take.

A Clear Policy is Crucial

It is important that employers who decide to offer unlimited PTO have a carefully drafted PTO policy which spells out the rights and obligations of both employer and employee. It is essential that the policy be clearly communicated to employees so that employers avoid the risk of litigation. Managers should also be well trained on the policy and how to properly and equitably administer it.

Employers should always consult legal counsel on any transition to an unlimited PTO policy, as such a decision could carry many legal ramifications, including unintended non-compliance with federal and state wage laws.

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