I refuse to adopt one at Stone Press, we have a pretty standard 3 week accrual PTO system.
Unlimited PTO has a few benefits. And I’m going to break all those down, along with the negatives. I’ve worked under and managed an unlimited PTO system in the past so I’ve seen both sides.
I originally tried to put my personal bias aside when I wrote this post.
I just couldn’t do it.
Even the positive parts of unlimited PTO still came out a bit negative, I can’t help but take pot-shots at how the benefits aren’t as amazing as they seem. See for yourself below.
Unlimited PTO Pros
Let’s start with the upside. You’ll see all the benefits by going with unlimited PTO.
Higher Close Rates During Recruiting
Above all else, unlimited PTO sounds amazing. And boy oh boy does it impact recruiting.
This is probably the biggest benefit of unlimited PTO.
You get to tell every prospective hire that they get to take as much vacation as they want! Feeling burned out? Take the day off! Someone in your family schedules a surprise event in another city? Go on the trip! Have a once in a lifetime opportunity to go snorkeling with whales? Go for it!
It’s a fantastic sales pitch. Add it to every full-time offer and your close rates will go up.
You’ll also be able to slam dunk any questions from candidates about work-life balance. “Of course we have work–life balance, you get unlimited vacation!”
There is one exception to this, folks that have worked unlimited PTO often come away with a negative experience. They see first-hand that the reality doesn’t live up to the dream. And they can become quite critical of unlimited PTO. Some of these folks will consider unlimited PTO as a red flag (I certainly do). But for anyone that hasn’t lived with unlimited PTO, it’ll be one of the most notable parts of the benefits package.
One Less HR System to Manage
Traditional PTO systems are a pain. At least initially.
First, you have to decide how all the details work. How much time do people get in total? How fast does it accrue or is it lumpsum? What’s the exact formula? Does it roll over each calendar year? Is there a cap?
All these details really matter, you have to get them right.
Then you have to manage the system. Some HR software will manage it for you but you still have to keep an eye on it. We’ve discovered problems in our tools before and it’s a big deal to get it fixed.
Then there’s the day-to-day management:
- Employees have to understand and keep an eye on their available PTO
- If they want to take time off, they have to log in and put in a request
- The manager has to see the request, log in, then approve it
- HR has to do some periodic monitoring to ensure people are using their vacation and that no one is taking more time off than allowed
It all adds up.
With unlimited, you get to throw all this out the window. There’s no PTO requests, no approvals, no tracking, no monitoring.
Hard to get simpler than that.
Out of the gate, you will save yourself a ton of time by adopting unlimited PTO.
For a small team. If you have 3-7 employees that all report to you, rolling out an entire PTO system could be more trouble than it’s worth.
I believe that unlimited PTO takes MORE time to manage over the long term. More on this below. But you do save more time upfront with an unlimited policy.
Not Having to Pay for Unused PTO
Whenever unlimited PTO becomes a debate on Twitter, Reddit, or any other social site, folks seem to rally around how companies get to save a ton of money by not paying out unused PTO.
Technically, they’re right.
In practice, it’s a minor benefit at best.
So how much do companies actually save by not having to pay out unused PTO?
Under our accrual PTO system, I had our Director of Finance go through our internal data and we’ve found that:
- Folks tend to have 9 days worth of PTO when they leave a company
- The unused PTO tends to be worth about $3,500 per employee
We do have a 3 week accrual cap in our PTO system so PTO balances can’t get crazy large. That prevents any outliers from skewing the system and bringing the average way up. Even so, planning on a payout of $3,500 to cover unused PTO should cover most companies.
In short, companies get to save about $3,500 in one-time costs for each employee if they have an unlimited PTO system.
To me, $3,500 is not that much. It’s a drop in the bucket when we’re talking about recruiting, onboarding, full-time salaries, and turnover.
So yes, companies do get to avoid unused PTO when folks leave since there’s technically no PTO to pay out. But it doesn’t make a dent financially. It’s not material.
Hours Worked Will Go Up
Here’s the crazy part about unlimited PTO: people tend to take less vacation.
It’s unlimited! How do people work more and take less vacation?!
This seems counterintuitive until you’ve lived it. But I guarantee that the overall vacation will go down under your unlimited PTO policy. And overall work hours will go up.
A few things tends to happen at a company with unlimited PTO:
- Many top performers lean towards workaholism to begin with. So they all stop taking vacation since they’re not forced to anymore. Maybe they take a week off each year.
- The top performers set the pace, everyone else sees them not taking vacation.
- Before you know it, a culture of never taking vacation sets in. Now everyone is afraid to take time off.
- Some leaders try to live by example and take a bunch of vacation. But all it takes is one hard-charging, strict manager and everyone in their org will struggle to take enough time off.
Overall, the total number of used PTO goes down with an unlimited PTO policy.
If you’re trying to squeeze every hour of productivity out of this year, unlimited PTO is a good way to do it.
I personally think that’s a horrible way to do business, It’s all short-sighted. If you burn people out this year, that’s less productivity over the long term. But that’s your call.
Unlimited PTO Cons
Now for the cons. I go into a ton of depth in this post but I’ll do a recap here.
Great Employees Will Burn Out
One of my PTO mantras in our company is to make sure folks take enough vacation. I’m not worried about folks abusing our policies, they get sorted out sooner or later. I’m most worried about the top performers that aren’t taking good enough care of themselves.
You could make the case that it’s not my responsibility to make sure people are taking care of themselves. But I’d rather get a few systems in place that support everyone across the company. Here’s the few things that we do to make sure everyone is getting the rest they need:
- We have a 3 week cap on our accrual PTO system. We do this to help nudge people to take vacation. Once they get close to the cap, it’s clear to everyone that they need to take time off. This also makes sure that PTO hoarders don’t have an incentive to keep banking PTO year after year at the expense of their mental health.
- A few times per year, I’ll look through PTO balances and send a quick note to folks on my team that are near their cap. Our HR also does this for the whole company. Takes 5 minutes.
- We prioritize taking time off as an entire company, we currently have 18 paid holiday days, including 2 weeks for our Winter Break. People can truly rest when no one else is working and there’s nothing to catch up on.
Since employees tend to take less vacation with an unlimited policy, they won’t be getting nearly enough rest. Especially the top performers.
First, that top performer will start to disengage. They’ll get frustrated, irritable, and fatalistic. Instead of charging through barriers and solving the unsolvable people, the smallest setback becomes insurmountable.
After a year or so of decline, some event will convince them that the company is irredeemable and they need to look elsewhere. They do a final push, hit the job market, and finally secure a new role. Then they take a bunch of time off between gigs, get the rest they’ve needed, and start the whole cycle again.
It’ll take 2-3 years for this to play out.
This is the downside of having employees not take enough vacation.
I’d rather those folks don’t get burned out in the first place. Not only is it the right thing to do, the happier they are in their role, the more impact they’ll have across the company.
Regular HR Fires Will Eat Up More Time in the Long Run
One of my biggest problems with unlimited is that it turns written expectations into unwritten rules:
- How much is too much vacation? No one knows!
- What if a vacation request negatively impacts someone else at the company? Too bad for them!
- What does a manager do when a weird request comes up? No guidance! They’re on their own!
Employees make assumptions about what’s okay and what’s not okay. Some of them make bad calls. Managers have to make assumptions on how to respond. Some of them make bad calls. And on a regular basis, things get escalated to Leadership since there aren’t any rules and guidelines. Now Leadership needs to have multiple debates about how to handle everything, plus the time needed to carry out whatever the decision is.
Not to mention the opportunity cost. While senior leaders are dealing with PTO, they’re not spending time on the biggest growth opportunities.
Even worse, you won’t be able to codify any of these learnings as you sort out different situations. Since you don’t have a policy to tweak, you can’t address the edge cases over time. So the same issue comes up again in the future as another manager and employee learn the same lessons.
I personally hate systems where the team has to keep running in circles, discussing the same problem again and again. I’d much rather write it down and be done with it.
Yes, unlimited PTO saves a lot more time in the short run. But over the long run, all these vacation issues crop up over and over again. And they require the attention of the most senior people in your company in order to resolve.
How to Decide if Unlimited PTO is Right For You
I recommend these rules of thumb when trying to decide whether or not to adopt unlimited PTO:
- Staying Small: If you’re the size of a single team (1-7 employees plus yourself) and you intend to stay small, you’ll get by just fine with unlimited PTO. You can make sure everyone is taking enough, PTO edge cases won’t come up very often, and not having a PTO system to manage will save you a lot of time.
- A Bit Larger and Comfortable With Looser Policies: Once you’re at the stage with 1-2 levels of management, unlimited PTO can work. I personally hate it but it can work. Just be aware that managers will adopt inconsistent PTO cultures, you’ll have occasional PTO fires, and someone on your team needs to proactively make sure people take enough PTO in order to avoid burnout. If you’re okay with all that and like the benefits of unlimited PTO, go for it.
- Beyond Two Levels of Management: At this stage, I’d get a formal PTO policy in place regardless. To me, things just get way too messy. But it’s your call. Netflix still has unlimited PTO so it can be done.
- One and Done Leaders: If you’re like me and prefer to solve a problem permanently, get a traditional PTO system in place right from the beginning. At Stone Press, we put an accrual PTO system in place the same month that we started the company. We’ve had to tweak things to solve edge cases a few times but once we made those improvements, those problems have gone away too.