The Limits Of ‘Unlimited’ PTO

It is crucial to take a closer look at the benefits and costs of the policy

Unlimited PTO has become an increasingly popular tactic that companies are using to respond to employees’ demands for flexibility and a healthier work-life balance. Major companies such as Microsoft, Salesforce, and Netflix have implemented unlimited PTO policies, and a significant proportion of employees are asking for these policies. There’s just one problem: Employees aren’t, in fact, getting greater flexibility with “unlimited” PTO.
 

When Microsoft announced its unlimited PTO policy, chief people officer Kathleen Hogan said the decision was an effort to “modernize” the company’s approach to vacation and establish a more “flexible model.” But the flexibility offered by unlimited PTO is illusory.  It leads to stress and burnout because employees aren't clear on how much time is approved and the decision is no longer theirs—it’s their managers’.

It often forces employees to take less time away or return back into the office earlier because of the clarity and understanding of what is appropriate. And despite the misleading word “unlimited,” it imposes emotional limits on how much time employees can take without giving them a clear idea of what those limits are.

But the most serious problem with unlimited PTO is the fact that it allows companies to avoid accountability by refusing to track the hours employees have earned and compensating them accordingly. This creates an unequal benefit for employees, as some will see how far they can push the policy and others will take a more conservative approach. These discrepancies will guarantee that some employees aren’t treated fairly and undermine your company culture.

Why Is Unlimited PTO Gaining Popularity?

Over the past several years, employees have experienced sweeping shifts in how and where they work. According to Glassdoor, employee reviews that mention unlimited PTO have spiked by 75 percent since before the COVID-19 pandemic. Microsoft claims that adopting unlimited PTO is part of an effort to meet employees’ evolving needs, and this is how many companies will continue to position their transitions to unlimited PTO.
 
These companies neglect to mention that unlimited PTO cuts into employees’ compensation, as they will no longer receive payouts when there’s a reduction in force or they depart the company for some other reason. It’s true that employees are demanding greater flexibility, and proponents of unlimited PTO are advertising the policy as a way to meet this demand. But employees already struggle to use all their vacation time, which means unlimited PTO is solving a “problem” that doesn’t exist. And it’s creating a new set of problems in the process.
 
It’s easy to see why unlimited PTO would appeal to employees at first glance: a policy that allows you to “take what you need” sounds like a genuine effort to put your interests first. However, it’s even easier to see why companies prefer unlimited PTO: It relieves them of the responsibility to track employees’ hours, sounds generous and attracts candidates, and doesn’t require them to deliver the benefit employees think they’re receiving.

Unlimited PTO Creates and Perpetuates Inequality

When companies transition to unlimited PTO, they’re implementing an ill-defined policy that will be interpreted and used in many ways. This can lead to confusion, tension, and even discrimination, as diverse employees with different circumstances and priorities will behave in different ways. Meanwhile, managers and company leaders will draw conclusions about employees’ work ethic and commitment to the company on the basis of the vacation time they take, which could be skewed by bias and favoritism.
 
Diverse employees already feel like they’re under more intense scrutiny at work, and unlimited PTO will exacerbate this anxiety and create suspicion between colleagues. A survey conducted by PTO Exchange found that nonwhite employees, women, and those in lower income brackets are significantly less likely to use all their vacation time, which is likely a consequence of the unique challenges they face. This gap becomes even more pronounced for diverse employees at companies that have adopted unlimited PTO, as these employees will be warier of how their time off is perceived.
 
Employees vary in terms of temperament, personal financial goals, and a wide range of other variables. This is why companies should offer flexible benefits such as convertible PTO, which allows employees to put the value of their accrued time off toward an array of financial priorities. Unlike unlimited PTO, convertible PTO helps companies meet the needs of all their employees while building a healthier company culture.

How Companies Take Advantage of Employees with Unlimited PTO

Immediately after Microsoft declared that it’s providing employees with unlimited PTO, the company announced plans to lay off 10,000 workers as part of a broader effort to cut costs. This is no surprise, as unlimited PTO is a cost-cutting measure. It lets companies avoid paying out the accrued vacation time employees have earned. States such as California and Colorado require companies to treat accrued vacation time as wages that have to be paid out when an employee leaves, but unlimited PTO allows companies to shirk this responsibility.
 
Companies can reduce their total expenditures when they no longer have to account for PTO and give employees the full compensation they’ve earned. Microsoft employees with unused vacation time will receive a one-time payout in April, a reminder that employees don’t always use the time they’ve earned. If anything, employees have become even more reluctant to use PTO in recent years – a much larger proportion of PTO went unused in 2022 than in 2019. This is yet another reason why employees aren’t the beneficiaries of unlimited PTO policies. Instead of earning vacation time that they will eventually be paid for (or put toward other financial goals), they’re losing that time altogether.
 
With so many companies offering unlimited PTO, it has never been more important to take a close look at the real benefits and costs of the policy. While the word “unlimited” may sound enticing to employees, they should remember that it’s just a word. The policy itself strictly limits how much time they can take, how they’ll be compensated, and how they can put their hard-earned money to use.

Author Bio

Rob Whalen is the Co-Founder and CEO of PTO Exchange.