The Pros and Cons of Unlimited Paid Time Off

Keen to attract and retain the best talent, many businesses are expanding the range of benefits they offer to employees. Aside from the usual free gym memberships and flexible working options, many businesses are implementing more radical policies, such as unlimited annual leave for employees. Although this may seem like an appealing prospect for most workers, in actuality unlimited PTO may cause more issues than it solves.

What is an unlimited holiday policy?

In essence, an 'unlimited PTO' policy is exactly what you'd imagine; employees have no set annual leave allowance, and can take an unlimited amount of days off, in theory. The caveat to this of course, is that all of their work duties must still be completed to a high standard. Holidays still need to be tracked and recorded in a leave management system as they would usually, even if there's no limit in place.

What are the benefits of having unlimited annual leave?

In businesses offering unlimited annual leave, an employee's performance is measured by the quality of their output, rather than the number of hours spent at their desk. This policy encourages employees to take ownership of their own schedule and productivity, resulting in higher quality work and loyal employees. Employees may also feel more rewarded for hard work and successful projects, as they're able to take time off afterwards to recharge and celebrate.

As employees are able to take time off as and when they need, they have greater flexibility to control their own work-life balance. Unlimited PTO doesn't just allow time off to take luxury holidays; the scheme gives room for parents to take more leave when needed during school holidays to save on childcare costs, or take time to destress and prioritise their mental health. The focus on a good work-life balance is particularly important when hiring for the new generation; millennials and Gen-Z workers value this more than previous generations of workers, and a company's dedication to good work-life balance can often be a deciding factor when candidates have multiple job offers to choose between.

Across the board, more annual leave is a highly requested benefit, with UK research showing that over a quarter of employees would value an increased allowance for additional holidays or sabbaticals over a pay rise.

What issues are caused by unlimited paid time off policies?

In the UK, employees can be assured that they are still legally entitled to a minimum 28 days off (5.6 weeks) regardless of their employer's own policy regarding additional annual leave. However, in countries like the US, there is no statutory entitlement to paid holidays at all. Where employers offer 'unlimited' paid leave, but don't set down a minimum amount of days to be taken in writing, employees can be left with no legal right to any time off, and it's unlikely they'll be paid for any unused holidays when they leave a company.

Generally, responsibility for approving leave requests in businesses that have no fixed limit falls to management, who must assess whether the time off will affect the rest of the team or limit an employee's ability to complete all the duties expected of them. Introducing a human element in the decision here can cause interpersonal issues, and can lead to different teams taking drastically different amounts of time off, depending on their managers own personal stance. Instead, traditional annual leave policies where a set number of days are allocated to all staff members (or policies where annual leave allowance increases incrementally with years of service) can be applied across the board fairly, removing any concerns about favouritism and avoiding conflicts.

Although most business owners may be concerned that removing their PTO limit will cause employees to take off excess time from work, many companies find the opposite in practice. With no set limit to abide by, employees can become concerned that they're requesting too much time off and worry that management may view them as less dedicated to their work, compared to colleagues who request less.

How does it work in theory?

In theory, unlimited paid time off plans tend to see employees requesting less leave overall. In a study of US businesses, employees who had unlimited leave took an average of 13 days - compared to 15 days by those on the traditional paid time off plan.

Many businesses who have implemented or temporarily trialled a 'UPTO' scheme have reverted back to a more traditional limit, such as recruitment firm Unknown. The firm found that the number of days taken by senior members set the tone for others, with no one exceeding the usual 21 days (plus bank holidays) despite theoretically having no limit. As a solution, the business now offers a generous 32 days in addition the UK's 8 permanent bank holidays, in the hopes that employees will feel more comfortable using their holiday allowance to it's fullest.

Overall, whether it's a good idea to implement an unlimited annual leave allowance for your staff will depend on your company's existing culture, staff relationships with management, and the nature of your business. Although a UPTO policy may not be the best fit for all, more flexible working options, additional holidays and annual leave 'purchase' schemes can still improve staff morale and retention - helping your business thrive in the long run.