(This article originally appeared in The Guardian)
“Unlimited paid time off? Are you kidding me?”
That’s what I usually hear when I suggest this type of benefit to my clients. When an employer, particularly a small employer, hears “unlimited” they automatically think that their employees can be paid all year for doing nothing.
Of course that’s ridiculous. Unlimited paid time off (PTO) plans are becoming a “top emerging benefit” according to a 2019 study by the insurance firm MetLife and are already a significant part of the benefit offerings for many larger corporations. Some 72% of the 2,675 full-time employees surveyed in the MetLife study expressed interest in receiving unlimited paid time off.
As the economy recovers and people return to the workforce, small businesses will be competing with larger organizations for talent. We will need to offer competitive benefits in order to attract the best talent. And an unlimited PTO plan should be one of those benefits. Why? Because it’s not only attractive, but could actually save a small business owner money. Yes, you read right: save money.
But before we get to the savings, let’s talk about the appeal.
Employees, particularly younger workers and millennials who make up about half of today’s workforce, crave more work/life balance, flexibility and independence. They see that companies such as the electronics firm Sony, marketing software platform HubSpot and accounting firm Grant Thornton offer unlimited PTO plans. These workers are attracted to the idea of being able to choose when and how long their vacations can be. It makes people feel more in control of their lives and it also gives them a very favorable impression of a prospective employer when plans like these are offered. People want these benefits and offering them will help a small business owner attract more and better workers.
And yes, these plans cost less. According to a 2018 study by the HR platform Namely, employees surveyed working at companies with unlimited vacation plans actually took fewer days off on average compared with those working at companies with more restrictive plans. “Depending on how an unlimited PTO policy is put into practice, it often benefits employers more than the employees,” Rachel Bolsu wrote on the company’s blog.
Of course, better communications may bump up those numbers and we need to make sure our people are aware of the benefits available to them. But there’s something psychological going on when an employee has to choose their time off rather than an employer choosing for them. People, by nature, don’t want to be missing out or they’re concerned that they’re taking advantage. It’s why a 2010 Center for American Progress study found that a lot of employees believe taking too many days off work would cost them bonuses, promotions and even their jobs.
Another advantage for employers is that, depending on how your plan is constructed, you may not have to pay out for any unused vacation time when you offer unlimited PTO like you would for a traditional use-it-or-lose-it plan. Why? Because how in the world can you even calculate unused vacation when an employee has “unlimited” days available? Some courts have already agreed with this position.
A California court case in 2020 found that employers are exempt from this liability if, for example, their plan “clearly provides that employees’ ability to take paid time off is not a form of additional wages for services performed, but perhaps part of the employer’s promise to provide a flexible work schedule.”
Finally, an unlimited PTO plan doesn’t have to apply to everyone. There’s nothing stopping a small business from having multiple vacation plans. For example, you can have an unlimited PTO plan for senior managers or people that have worked for your company for a number of years and then a traditional use-it-or-lose-it policy for your other workers. You can design the plan any way you like.
By the second half of 2021 we’re going to be back to complaining about how hard it is to find workers. Companies in construction, manufacturing, shipping and warehouse operations are already having these challenges. Small businesses are at a particular disadvantage when it comes to attracting good talent, due to our lack of resources when compared with our larger counterparts.
So don’t say “are you kidding me?” when an unlimited PTO plan is suggested. It may be the key benefit you need to win over that valuable employee. And it may also be less expensive than the vacation plan you’re currently providing.