(This column originally appeared in The Guardian)
Last week Microsoft Corporation joined a growing number of companies around the country by announcing that it was now offering an unlimited paid time off (PTO) plan to its employees.
“How, when, and where we do our jobs has dramatically changed,” a company HR executive explained in a memo. “And as we’ve transformed, modernizing our vacation policy to a more flexible model was a natural next step.”
This makes sense and not just for Microsoft and other big companies. Unlimited PTO should be considered by every business, big and small. My small business offers it. And I have a number of clients who do the same.
Along with health insurance and retirement benefits, companies that offer generous vacation plans are the ones that are meeting today’s workers’ needs. There are many recent studies — like this one from the Society for Human Resource Management — that have shown that flexibility, four-day work weeks, remote working arrangements and generous vacation plans are in high demand. Telling a prospective employee that your company offers unlimited PTO is a powerful recruiting tool, particularly in this tight labor market. My clients complain to me frequently about their inability to find good workers. This is a great way to help alleviate that problem.
And yet, whenever I bring up the topic of offering unlimited PTO to them I usually get the eye roll. I understand why: the typical small business owner in this country is over the age of 50. To us, unlimited PTO sounds like an over-the-top demand dreamed up by those lazy, good-for-nothing younger workers. Which, of course is untrue. Regardless of how one feels about the younger generation of workers, today’s business owners have to accept that work-life balance is a critical benefit and ignoring that can be damaging.
But even if that argument fails to kindle interest I always raise this point to my clients: offering an unlimited PTO plan can not only help attract better talent, it can — ready? — also help reduce costs. Now that gets their attention!
For starters, offering more time off doesn’t increase an employee’s cash compensation. So when I read that, thanks to inflation, the typical salaried employee saw more than a 7% increase in pay this year, I see an unlimited PTO plan as a way to stay competitive without spending more cash. You may say that paying money to someone who isn’t working is a cost but not if your job descriptions are better aligned with deliverable results rather than hours incurred. This depends on the job, of course. But for many positions it’s an achievable goal. At the very least, an unlimited PTO plan will cut back on the burden of administering (and refereeing) vacation, sick time, family leave and other absences.
Unlimited PTO plans save money in other ways. Recent studies like this one from HR platform Namely have shown that companies that have offered unlimited PTO plans actually find that their employees take less time off than under a traditional use-it-or-lose-it plan. People have Fomo and, if left up to their own devices, don’t want to be perceived as slacking. This isn’t great from a mental health perspective, but putting that aside it certainly offsets the debate that offering more vacation days is a cost to a company.
Another cost savings has to do with when an employee leaves. Under most traditional plans, unused vacation days are usually paid out when an employee departs, with many states requiring the practice. But, other than California (surprise!), most states don’t require employers who offer unlimited PTO plans to do this because, well, how do you figure out unused vacation days when there’s unlimited vacation? So that’s another cost saving.
An unlimited PTO plan can save money. It can help attract better workers. It just has to be designed and implemented the right way. My clients who have succeeded with these types of plans have designed them with a very important premise: to be eligible for such a benefit, you have to earn it.
Your business can have more than one PTO plan depending on the employee level. A traditional use-it-or-lose it plan could be available for lower-level, less tenured workers. But, after being with the company for a period of time or demonstrating some other type of accomplishment, an employee can then be eligible to participate in an unlimited PTO plan. It’s a performance and loyalty carrot. And, even then it can’t be abused. That’s because my smarter clients don’t allow any employee to take vacation whenever or for as long as they want. It still has to be approved in advance by a supervisor. That puts the ultimate control over potential misuse.
I’m always surprised when, after I make these arguments, many of my clients still don’t consider offering an unlimited PTO plan. As long as it’s implemented correctly, it can be a powerful recruiting tool and a potentially significant cost saver.