In this post, we will discover how unlimited paid time off (PTO) works and what the pros and cons of an unlimited vacation policy are.
As the world of work continues to evolve, companies are constantly evaluating how they can create a healthier, more productive, and generally more appealing workplace culture.
One corporate benefit growing in popularity is the unlimited vacation policy. According to Indeed, job postings offering unlimited time off increased by 178% between May 2015 and May 2019. Netflix, LinkedIn, Zoom, and Twitter are just some of the big names leading the way with unlimited vacation, and we’re now seeing the trend spread well beyond Silicon Valley.
But is an unlimited vacation policy really a good corporate benefit? Is it bringing us closer to the coveted work-life balance, or does it actually have the reverse effect? And who really benefits — employees or employers?
Let’s take a look.
What is an unlimited vacation policy, and how does unlimited paid time off work?
An unlimited vacation policy allows employees to take unlimited paid leave, for any reason. There is no annual cap, and employees do not accrue unused vacation days at the end of the year.
Although they’re all about giving employees maximum flexibility and autonomy over their time off, there is usually still a request and approval process in place. And, of course, such policies are based on the understanding that each employee will manage their own time off in a way that doesn’t affect their ability to do their work and achieve the results that are expected of them.
However, unlimited vacation policies are often seen as a bit of a gray zone — especially for employees, who can worry that taking too much time off will be perceived negatively by their managers and coworkers. This raises the question as to whether an unlimited policy is really a good corporate benefit, or if it actually makes it harder for employees to take time off.
Let’s consider the pros and cons of unlimited paid time off.
The benefits of an unlimited vacation policy
If implemented successfully, an unlimited vacation policy holds several benefits for both employers and employees alike.
It can save your company time and money
On a very simplistic level, introducing an unlimited vacation policy can remove some of the admin associated with traditional, limited policies. Not having to monitor or calculate the number of days taken by each employee could save your HR team up to 52 hours a year. And, because employees aren’t accruing any unused vacation days, there’s nothing to pay out when they leave.
However, when considering this benefit, bear in mind that an unlimited vacation policy isn’t inherently admin-free. You’ll still need to figure out a request and approval process, as well as clear guidelines around how the policy works.
It can boost productivity and promote a healthier work-life balance
Research has consistently shown that taking time off helps to boost employee productivity. So, if embraced by your employees, an unlimited vacation policy can make it easier for them to take time off and get the rest they need — meaning they’re more productive during work time.
Studies have also shown that unlimited paid time off can be linked to higher job satisfaction and a healthier work-life balance. One such study, a survey of over 1,000 working professionals in the United States conducted by Joblist, found that 61.9% of employees who have unlimited time off reported a healthy work-life balance (compared to 53.4% of those with a 2-week vacation allowance per year).
It’s great for recruiting and retention
In the wake of The Great Resignation, companies who want to recruit and retain the best candidates will need to make sure their benefits packages are up to scratch. An unlimited vacation policy can work wonders when it comes to attracting and keeping employees.
In fact, unlimited paid time off is frequently cited as one of the main reasons people choose to start a new job. This goes hand-in-hand with a growing desire for flexibility, with one study finding that 63% of employees believe that flexibility would make them feel more empowered.
It helps to establish a culture of trust
When you introduce an unlimited vacation policy — and truly stand by it — you’re sending a clear message to your employees that you trust them, and this has great benefits for the workplace. Research has shown that employees working in a trusting environment are more productive and engaged, and feel more valued by their employers. That’s the kind of workplace culture you want to be building, and an unlimited vacation policy could help you to do so.
The potential downsides of unlimited paid time off
For all its benefits, there are also some potential drawbacks when it comes to unlimited paid time off.
It may actually discourage people from taking time off
This is one of the most-discussed drawbacks of this policy. While you might think that it leaves the door wide open for employees to take advantage, the opposite is often true. One study found that, on average, employees with unlimited vacation plans took fewer vacation days than those with a fixed annual allowance.
We spoke to one worker, a 35-year-old employed in the property management industry, to gain some insight into why this might be. She stated: “I don’t think it’s much of a benefit to me personally because I’m overly conscious of not taking advantage, which means I probably don’t take as much paid leave as I might do otherwise.”
This is one example of how an unlimited vacation policy can backfire, actually discouraging people from taking time off and, as such, impacting their productivity and engagement in the long-run.
It can be too much of a “gray zone” and create confusion
So why is it that it can have the adverse effect of people taking less time off than usual? It’s not that workers don’t want time off. Quite the opposite, in fact, with one study showing that 1 in 3 Americans would consider taking a pay cut if it meant they could have unlimited vacation days.
Often, the reluctance to make the most of an unlimited vacation policy is rooted in a lack of clarity around the policy itself. Employees have no idea what constitutes a “reasonable” amount of time off, and so they err on the side of caution for fear of being perceived as taking advantage or slacking off. It can be especially difficult for employees to manage their own vacation allowance if leaders within the company don’t serve as role models for the policy. Even with unlimited vacation days available, most employees will feel hesitant to use them if they don’t see their managers doing the same.
This relates back to the bigger topic of company culture. In workplaces where trust and psychological safety are lacking, an unlimited vacation policy is likely to be a source of apprehension and confusion for employees.
The result? Fewer vacation days, with a knock-on effect on employee engagement, productivity, and job satisfaction.
Is an unlimited vacation policy really a good corporate benefit? The takeaway
Looking at the pros and cons, it’s fair to say that it can be both a blessing and a curse. Whether or not it works as intended will ultimately depend on your existing company culture.
If it’s implemented with trust, clarity, consistent role modeling, and encouragement from leadership, it can be an excellent corporate benefit. In the best case, an unlimited vacation policy serves to boost employee engagement, productivity, job satisfaction, and retention. All big wins for the company!
But, if it’s put in place without clear guidelines and open communication — and if your workplace is already struggling with issues around transparency, trust, and a healthy work-life balance — an unlimited vacation policy has the potential to backfire.
So, when asking yourself if it’s really a good corporate benefit, ask yourself this: Is your company culture set up to empower your employees to make the most of unlimited time off? If the answer is “not yet”, you might want to hold off until you’re sure that it’ll be a benefit rather than a blocker.
Anika Wegner, B2B Blog Editor
Exploring other cultures through language is particularly important to her. That's why she loves writing for Babbel about topics, how companies can benefit from language-learning solutions.