PTO: To Infinity and Beyond

Critics of unlimited paid time off (PTO) policies often believe this flexible approach will create havoc across the company; employees will take advantage of this generous benefit and it will be difficult to get work completed as a result. The research suggests otherwise. The results of a study conducted by Namely showed employees with discretionary vacation end up taking less time on average than those with a traditional policy. This hesitancy may be a byproduct of the uncertainty around what is a “fair” number of days to take without seeming overzealous. Or the low usage may stem from time off being less valued in an “always-on” culture, where you are expected to respond quickly and jump on client, calls no matter the day of the week. In short, employees tend to not be the ones upsetting the vacation apple cart. Companies considering a change to this unlimited approach should look at two key resources to determine if they are prepared to support a change of this caliber: the time off policy and employee performance goals.

An “unlimited” PTO benefit works best when guidelines, instructions and restrictions are in place ahead of time. As a best practice, companies should outline details of the policy in writing. A well-defined policy will include details such as coordination of benefits between related policies, including short-term and long-term disability. It will also include instructions on what criteria must be met for an employee’s time off request to be approved. Will requests be denied if multiple employees ask for time off on the same day as a client event or deliverable? How much advance notice is needed for time off requests to be considered? And most important, what specific performance targets must be met?

An “unlimited” PTO policy can run amok if employees do not have clear performance goals tied to meaningful metrics. While a policy lays out the black and white criteria, a good manager is needed to interpret the gray areas. Managers must work with their direct reports to set meaningful and realistic goals at the beginning of the year. Since strong performance is central to this type of paid time off, leaders must be adept at having tough conversations with individuals whose performance is slacking. Goals with a quantitative metric may be easier to evaluate when considering time off requests since there is less subjectivity. As a result, certain cultures and environments may be a better match for a policy that is strongly influenced by goal attainment.

An “unlimited” time off benefit can be a flashy incentive when recruiting new employees. However, the benefit must be supported by a thoughtful policy and meaningful performance objectives to be successful. Additionally, companies can be proactive in their messaging around the value of time off since it is well known that non-prescriptive vacation benefits are underutilized. Employees may be more inclined to take a day or week off if they see that their company understands the need to step away from work.