What is unlimited PTO and how does it work?

I remember the first time I saw “unlimited PTO” as an employee benefit on a job posting. I thought to myself, “That’s a thing?” But if you browse LinkedIn or other job boards today, you’ll likely run into unlimited PTO across many job descriptions. 

In the last decade or so, unlimited PTO has become a staple benefit offering for many employers, namely tech companies. More and more employers are embracing an unlimited PTO policy. And to some degree, it’s become somewhat of a staple offering for many organizations. 

According to MetLife’s 2019 Benefit Trends survey, it’s what employees want. In fact, 72% of employees want unlimited PTO. But at the same time, many employees aren’t taking much time off. In fact, 37% of employees do not use all of their PTO each year.

Is unlimited PTO worth it for organizations to adopt? How does unlimited PTO actually work? What are the pros and cons of unlimited PTO? And what can organizations do to create a policy that has a positive impact? 

What is unlimited PTO? 

Before we get into the benefits and drawbacks of unlimited PTO, let’s understand what it means. 

As long as they keep up with their workload and manage their time effectively, employees can take the time they need without the traditional caps we usually see with paid time off policies.

While unlimited PTO may sound simple, it has some layers of complexity. The phrase unlimited PTO has become somewhat of an HR buzzword, especially for talent acquisition purposes. 

Every company treats its PTO policy differently — and that still holds true if they have unlimited PTO. 

How does unlimited PTO work? 

Not all unlimited PTO policies work the same. If you ask HR professionals at different organizations, you’ll likely return different answers. 

But generally speaking, unlimited PTO works like this. Most organizations have some sort of human resources management system. Sometimes, that’s in the form of a performance management tool. Or it could be a workforce management system.

Regardless, there’s a system in place that requires employees to submit for time off. While unlimited PTO lends itself to the idea that employees can take time off whenever they’d like, that’s not likely the case. Employees still need to request time off through their manager. Upon manager approval, employees can take their requested time off. 

The policy operates on some level of trust that employees won’t abuse the system. For example, we have a flexible time-off policy at BetterUp with no real “limit” to how much PTO we get. But if I started requesting PTO every other week for a week at a time, my manager would start to wonder what was up. 

In many policies, there’s either an inherent understanding of guidelines or even more formally communicated "unwritten rules." While they can take off as much time throughout the year as necessary, it shouldn’t come as a sacrifice to their work and contributions to the company. 

Still, that trust can be empowering for employees. It means employees are put in a position of making decisions on how they allocate their time.

Why do companies offer unlimited PTO?

Unlimited PTO is a bit of a gnarly policy to unpack. Given its complexity, you might wonder why so many companies are starting to offer unlimited PTO to begin with. 

The truth is, the benefits for both employees and businesses are impressive. Studies show that employees who take PTO experience lowered stress, are more productive, and are happier at work. This is likely unsurprising. But these benefits all roll up into employees better meeting business goals and objectives, staying in their roles longer, and recommending their companies to other talented individuals.

Let’s take a closer look at the benefits of unlimited PTO, and its drawbacks.

3 advantages of unlimited PTO

It shouldn’t be a surprise that unlimited PTO comes with some pros. But some of the benefits of unlimited PTO might be surprising. Here are three benefits of unlimited PTO: 

It can help save your organization money 

Sounds counterintuitive, right? How would unlimited time off actually help cut company costs?

I once quit a job with about a week-and-a-half of unused PTO. When I quit my job, my former employer had to pay out every day of unused PTO. It’s costly for companies to operate. 

A lot of companies with fixed time off pay for each allotted day. That means when employees have unused vacation days in their pocket when they leave, they can cash out. 

However, if your company uses unlimited time off, there’s no risk of having to pay back those hours when employees choose to leave the organization. 

It helps with recruiting 

Let’s say you’re in talent acquisition. You’ve been recruiting a candidate for a couple of weeks now, and you’re getting close to making an offer. This candidate has been with their current employer for nearly five years. The candidate has accrued more than two months of PTO in those five years. 

But your organization doesn’t have an unlimited PTO policy. You can only offer the candidate three weeks of accrued PTO. The candidate would accept the offer if only your company matched their current PTO balance. 

But with unlimited PTO, the negotiations about time off are a thing of the past. Especially in this war for talent, it’s important to lessen as many barriers to acquiring new talent as possible. 

It builds trust with employees 

The phrase “unlimited PTO” suggests freedom, independence, and flexibility. It puts employees in charge of their time and how they spend it. 

When an employer operates with trust, both the company and the employee benefit. The employee feels a sense of autonomy and ownership while the employer is placing trust in the employee.

Employers should operate with trust and understand that most employees aren’t going to take advantage of the system. 

3 downsides to unlimited PTO

Like most other HR programs and benefit offerings, unlimited PTO can come with its drawbacks. According to Forbes, it could bring some negative consequences. Here are three things to consider if you’re thinking about adopting unlimited time off. 

Employees may take less time off 

Some employees like structure and clear direction. The idea of unlimited PTO is inherently ambiguous. It can cause confusion and even discomfort around how to best use the policy. 

And because employees are human beings, every employee will react to the policy differently. Some might be afraid to take too much time off for fear of appearances. After all, they don’t want to look like they’re abusing the system, especially if colleagues aren’t requesting as much time off as them. 

Statistically, we know from data cited above that employees with fixed PTO banks aren’t using it all. But without the Inner Work® and the time to recharge, employees’ mental fitness and well-being will suffer. It’s important that employees are taking the time they need away from work to do their best work, as backward as that may sound. 

Our data shows that Inner Work® has the potential to transform companies. Employees who practice Inner Work® are happier, more satisfied and productive, and more likely to stay with the organization. 

It can create tension and resentment between colleagues 

I once had a manager who commented on everyone’s time off behaviors. 

Whenever an out-of-office auto-reply hit their inbox, I’d hear, “Wow, they’re on vacation again?” or “They sure do take a lot of time off.” In team meetings when discussing upcoming PTO, they’d comment passive-aggressively on a teammate’s upcoming time off. “Oh, one of your patented three-day weekends again?” 

As a direct report to this manager, I was hesitant to ever request time off. Even though my former employer offered an unlimited PTO policy, there was always an air of judgment or resentment around vacation time. 

Without proper guidance or training around the unlimited PTO policy, it can create conflict among colleagues. And in return, it can actually break down psychological safety and trust. 

That’s why it’s so important to make sure employees (especially managers) understand the importance of Inner Work®. It’s also important to invest in manager development. Make sure leaders are modeling inclusive behavior that fosters a thriving company culture.

Without this aspect, an unlimited PTO policy could breed tension. And the tension between employees leads to distrust, poor performance, and decreased engagement. 

There’s a risk of PTO policy abuse 

This is a relatively rare drawback but a concern nonetheless. There’s no guarantee that an employee won’t abuse the unlimited time off policy. 

However, many unlimited PTO policies still hinge on manager approval. The manager's approval serves as a good buffer to make sure employees aren’t abusing the system. 

3 companies that offer unlimited PTO

Nowadays, there are plenty of companies offering unlimited PTO. We’ve identified a handful that has seen impactful results. 

Netflix 

Netflix has been at the forefront of disrupting traditional HR policies. The company’s unlimited PTO policy is no exception. 

Reed Hastings, co-CEO, recalled an interaction with an employee in his book called No Rules Rules. “We are all working online some weekends, responding to emails at odd hours, taking off an afternoon for personal time. We don't track hours worked per day or week. Why are we tracking days of vacation per year?” 

Since then, Netflix has offered unlimited PTO. 

LinkedIn 

Another company known for its stellar benefits, LinkedIn offers unlimited PTO. LinkedIn practices Inner Work® in the form of what they call “InDays” and also offers 17 paid holidays per year. 

Chegg 

Chegg is another organization with unlimited vacation time. But the company reported employees are reluctant to use it, especially during the pandemic. Recently, Chegg gave its employees mandatory time off to ensure people were using their unlimited PTO. 

4 key tips for a successful unlimited PTO policy

So, you’re ready to start building an unlimited PTO policy. Here are four tips to keep in mind to make sure it’s successful. 

• Examine and align the policy with your company's core values. At BetterUp, we’re champions for Inner Work®. We know Inner Work® is a must-have, not a nice-to-have. And because this aspect of the human experience is embedded in our organization, we know that any policy around vacation or time off should keep this value in mind. 
• Establish (or ensure) a psychologically safe work environment. Employees who are fearful to take time off won’t help your time off policy be successful. In order for the policy to work well, your organization needs to establish trust.
  
  Psychological safety is the bedrock for trust in any organization. Make sure you’re investing in the psychological safety of your employees. This includes providing access to resources like coaching to help unlock human potential. 

• Communicate the policy clearly — and be open to questions or concerns. For the most part, humans aren’t very good with ambiguity. It can be difficult to parse out what’s accepted, what’s not, and what the “model” behavior should look like when it comes to unlimited PTO.
  
  Make sure your HR team is prepared for questions and concerns. Your HR team should be able to serve as a guide for managers and employees alike. This requires some extra support for managers, especially if your policy requires approval.
• Check-in and gather feedback. Once the policy is launched, make sure to continue to nurture it. Ask your managers how it’s going for them. Gather feedback from employees. Where can you improve your internal communication? How are you adjusting for feedback received?
  
  For example, BetterUp has a flexible time-off policy. But we realized many employees weren’t using it to its fullest. In a recent meeting, our CEO essentially asked all employees to take a minimum of two weeks of PTO a year. We also implemented two-and-a-half weeks for Inner Work® a year.
  
  This action was a direct result of feedback received from employees. Follow up on feedback with action. Your employees will thank you when you do. 

Get your out-of-office ready 

Vacation policies can be difficult to navigate. But the reality is that time off can be an effective tool to combat burnout and help support work-life balance. 

Traditional PTO policies are phasing out. The amount of vacation employees take is generally less than what’s being offered. But we know from data that time away from work (especially in the form of Inner Work®) can have incredible benefits. 

Are you ready to re-examine your company policy? How many weeks of vacation did you take in the last couple of years? Did you get time off during the pandemic? What does employee burnout look like in your company? 

With an unlimited number of vacation days, your company can start prioritizing employee well-being and mental fitness. It’s more than just a perk. It’s a retention strategy.