Commentary: An emerging company policy known as “unlimited vacation” or “unlimited PTO” (paid time-off) is gaining headlines again. The Virgin Group, led by Sir Richard Branson, recently announced that they are running a pilot program of unlimited vacation with the hope of implementing it organization-wide. What is unlimited vacation? Why are companies implementing it? And what are its pros and cons?

To start, unlimited vacation is not a free pass that allows employees to take as much vacation time as they like, nor is it some sneaky way for managers to discourage employees from taking any time off at all. It is a time off strategy that can benefit recruiting, reflect culture and ease administrative burdens. However, if it’s not properly implemented and managed, it can lead to more issues than it aims to solve.

Also see: Top PTO users and losers

Only a relatively small number (~1%) of U.S. corporations currently offer unlimited vacation days. The policy is more commonly implemented at small start-ups but is gaining popularity amongst larger companies as well, including Netflix, Best Buy, Evernote and Motley Fool. Another 2% of companies within the U.S., according to the Society for Human Resource Management, are considering implementing it within the next year. Despite this growing adoption however, not all companies should be encouraged to implement it. Here are a few of its pros and cons:

Pros

1. Saving up vs. recharging. Unlimited vacation is a great way to keep employees fresh and energized. By encouraging employees to take off when they need, employees can consistently stay closer to 100% rather than waiting to spend vacation days in bulk after they have already experienced burnout. Taking smaller breaks can bolster work output and prevent extended stretches that degrade employee happiness.

2. Trust and flexibility. Policies such as unlimited vacation can foster a greater sense of trust and mutual respect between an organization and its employees. Companies who implement unlimited vacation often feel that it is disingenuous to expect employees to immerse themselves in their work and also be able to distinguish between paid time “on” and paid time “off.” The policy also relies on employees to take time off within reason, which extends a certain degree of trust between them and their employer.

3. Reduces administrative work. Companies with an unlimited vacation policy do not have to monitor and track time-off against vacation balances. This can eliminate common issues with self-reporting and aligns policies to the now modern conflation of work and life. Unlimited vacation also frees up time for managers and finance departments by reducing the work involved when an employee leaves the organization since there is no concept of “payouts” for unused vacation time.

4. Being a peacock. Unlimited vacation can be an asset when it comes to recruiting since the benefit is extremely attractive to potential hires. In industries that have adopted a management philosophy of a Results-Only Work Environment (ROWE), where workers are evaluated on the basis of their output rather than the number of hours they work, unlimited vacation aligns that thinking and helps convey the correct messaging to candidates.

Also see: All work, no play – no more

Cons

1. Unequal opportunity. The biggest pitfall with unlimited vacation is making sure that all employees are given equal, time-off opportunities. Everyone cannot be out at the same time. This can be mitigated though good management, but even diligent managers can’t always coordinate everyone’s schedule to properly be fair and effective.

2. Not all jobs are created the same. This policy isn’t feasible for all types of work. Employers with large numbers of employees, for instance, would have a much more difficult time managing and implementing the policy. Organizations with hourly or seasonal workers would in theory lend themselves nicely to implementing unlimited vacation since they need to comply with state and federal wage-hour laws, but it actually becomes burdensome and more difficult to manage productively. Unlimited vacation can also cause issues when deployed at international organizations that operate in countries that have mandatory minimum vacation time.

3. The paradox of choice. It turns out that humans are inherently bad at understanding the concept of unlimited and are often overwhelmed by it. This leads to many employees taking less time off and becoming disengaged at work over time. Studies have shown that this is a very common occurrence, especially within the first year of implementing unlimited vacation. Many people decide not to take advantage of their vacation time because it’s too difficult to figure out the right amount to take. For some, this can be seen as a duplicity that discourages employees from taking any time off at all.

Despite all of the challenges that unlimited vacation creates, it can also become a huge asset if managed correctly. It will be interesting to see how this relatively new concept is adopted and how it evolves over time. Just like open office plans, there are pros and cons, and each company should carefully evaluate and research if it is right for them.

Dane Hurtubise is founder and CEO of Parklet.co, an employee onboarding, happiness and HR software company based in San Francisco. This blog originally appeared here.

 

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