Unlimited vacation: The pros and cons

LinkedIn is the latest in a series of companies to announce “discretionary time off” (DTO, aka unlimited vacation) for approximately 6,000 U.S. employees. But experts caution only organizations with an entrepreneurial corporate culture and excellent communication practices can successfully implement a DTO program.

“For a culture that is really more oriented to accountability, it makes sense to offer paid time-off on an as-needed basis instead of accruing a limited number of annual days,” says Carol Sladek, a partner at Aon Hewitt and leader of the firm’s work-Life consulting business.

LinkedIn announced it is moving from 15 days of accrued vacation and 13 paid holidays to the DTO model plus 17 paid holidays, effective November 1^st. In a blog post, the company’s senior vice president of global talent organization Pat Waldors explained why she believes the company’s culture is tailor-made to support the new program.

Also see: “3 risks of unlimited vacation.”

“Our six values and culture [tenets] are the principles that guide the day-to-day decisions of all of our talented employees,” Waldors wrote. “One of these values is ‘Act Like An Owner,’ which for our employees is a rallying cry to always step up and be empowered.”

Research conducted by the Society for Human Resources confirms that only about one percent of U.S. companies surveyed offer unlimited paid time-off. Netflix was one of the early adopters, followed by a series of high tech start ups. But there is evidence that the practice is spreading to more traditional workplaces.

Gusto, a Web-based payroll, benefits and compliance company (formerly known as ZenPayroll) adopted an unlimited vacation policy from the get-go four years ago when the company first came on the scene. With a total of 300 employees in both its San Francisco head office and Denver, Gusto has a customer care team, technical staff and salespeople.

Also see: “The pros and cons of unlimited PTO.”

The company’s head of people Jessica Yuen thinks the program works because one of the company’s most important values is allowing people to really have ownership of their work along with the time and schedules it takes to make that happen. “We constantly remind our ‘Gusties’ that it’s a marathon not a sprint, and that they are personally in the best position to balance responsibilities between work and their personal life,” she says.

Nevertheless, the company makes it a priority to constantly communicate the acceptable use of their generous time-off program and the leadership team leads by example. There are no hard and fast rules but employees are expected to give managers as much notice as possible to coordinate coverage by other team members.

To encourage employee breaks, on a person’s one-year anniversary they get a free flight (called the Fly Away program) to truly get away from their day-to-day responsibilities. And starting next year some time, people who have worked for the company for five years will be entitled to the “Fly Away and Stay Away Program” which, in addition to a free flight, will include a paid month off to really recharge.

Also see: “Top PTO users and losers.”

Yuen notes that company leaders are also good role models. “Our CEO Josh Reeves took four or five weeks this year including his honeymoon. The leadership team constantly encourages co-workers to schedule regular vacations,” she says.

Sladek agrees that great communication and top-down support can lead to the successful operation of an unlimited vacation program. But she cautions that clear company policies are required as well because all kinds of unexpected situations can arise. “For example, employees going on unpaid Family and Medical Leave with a fixed number of PTO days often save them up and extend the 12-week [FMLA] period by weeks or even longer. It has to be clear what is permitted in these circumstances when there is no prescribed annual vacation,” she says.

This year General Electric began offering 30,000 of its workers – 43% of its salaried workforce – “a permissive” approach to paid time-off subject to manager approval. Also starting in November, Grant Thornton LLP, the sixth-largest U.S. accounting firm, will grant U.S. employees unlimited time-off, a strategy it hopes will entice workers from rivals with traditional vacation plans.

Also see: “Top 25 mid-size employers.”

Sladek says adopting an unlimited vacation policy can be a great financial decision for companies that want to eliminate the vacation accrual liability on their books. “However, the problem for employees is that where companies have unlimited vacation, when an employee who didn’t take any vacation yet that year quits or is terminated, there is no pay out,” she says.

Employees may also be uncomfortable with the lack of structure and feel peer pressure to take less time off rather than more. Last year the Los Angeles Times announced and rescinded its DTO policy in the same week, when a group of employees said they were planning to sue the company for the monetary value of the vacation days accrued by long-term staffers.

The fundraising platform Kickstarter also quickly backed off from its proposed unlimited vacation program. A company spokesperson told BuzzFeed that “while previously there was a ‘flexible’ policy in which managers could approve as many days off for an employee as they felt comfortable with, there’s now a cap at 25 days a year. Our human resources team felt that providing clearer guidelines would help employees get a better sense of how much leisure time versus work time is right.”

Sheryl Smolkin is a lawyer and freelance writer based in Toronto.