Unlimited PTO: A better deal for employers than workers?

The concept of unlimited PTO is not altogether new. But according to some reports, it is enjoying somewhat of a post-COVID resurgence.

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Bank of America’s Mid-Sized Business Owner report, for example, found that nearly 40% of mid-sized businesses are meeting today’s recruiting and retention challenges by increasing vacation and paid time off—benefits that topped offerings like cost-of-living bonuses, enhanced healthcare benefits and improved retirement packages. When upping PTO and other related benefits, a significant amount (78%) of mid-sized businesses surveyed reported a boost in employee morale and retention rates.

However, the long-term impact of completely unlimited PTO—offered by employers like Netflix, Zoom and LinkedIn—on metrics like morale and retention remains to be seen, experts say.

More time off seems to be what workers favor: A recent Metlife survey found that unlimited PTO is the No. 1 most-valued “emerging” employee benefit, with 72% of employees being interested in unlimited PTO as a benefit, and half of U.S. workers preferring unlimited PTO to a higher salary. Similarly, a survey from Harris Poll/Fortune found that workers want unlimited time off more than tuition reimbursement, subsidized childcare or free snacks.

And employers are responding. Between 2019 and 2023, according to job site Indeed, the percentage of job listings advertising unlimited PTO rose by 40%.

The trend, however, may actually not be just about meeting worker expectations—as one expert says that the “all-you-can-take” vacation model is ultimately a much better deal for employers than it is for workers. After all, why would companies offer so-called “unlimited vacations”—which sounds very generous—when they otherwise seem to be pinching pennies on the talent front, especially in today’s uncertain economy?

Peter Cappelli, Wharton
Peter Cappelli, Wharton School

According to Peter Cappelli, the George W. Taylor professor of management at Penn’s Wharton School and director of Wharton’s Center for Human Resources (and an HRE columnist), the apparent employer trend toward unlimited PTO boils down to financial accounting.

He explains that unlimited vacation policies are driven by the fact that they eliminate accrued paid time off, the costs of which are a liability within a company’s financial accounting. The result of doing away with that liability? It instantly makes companies appear more valuable.

Such a strategy, Cappelli says, “eliminates an employee’s right to take time off and the opportunity to ‘cash out’ unused vacation days—for example, when someone retires or leaves the organization.”

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“Unlimited PTO is a vague, unenforceable promise. In short, good for employer finances, but not good for employees,” he says.

HR’s role in the unlimited PTO conversation

Cappelli, author of the recently released book Our Least Important Asset: Why the Relentless Focus on Finance and Accounting is Bad for Business and Employees, suggests that if a company moves to unlimited vacation time, it is important for HR to be transparent with employees about what such a change truly means for them.

“Also, a tight labor market is not the best time to be taking away benefits from employees,” he says.

HR also must help the C-suite articulate what they want an unlimited PTO strategy to look like—conversations that must involve the CFO. For example, leaders need to consider under what circumstances the company would push back on employee time off. And how will the employer resolve disputes if an employee says they need time off and their supervisor says they can’t take it?

“If you have a grievance procedure, expect it to get a workout,” he says.

HR leaders can also help the C-suite consider other cost-saving arrangements before rolling out unlimited PTO. For instance, since remote and hybrid workers are less likely to take PTO or sick days, employers may consider a trade-off: adding in flexibility but offering fewer PTO days.

Ultimately, Cappelli says, the lasting payoff for employers isn’t clear.

“We haven’t had much experience with these types of programs,” Cappelli says. “We haven’t seen how it actually works yet.”

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Tom Starner
Tom Starner is a freelance writer based in Philadelphia who has been covering the human resource space and all of its component processes for over two decades. He can be reached at [email protected].