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Strategy & Planning Updated on: Jan 30, 2020

Why Unlimited PTO works

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While the popular “unlimited PTO” policy that’s often employed in startups has many benefits to the employer, the employee side is a bit puzzling. Or not?

Benefits for the Employer
  • Easy to communicate as a benefit (recruitment and retention)
  • Don’t need to track PTO for team members
  • No build-up of accrued PTO liabilities on the balance sheet
  • Team members don’t have to take a vacation at the end of the year because they feel they need to “use it or lose it.”
  • Align time-off policy with the realities of how to manage knowledge workers. It’s about outcomes (OKRs, etc.) and not tracking hours. People work from anywhere, including their homes, so tracking PTO is a bit strange to combine with work-from-home policies without detailed policing.

While I’ve never seen official numbers, most employers seem to agree that the amount of time off taken by team members is typically lower vs. a system with a set amount of days allotted. One company did a specific pilot and found that time-off is taken actually dropped.

The goal is to maintain a healthy balance and optimal productivity. In the rare cases where someone takes more time off than then, the employer is comfortable with, a simple correction with one conversation usually does the trick.

If anything, some employers feel they’d need to “nudge” employees to at least take some vacation. Some have the policy to take at least two weeks per year, ideally with one week of consecutive vacation.

When you switch to this system, the details are important, as the department of labor has rules on how you can treat the previously accrued balances. Beyond that, it is important to consider the cultural statement on how you handle those. For time-off vs. leaves, your current leave policies can provide the boundaries on what are leaves and what is voluntary time-off. For approvals, it is always at the discretion of the company, but manager coaching will be important.

So why do your employees like the “Unlimited PTO” policy? I believe this policy aligns with people wanting to be autonomous. They want to be trusted to do a great job, and since they’ll be working evenings or weekends as needed anyway, counting PTO days almost is an insult. It does not match a world where the employee is not paid for overtime either.

The power of autonomy for knowledge workers, with fewer rules that limit vs. empower, seems to be the driver of this policy. For the right people on your team, this feels like a win-win (if managed correctly).

Finally, here are ideas to make part of your own “Unlimited PTO” policy:

  • All PTO requests require managerial approval. This is mostly to prevent surprises of people booking tickets and finding out the company is planning a key customer event the same week.
  • Consider mandating people take at least a week of consecutive vacation per year, and recommend at least ten days in total PTO yearly. If someone does not tick this box, provide coaching that it’s ok to take time off.

Good luck handing out some more autonomy!

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