Last week, Microsoft Corporation joined a growing number of companies across the country in announcing that it now offers its employees an unlimited paid time off (PTO) program.
“How, when and where we do our work has changed dramatically,” the company’s HR chief explained in the memo. “And as we’ve transformed, upgrading our vacation policy was a natural next step to a more flexible model.”
This makes sense, and not just for Microsoft and other big companies. Unlimited PTO should be considered by every business, large and small. My small business offers it. And I have a number of clients who do the same.
Along with health insurance and retirement benefits, companies that offer generous vacation plans are the ones that meet the needs of today’s workers. There are many recent studies, such as those from the Society for Human Resource Management, which show that flexibility, four-day work weeks, telecommuting arrangements and generous vacation programs are in high demand. Telling a prospective employee that your company offers unlimited PTO is a powerful recruiting tool, especially in this tight job market. My clients often complain about my inability to find good workers. This is a great way to help alleviate that problem.
And yet, when I bring up the subject of offering them unlimited PTO, I usually get the eye roll. I understand why. the typical small business owner in this country is over 50 years old. To us, unlimited PTO sounds like an overblown claim dreamed up by those lazy, good-for-nothing young workers. Which of course is not true. Regardless of how one feels about the younger generation of workers, today’s business owners must recognize that work-life balance is an important benefit and one that can be detrimental to neglect.
But even if that argument doesn’t hold interest, I always raise this point with my clients. offering an unlimited PTO plan can not only help attract better talent, but is also willing. – also helps reduce costs. Now that gets their attention.
For starters, offering more vacation time does not increase an employee’s monetary compensation. So when I read that the typical salaried employee saw more than a 7% pay increase this year thanks to inflation, I see an unlimited PTO plan as a way to stay competitive without shelling out more cash. You can say that paying someone who doesn’t work is an expense, but not if your job descriptions are more aligned with the results than the hours. This of course depends on the job. But for many positions, it’s an attainable goal. At the very least, an unlimited PTO plan will reduce the burden of managing (and arbitrating) time off, sick time, family leave, and other absences.
Unlimited PTO plans save money in other ways. Recent studies like this one from HR Platform have shown that companies that offer unlimited PTO plans actually find that their employees take less time off than a traditional use-it-or-lose-it plan. People have Fomo and, if left to their own devices, don’t want to be seen as weak. This isn’t great from a mental health standpoint, but putting that aside certainly offsets the argument that offering more vacation days is a cost to the company.
Another cost savings is associated with employee turnover. Under most traditional plans, unused vacation days are usually paid out when the employee leaves, and many states require a practice. But, aside from California (surprise!), most states don’t require employers who offer unlimited PTO programs because, well, how do you account for unused vacation days when there’s unlimited vacation? So that’s another cost savings.
An unlimited PTO plan can save you money. It can help attract better employees. It just needs to be designed and implemented correctly. My clients who have had success with these types of programs have designed them around one very important premise: to get such an advantage you have to earn it.
Your business may have more than one PTO plan, depending on the employee level. A traditional use-it-or-lose-it plan may be available to lower-level, less-tenured employees. But after being with the company for a period of time or demonstrating other types of achievement, an employee may be eligible to participate in an unlimited PTO plan. It’s a carrot of performance and loyalty. And even in that case, it should not be abused. That’s because my smarter clients don’t let any employee take vacations whenever they want for as long as they want. It still needs to be pre-approved by a supervisor. It puts ultimate control over potential abuse.
I’m always surprised when, after these arguments, many of my clients still don’t consider offering an unlimited PTO plan. As long as it’s done right, it can be a powerful recruiting tool and a potentially significant cost savings.