Can an Unlimited Vacation Policy Benefit Your Organization?

As companies attempt to boost their recruitment and retention strategies with more work-life balance initiatives, some are offering unlimited paid time off. While studies say such a policy can positively impact employee morale, experts note it won’t necessarily work for every company or sector.

According to the Society for Human Resource Management’s 2016 Employee Benefits report, less than 2% of employers offer an unlimited vacation. Some of these companies include Netflix, Virgin America and Motley Fool. Virgin CEO Richard Branson announced the company’s policy in 2014 and has said he assumed staff would only take off time when they’re on par with their work, and feel their absence won’t hurt the business or their careers. In 2015, GE extended a no limited vacation, sick and personal days policy to 40% of its workforce.

Leaders at these companies say employees aren’t pressured to save days, and the employers themselves no longer have the administrative task of tracking vacation days, or paying for unused time. Unlimited vacation can certainly be a powerful recruitment and retention tool. Employees also don’t have to worry about dipping into vacation time for bouts of sickness or taking the day off to attend a child’s school event. And someone who has a lifelong dream of taking a month-long tour of Europe no longer has to wait decades until retirement.

A study by the Lund University School of Economics and Management found that employees under these policies said they typically felt more trusted, and that it led to a higher level of work-life balance and job satisfaction.

“employees aren’t pressured to save days, and employers no longer have the administrative task of tracking vacation days, or paying for unused time.”

CEOs can be hesitant to implement such policies out of fear that their employees will abuse the benefit. Yet the Creative Group reports that while 21% of employees said they would be more productive if they took more vacation, little more than half said they wouldn’t use any more vacation days than they already do if their company offered unlimited PTO.

Peter Cappelli, director of the Wharton Center for Human Resources, said while these policies can have good intentions, they ignore the social pressures in the workplace that make it difficult to take vacation. “When it’s up to you when and how much to take and everyone is working all-out on a project, and you take time off, it looks like you’re not a team player. If you have the right to take two weeks’ vacation, there is less pressure to suck it up,” Cappelli said.

Some argue that the concept of unlimited PTO may actually benefit the employer more than the workers. Paula Brantner, senior advisor for the nonprofit Workplace Fairness, says companies benefit by not having to pay out vested vacation days or have the liability on their balance sheet.

However, many firms who have set these policies without giving it much thought have failed. In 2015, Tribune Publishing instituted a new policy of unlimited PTO at the discretion of supervisors. But it also included warnings like “As always, future career opportunities are assessed based on your performance and potential.” Only a week later, CEO Jack Griffin reversed the policy, saying that it created confusion and concern in the company.

Knowledge@Wharton said it is only a better system for some sectors and works best when properly managed. This calls for clear parameters to ensure that no one is taking advantage of the rule and also not scared to take time off.

Tony Tie, senior research marketer at Expedia Canada, said unlimited PTO can work for a company when it is specifically design for the employees. “Vacation policies don’t fit into a one-size-fits-all formula. Look to your own employees and values to see how unlimited vacation can benefit your people…you can still create alternatives that grant employees a breather without creating anxiety about underperforming,” Tie said.