United States: To Infinity And Beyond: Challenges With Unlimited PTO

Published in Business NH Magazine

Businesses challenged with keeping Millennials motivated and Gen Xers in working families sane regularly experiment with new and different employee benefits. Some, like workplace flexibility and working remotely, have gained significant traction. Others, like foosball tables in break rooms, have yet to prove their value. And then there is unlimited paid time off (PTO), amazing on the surface but potentially difficult to manage.

The concept seems simple: Employees are allowed to take as much time off as needed without repercussion as long as the work gets done. Doing this builds employee loyalty and morale. It helps with recruiting and retaining great talent as you are treating employees like adults and holding them accountable for their outcomes rather than time spent in the office.

PTO combines an employee's vacation time, sick days and other leave into one discretionary plan.  Employers will typically not question the reason the employee is out of work. Unlimited PTO is designed to allow workers the flexibility to manage their work and personal lives.

Unlimited PTO seems to have the most traction in high-tech companies and startups. It is most often available to exempt employees and rarely to those working in retail, manufacturing and service industries. According to the Society for Human Resource Management, only one percent of American workplaces in 2014 reported offering this benefit. Yet, it generates much interest, and more companies are considering it.

What to Keep in Mind

So, what are the benefits, and what do you need to watch out for in the world of unlimited PTO?

  • Without guidelines on the amount of time off that is acceptable, some companies report having a hard time getting employees to actually take time off. People like to know what is expected of them, and it is up to employers to give some direction.
  • Communication between management and employees, and among members of a work team, around these issues is critical.
  • Coordinating vacation schedules is necessary to make sure that the company's business needs are met.
  • Childless workers sometimes feel like they end up covering for dads who leave to coach T-ball and moms who chaperone field trips. Management needs to communicate that the benefit is not only for parents of small children but should be used for whatever personal needs require people to be out of work: vacation, care of elderly parents, mental health days to recharge, personal doctors' appointments and other reasons.
  • Employers should track the time taken to determine if there is abuse, to make sure everyone does take some time off and to ensure the company is in compliance with laws that require leave.
  • Companies need to be mindful of state and federal laws that govern time off: state paid sick leave policies, Family and Medical Leave Act (FMLA), parental leave and Fair Labor Standards Act (FLSA).
  • The transition to unlimited PTO will require addressing what will happen to previously unused but accrued time off. Will it be paid out? Will employees need to use it within a certain period? Of course, once the program is implemented, the company will no longer have to carry accrued time on the books because there will be no unused time to pay out when an employee departs.
  • Management needs to determine whether the culture of a company will support such a benefit. Does the company currently do a good job of managing and evaluating employees based on outcomes? Are there clear goals for workers? Will long-term employees accept that new  employees will be on the same footing from day one?

Companies considering policies of unlimited or discretionary PTO should have a written policy to address some of the potential legal issues. For example, it is important to spell out how the business will handle FMLA, maternity and other leaves.  It is helpful to have a sentence to the effect that "Certain limitations may apply in cases of FMLA or other leaves of absence.  Please see specific policies related to these leaves." The policy should also specify the amount and nature of time off that requires supervisor approval. Unlimited PTO does not mean employees don't need approval or to give advance notice when warranted and possible.

Employers will also always have to be mindful of fair and equitable treatment of employees to avoid discrimination or retaliation claims. In addition, it is critical for managers to address abuse of the policy quickly if it occurs. Failure to do so may lead to morale and employee retention challenges the policy is designed to eliminate. The key to a successful unlimited PTO program is leadership from management, clear communication of expectations and fair application.

Charla Bizios Stevens is a director in the litigation department and chair of the Employment Practice Group at the law firm of McLane, Graf, Raulerson & Middleton, PA in Manchester.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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