Pitfalls of Unlimited Vacation
The idea of unlimited vacation time should seem like a dream come true for many employees. While HR experts and studies say such policies have been proven to increase employee engagement with more flexibility and better work-life balance, others say it may actually penalize workers that don't take full advantage of their time off.
Regardless of how much paid time off they're granted, many American workers do not use all of their vacation time. And unlike with traditional vacation policies, the lack of a policy means employers don't have to reimburse for any unused days. While unlimited vacation can be an enticing tool in recruitment and retention, some experts say it can benefit the employer more than the employee.
A recent report on employee benefits by the Society for Human Resources Management found that only 2 percent of employers are currently offering unlimited vacation policies. Large organizations such as Netflix, Virgin America and Groupon have made headlines in recent years by extending unlimited paid time off to their workforce. In 2015, GE also announced unlimited vacation, sick and personal days to nearly 30,000 of its employees. Some mid-market and smaller businesses also are offering more generous paid time off policies, saying it is a cost-effective way to improve morale.
David Almeda, Chief People Officer at the workforce management company of Kronos, said in a podcast at the company's website that the company started offering unlimited time off in response to employees' growing call for flexibility. He said it gives people more freedom to take time off when needed and not be bound by limited days or cutting into other vacation plans. "As long as they are performing, doing their job, getting the work done and working with their team … those are the things they don't have to worry about anymore," Almeda said.
Researchers at the Lund University School of Economics and Management found in a 2015 study that unlimited PTO can be beneficial for both workers and employers. They said it improves job satisfaction, perceived productivity and creates a better work-life balance. However, they also noted unlimited PTO policies do not work in all positions and are best for white collar workers in creative fields.
Regardless of how much time off they're granted, surveys show most workers don't fully use their vacation time. According to Project: Time Off, 55 percent of American workers let vacation time go unused in 2015, adding up to 658 million unused days. Survey respondents said they avoided taking more time off because they feared returning to a mountain of work (37 percent), no one else could do the job (35 percent) and they simply couldn't afford vacation (30 percent). Eighty percent of workers also said they would be likely to take more time off if they felt supported and encouraged by their boss.
Holly Jones, senior legal editor for BLR.com, says employers are starting to offer more generous paid time off through a number of models. Critics say one issue with unlimited vacation policies is that the lack of a policy means employers don't have to pay out any unused time. So, a worker who only takes off two weeks under an unlimited leave policy would not be owed any compensation unlike a worker with a stated four weeks paid leave who would be owed the other two weeks.
"Because employees are not accruing a set number of wage-equivalent hours per pay period, compensation interest vests. After all, you can't very well pay out an 'unlimited' vacation at termination," Jones says.
Almeda said the policy has worked well so far at Kronos and that employees have taken an average of 18 percent more vacation time. He said one of the main elements for a policy to work is that there needs to be a "culture of trust" and genuine commitment from the employer and the employees on using it effectively. "It can be a little bit of a leap of faith for employees to believe that you're actually going to encourage them to take the time and take the time as they have in the past," Almeda said.
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