Human Resources

Employers question unlimited PTO trend

HR departments fear risk of abuse while some employees say the policy is a false utopia.

August 2, 2019
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A recent survey by a national consultancy revealed a small but growing percentage of U.S. employers offer unlimited paid time off — but the practice has its detractors.

Rolling Meadows, Illinois-based consulting firm Arthur J. Gallagher (AJG) in its 2018 Benefits Strategy & Benchmarking Survey polled 4,241 organizations across the U.S. and found 3% of respondents offer an unlimited PTO plan.

Although the perk is often associated with tech startups, it is slowly spreading into other industries, such as finance and manufacturing.

Locally, the percentage of employers offering it is much lower than 3%. Only a handful of employers with a presence in the region are reported by online news outlets as offering unlimited PTO, including General Electric, Grubhub and Honeywell. The latter offers the benefit for exempt employees only. Then, there are those that offer it quietly, including Neuropeak Pro, May Mobility and a nonprofit that wished to remain anonymous.

Other large companies outside Michigan famous for granting the perk include Groupon, Netflix, LinkedIn, Virgin Group, HubSpot, Glassdoor, accounting firm Grant Thornton and investment firm BlackRock, according to articles last year by The Motley Fool and Glassdoor.

The Business Journal recently interviewed Marina Galatro, senior consultant from AJG’s human resources and compensation consulting practice, about the firm’s 2019 Organizational Wellbeing & Talent Insights Report. Unlimited PTO was one offering HR leaders were considering in order to enhance the competitiveness of their companies’ total compensation packages.

She said unlimited PTO has been discussed in HR circles for “several years,” and she has written blog posts and articles as well as doing webinars and speaking live on the topic as employers’ curiosity about the benefit increases.

Galatro said there are numerous advantages and disadvantages of the benefit, but she acknowledged sometimes it can backfire.

In cases cited on social media and in public online reviews of companies by employees, many people said the policy can have the unintended effect of depressing the amount of time employees claim because they fear taking time whenever they want will make them seem less committed to the organization or less hard-working than a peer — or might even cause them to be passed over for a promotion. In some cases, people said management pressured them into not claiming PTO because it was never a good time for it given ongoing projects.

Perhaps more worrisome for employees, unlimited PTO has a one-sided benefit for employers because workers no longer have a set bank of PTO they accrue by seniority during each calendar year, and companies are no longer liable to pay out unused vacation time in cash if an employee quits or is laid off.

In 2014, Tribune Publishing switched to an unlimited PTO policy and reversed its decision within a week after employees voiced their outrage over the plan’s downsides.

Galatro said she believes unlimited PTO can be a benefit to employees, but only if it’s a cultural fit for the organization and only if the employer takes care to clearly communicate what it is and how it works.

“If you’ve got a demographic where they’ve relied on their earned PTO or earned vacation or earned sick leave to have, kind of as a savings plan, having unlimited PTO may not be understood by employees,” she said. 

“I think communicating the program, making it positive and having employees understand why companies are offering it, and of course, establishing expectations, as well, (is essential).”

She added employers often overlook the need to make the unlimited PTO policy conditional for eligible employees, especially as relates to Family and Medical Leave Act (FMLA) time off claims. 

FMLA entitles eligible employees to unpaid, job-protected leave of 12 weeks in a year. Employers and HR departments, Galatro said, should make sure they specify that unlimited PTO cannot be used during an FMLA claim.

According to a 2017 article by the Society for Human Resource Management, inconsistent coordination with FMLA in the unlimited PTO policy can be the basis for discrimination claims.

Lisa Cooper, people strategist with Grand Rapids-based HR Collaborative, agreed unlimited PTO policies can pose a big complication for companies.

“The general consensus from the HR community is that it opens a big can of worms that’s often challenging to reel back,” she said. “If you have one or two abusers of it, it’s hard to get a handle on it and ensure that consistency across the board.” 

Cooper said she does not have any clients that offer unlimited PTO and, in her 20 years of HR experience, has never worked for a company that had it.

She said she believes there are alternatives to instituting an unlimited PTO policy, such as flexible schedules and “PTO as needed,” which is designed to offer time off for employees — especially at the leadership level — who are in unusual circumstances, as long as genuine need can be established.

One reason unlimited time off has not gained traction in West Michigan, Cooper said, could be because of the tight labor market.

“There are enough organizations that are just struggling to find the talent they need, so any talent they do have, they need them to be on and they need them to be productive as possible,” she said.

Joe Martinez, director of operations at Neuropeak Pro in Grand Rapids, said his company instituted unlimited PTO last year because it believes taking more vacation improves productivity rather than slowing it.

“At least on the Western side of things, with the American workforce, the stats do not work out well for us because we just don’t value and we don’t take a lot of time off,” he said.

“There’s a huge difference when somebody goes on vacation and comes back. The energy that’s recharged from most of those people, their creativity is a lot better and they give themselves room to breathe from it.”

Cooper said studies have shown organizations that have open-ended time off philosophies report their employees end up taking less time off than if they had limited PTO because they fear so many things, including getting behind, feeling disconnected from work, potential demotion, job loss and more, according to a Center for Economic and Policy Research report in 2013.

Those fears may be compounded by inconsistent application of unlimited PTO policies within various departments, Cooper added. Some managers may be more laid back and lenient, while others may be strict, hard drivers.

“There can be some feelings of, ‘It’s not fair,’ which can create some cultural challenges within an organization,” Cooper said.

As to whether extra vacation time improves employee productivity, engagement and retention, she said from where she stands as an HR adviser, “the jury’s still out on a number of those factors.”

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