UncategorizedFebruary 1, 20230

Unlimited vs. Limited PTO: Which One Is Right for Your Workplace?

Microsoft Corp. recently joined the growing list of employers such as Adobe Inc., Netflix Inc. and Goldman Sachs Group Inc. who are moving from limited paid time off to unlimited PTO. While only 6% of employers in 2022 offered unlimited leave, according to a 2022 employee benefits survey by the SHRM, the high-profile additions are leading many to ask, is the perk as good as it sounds, and who benefits the most?

Let’s talk about limited PTO first, traditionally, companies have offered limited PTO, which can include a combination of vacation and sick days. On average, U.S. employees receive 10 paid vacation days after one year with a company, according to the U.S. Bureau of Labor Statistics. With limited PTO, companies can track time off and calculate costs. For instance, they can determine lost productivity for salaried employees and lost dollars for nonexempt hourly employees. Companies can also tie their PTO levels to seniority to use it as a motivator for employee longevity.

What about burn out? Past studies have shown 40% of the American workforce does not take one day of vacation each year, another 40% of those who do take days off are working during their vacation. The workforce has become hyper-aware of burnout and company costs associated with burn out. So how do we encourage employees to take time off with a traditional plan? Some companies have capped, use it or lose it policies, while others give incentives for taking time off. One company found providing a financial incentive to those who use all their vacation days saved them money in the long run while at the same time helped their employees avoid stress and burnout, their production increased, while their costs associated with turnover and training decreased.

Scientific studies such as conducted at the National Library of medicine show reduced physical complaints, increased quality of sleep, and positive mood levels are experienced up to 5 weeks post vacation. Taking adequate time off to rest is essential to employees’ health as well as their long-term productivity. An unlimited PTO policy can demonstrate trust and show workers that rest and restoration is valued, which can in turn improve morale and engagement. Whether your company chooses a traditional or unlimited PTO plan, encouraging your employees to use their vacation time is both good for them and good for your business.

Unlimited PTO gives a recruiting advantage, for companies seeking new ways to stand out in what we all know is still a very competitive labor market, offering unlimited time off is one option that candidates are now looking for. A Glassdoor study in July of 2022 found that employee reviews mentioning unlimited PTO policies were up 75% from pre-pandemic levels.

Companies save money with unlimited paid-time-off policies by not paying out any unused time like quiet a few businesses do under traditional policies. Time spent administering the policy is also eliminated. Research suggests that employees often end up taking less time off under unlimited PTO policies than traditional ones for fear of overstepping — especially in highly competitive industries and positions.

While most employees will use time off responsibly, unlimited policies do open the door to the possibility of misuse however ensuring clarity of undue hardship expectations can prevent negligence. Unlimited PTO should be administered with guidance adherent to business needs such as a pre-approval process and limiting the number of employees off at one time.

Before you make any changes, look at your own business’s numbers to see how you fit into this national trend. And if you do find that your employees aren’t taking the vacation time they should, use this as an opportunity to assess your company culture, management training and employee engagement metrics.

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