Employer policies around paid time off are being scrutinized as the emphasis on employee well-being intensifies.
One aspect business leaders are considering is whether an unlimited PTO plan would be beneficial and feasible for their organization.
The idea of unlimited (also described as self-managed, flexible or discretionary) PTO plans has received more attention in recent months with companies re-evaluating how their workforce is structured and the benefits that are offered. While unlimited PTO is not a new concept, it also has become more of a focal point of recruiting and retention discussions amid a tight labor market.
The harsh reality is recruiting – and in many cases retention – has become increasingly difficult, so employers are looking for any advantage they can get in today’s employee-centric market.
In part three of our series detailing creative recruiting strategies for overcoming hiring challenges in 2022, we take a deeper look at alternative paid time off structures.
Connor Cross, Director of Human Resources for Syndeo, says companies should evaluate their PTO policies as part of an overall recruiting and retention strategy. That includes conducting pay assessments and incorporating more variety with health insurance plans and lifestyle benefits such as paid time off for volunteering or programs designed to offset the cost of pet care.
“It isn’t all about pay for employees,” Cross says. “If you are looking at an overall recruiting and retention strategy then you have to look at all of the benefits you offer.”
The case for unlimited PTO
Additional PTO is being cited more frequently as a perk job seekers desire. A Harris poll conducted for Fortune magazine shows flexibility is a key determining factor in whether individuals take a new job or stay with their current employer.
The February 2022 survey of more than 2,000 U.S. adults found that 74 percent of those surveyed in the 18-24 age bracket ranked unlimited time off a contributing factor in determining whether to stay with their current employer or take a new job somewhere else. Seventy percent of those surveyed in the 25-40 age bracket said unlimited PTO would be a determining factor for a job change; 68 percent for those in the 41-56 age bracket; and 45 percent for those 57 and older.
Still, employers have been slow to adopt new PTO policies to reflect the greater demand for additional time off. Instead, some employers are offering paid time off up front, rather than having individuals accrue it over time after an introductory period.
However, offering unlimited PTO does have its advantages.
Having this benefit in place is an indicator that employees are not micromanaged and instead are trusted to get their work done and take time off as needed. It also demonstrates the employer is willing to be flexible with employees.
Additionally, an unlimited PTO policy means less administrative work tracking and policing employees’ accrued time off. A policy such as this also eliminates the need for employers to pay out unused accrued time off at the end of the year or when a person leaves the business. It also can lessen the end-of-the-year rush for people to take time off before it expires.
The need for oversight
The practical matters of applying an unlimited PTO plan in the workplace cannot be ignored.
As with any workplace policy, Cross says managers need to ensure parameters are clearly defined and the PTO structure is communicated to employees. Oversight is important to ensure disruptions to company operations are minimized and essential job functions are covered when employees are gone.
Managing unlimited PTO also involves incorporating reasonable notice requirements for employees who are taking time off. That might also include incorporating conditional provisions for some requests to be denied to prevent too many people in the same department from being gone at the same time.
Establishing at what point can new employees can start taking time off is another important consideration. Additionally, businesses that switch to an unlimited PTO structure from a more traditional accrued policy need to determine what happens with the time employees built up under the previous time-off plan.
Considerations could be paying out accrued time off or starting a person’s unlimited plan once they’ve used all of their accrued time.
So, is the PTO really unlimited?
Teresa Shulda, a partner employment and labor law attorney at Foulston Siefkin LLP, says while these types of plans are characterized as unlimited employers tend to cap the amount of PTO a person can take. As such, some employers may instead describe their PTO plan as “flexible” or “discretionary.”
Shulda says flexible PTO plans can create less delineation of how time off is classified, particularly with a remote-work setup or when the Family and Medical Leave Act is in play. FMLA allows individuals to take up to 12 weeks of unpaid, job-protected leave. Some employers allow employees to put unused PTO toward FMLA leave. Perhaps a similar approach is applied with unlimited PTO plans.
Shulda says potential issues could also arise with short-term disability plans. The employer may prefer to pay out up to 60 percent of the employee’s weekly gross income as is customary, but the employee expects full pay for the duration of the time off.
That’s where clear communication of plan parameters and expectations is beneficial. Shulda says employers also need to be mindful of the intent of a discretionary PTO structure.
“The point of the plan isn’t that you be gone from the office for 12 to 24 weeks at a time,” she says. “The point is that I don’t have to call my boss if I need to run out to a doctor’s appointment or go to my kid’s basketball game after school.”
Whether a person’s work is being completed becomes the focus, instead of where and when the job tasks are finished.
In general, employers need to determine whether an unlimited or discretionary PTO plan is right for their particular workforce. These types of plans can tend to favor nonexempt employees if employers aren’t careful.
“You want to make sure there is fairness built into both sides of those populations,” Shulda says.
About us: As the Heartland’s leading employer services company, Syndeo partners with local business owners to help them minimize risk, improve efficiency and maximize profitability allowing them the freedom to focus on growth and fulfilling their mission. Syndeo fulfills its mission by taking on all of the HR responsibilities for our clients’ workforce, including employee relations, benefits, risk management and payroll.
~Josh Heck is Syndeo’s marketing manager. He can be reached at firstname.lastname@example.org or (316) 440-9940