2021 is shaping up to be a banner year for hot issues surrounding employment benefits and the workplace.

Thanks in part to the COVID-19 pandemic, there are a number of new and emerging issues causing employers to take notice. Whether it is expanding work-from-home scenarios, managing employee health and safety, or hourly wage issues, employers are reviewing and revising their workplace policies and practices accordingly.

Once such area that is garnering a lot of attention is unlimited paid time off (PTO).

By way of definition, an unlimited vacation plan means that employees receive no specific allotment or accrual of vacation and can take time off on an as-needed basis, within certain guidelines. There is no carryover of time off and no payout of time when an employee leaves the organization.

Carol Sladek, partner, strategic advisory communication, work-life at Aon, said an unlimited vacation plan has advantages to both the employer and employees, so it can be a win-win when offered in the right circumstances.

“The biggest benefit to the company is that an unlimited eliminates the accrual liability — both carrying the vacation time and paying it out when an employee leaves. The employees have the advantage of complete flexibility in taking vacation, as they no longer have to wait to accrue time but can take vacation time as needed,” Sladek said.

The unlimited approach also eliminates tracking and recording time, which simplifies the plan for both the employee and employer. It also provides a recruiting advantage to the employer by offering employees unlimited vacation at hire.

That said, few companies offer unlimited vacation across the board to a wide group of employees — with the exception of high-tech companies.

As Sladek explained, it is most commonly offered to executives and other more senior level employees. It’s typically not offered more broadly because having an accrual of vacation allows both employees and employers to best manage time off.

For example, employees may feel more empowered to plan vacation and to ask managers to take vacation when they have an accrual of time. And managers have more structure to allow/deny time-off requests.

Carol Sladek, partner, strategic advisory communication, work-life, Aon

According to Jackie Reinberg, senior director and North America leader of absence, disability management and life at Willis Towers Watson (WTW), who consults with large employers on their PTO programs, the 2020 WTW Global Benefits Attitudes survey indicated that, in the area of work-life balance and flexibility, generosity of PTO was employees’ highest priority.

“In addition, there is a renewed focus on designing time-off programs that align with diversity and inclusion initiatives and meet the changing and growing needs of a diverse workforce,” Reinberg said. “This, coupled with the financial benefits for employers of removing a significant financial liability, is the reason we are seeing an increased adoption of these types of programs.”

During COVID, employees struggled to take time off, and many lost vacation time due to use-it-or-lose-it policies. In addition, some employers made one-off policy adjustments to ensure that employees were able to keep their vacation.

“We have also seen that employers with generous time-off programs have seen a significant increase in their booked liability as a result of employees not taking vacation/PTO,” Reinberg said. “Unlimited PTO is one way to mitigate these liabilities and impart more flexibility into time-off programs.”

Unlimited vacation does have some potential disadvantages, which is why many employers offer it only to senior level employees.

As Sladek pointed out, unlimited vacation must be communicated well with clear guidelines, or there is a risk that employees may perceive either they have no vacation or conversely, that there are no limits, which may invite abuse.

It can also create staffing uncertainty and coverage issues, and it may be difficult to administer fairly and consistently.

“Unlimited vacation must also be carefully coordinated with other time off — such as paid sick leave, short term disability, and FMLA,” Sladek said. “From the employee’s point-of-view it may result in obstacles for taking time off, as there is no longer an accrual to work against.”

Considerations to Make

Greg Rozdeba, president of Dundas Life, said that before a company offers this type of benefit, they need to consider whether they have enough manpower to cover projects, sales and customer support when this policy is implemented, especially during a company’s busy seasons.

“You should also consider how your company culture and employee expectations will shape company policy on unlimited paid vacation,” Rozdeba said. “This policy needs to reflect your company values, but it also needs to have restrictions that reflect the realities of the business.”

Moreover, organizations need to consider whether the business has the right tools to guarantee fair use of this system.

For instance, a robust and adaptable absence management software can track employees’ time off comprehensively. A framework should also be developed that makes this system equally accessible to all employees.

“Obviously, these resources come at a cost, so companies need to consider if their financial situation allows them to make these investments,” Rozdeba said.

Another consideration to make when moving to unlimited vacation is how to transition existing balances of vacation time. According to Sladek, because many states have laws that do not allow forfeiting of accrued time off, the transition can be tricky and expensive.

Jackie Reinberg, senior director and North America leader of absence, disability management and life, Willis Towers Watson

“Another consideration is how to best communicate the plan — and even what to call it [non-accrued vacation, unlimited vacation, flexible time off, etc.],” Sladek said.

David Pearson, senior vice president of people and culture at ExtensisHR, a national PEO, said most businesses feel it’s easier to comply with regulations with a traditional PTO program (whether that’s as a whole or managed via sick time off and personal time off).

“If unlimited PTO is not tracked properly, you run the risk of overlap on workers’ compensation time off, disability time off, amongst various other mandated time-off requirements,” Pearson said. An additional risk would be related to employees not taking as much time off as intended by the employer with the lack of understanding of the benefits to the unlimited program.

“And if managers are not supportive, or a proponent for time off, then you will lead to disparities amongst departments in the organization which can lead to a cultural drop,” Pearson said.

Looking Ahead

Pearson believes the unlimited PTO trend will grow in certain industries, while other industries will begin to review the entirety of their workforce and their work environment.

This would include hybrid, in-office, work-from-anywhere plans and PTO programs.

In addition, organizations will need to evaluate how this would be viewed by the company and supported by the managers.

“I speculate more businesses will lean towards a hybrid environment, flexible work hours, and if possible, work from anywhere, and a more progressive and robust PTO offering that can be managed in buckets, so it does not cause issue with state-specific sick leave time-off requirements, workers’ compensation and disability benefits, FMLA/LOA, wage continuation, and FLSA compliance,” Pearson said.

It’s important to note that while employers may have the best of intentions in offering an unlimited PTO benefit, if not managed properly, it can lead to employee burnout, mismanagement of regulatory compliance, and dissolution of a company’s culture.

“My recommendation would be to focus on creating a progressive and robust offering that allows employees to utilize many different PTO benefits with certain limitations that satisfy any regulatory compliance requirement,” Pearson said.

“It will be a benefit to the employee, to the employer, and mostly aid in the war on talent both in retention and attraction.” &