How Does Unlimited PTO Work? Learn the Pros and Cons

Compared to their European counterparts, U.S. workers get little reprieve from the daily grind.

According to the most recent data from the Bureau of Labor Statistics (BLS), a typical private sector worker gets just seven sick days and 11 vacation days per year. That's significantly less than the average of 24 paid days off enjoyed by workers in the E.U. and U.K.

But is this norm on the brink of changing?

Although unlimited paid time off (PTO) once drew employees to startups and tech companies, it's become a common perk throughout the business world. In June 2022, Glassdoor found that employee reviews mentioning unlimited PTO leapt 75% compared to the pre-pandemic period.

Yet not everyone agrees that unlimited PTO actually benefits workers—or encourages them to fully use their PTO benefits. In this article, we'll break down exactly what unlimited PTO is, how it compares to other common policies, and the pros and cons for employees.

If you're considering changing your PTO policy, it's important to consider how you'd manage a new system. In 2022, BambooHR helped companies process nearly 22 million time off requests. Our easy-to-use system makes it simple to manage PTO requests—no matter what your policy looks like. Learn more with a free demo today!

How Does Unlimited PTO Work?

In an unlimited PTO policy, employees don't begin the year with a fixed number of paid days off. Instead, they request days off from their manager, who will approve or deny PTO at their discretion.

This unstructured freedom is unlimited PTO's prime attraction. According to reporting by the Society of Human Resource Management (SHRM), companies that offer unlimited PTO unofficially cap vacation at three to six weeks—far more time off than the BLS average.

However, the same SHRM report found that employees are surprisingly less likely to take time off when PTO is unlimited.

Plus, an unlimited PTO policy comes with the risk of inequality. In the absence of a formal policy, managers may resort to approving or denying requests based on individual employees' performance.

Unlimited PTO: Pros and Cons

Pro: Employees (Probably) Won’t Take More Vacation Days

This is probably employers’ number-one concern, so let’s get it out of the way. Unlimited PTO doesn’t mean you’ll show up during the fourth quarter to an office resembling the Empty Quarter. Employees with unlimited PTO use about the same number of vacation days as those with traditional PTO policies—in some cases even fewer. Flexible time off equals no balance to use up, employees feel less motivation to spend PTO, and discretion is also a huge factor; assuming you trust your managers, you can trust they’ll say no to requests that leave you understaffed.

Pro: It Makes Financial Sense

Aside from the possibility that your employees will take fewer days off (an obvious financial benefit), there’s the very real benefit of eliminating accrued hours that need to be paid out when an employee leaves. With an unlimited PTO policy, there are no hours earned, and therefore no balances to carry over or pay out.

Pro: It’s A Great Recruiting Tool

If companies like LinkedIn and Netflix have it, people are going to want it. As recruiting tools go, unlimited PTO or flexible time off policies are far cheaper than catered lunches or paid paid vacation, and it’s a great way to broadcast your company’s progressive values.

Pro: It’s Easy To Implement

…as long as you have a great HR program. Here’s our shameless plug: if you’re using the right system, switching to flexible time off shouldn’t involve a lot of paperwork beyond writing a memo to all employees. BambooHR makes it as easy as going in and making an update to your PTO system with the options you want to add or subtract. Learn more with a free, no-obligation demo today!

Con: It’s Not Really Unlimited

When you replace traditional PTO with discretionary PTO, you remove the objective component of earned vacation time. In both systems, there are reasons why employers might not grant time off: deadlines, presentations, performance issues, meetings, and conferences, to name a few. But while traditional PTO still requires approval, there’s also a certain sanctity to the idea of earned hours. Without that, any reason for denying a vacation request, legitimate or not, is likely to breed resentment around the new system.

Con: Employees Feel Pressured To Work

… And not in a good way. Time off is essential for positive culture, and whether it’s the shadow of a motivated boss or a perceived competition with coworkers, employees with a flexible vacation policy feel pressure to work instead of taking time off. That pressure can come entirely from within; customers have informed us the mere sight of a negative hour balance was enough to discourage them from requesting leave.

Con: It Can Be Harder To Track

Flexible time-off policies are modern and abstract; not so the federal government. If you’re not tracking hours, you may also have no way to track federally mandated leave like FMLA. That puts you in a position worse than the one you were in, back to the days of paper tracking and filing. A well-designed flexible paid time off policy should be able to log hours quietly without creating a negative psychological impact on the employee.

Con: Current Employees May Not Welcome Change

Veteran employees who’ve been building up vacation steadily over the years may have been planning to use their accrued vacation hours as a severance bonus. If the change to a new system coincides with flat earnings or downsizing, younger employees might question your motivations.

7 Common Types of PTO

Discretionary PTO

Employees decide when they take time off but it can’t alter their work schedule on a consistent basis. Their time off also can’t cause excessive burdens on their co-workers.

Floating Holidays

In addition to a set schedule of annual paid days off, some companies offer floating holidays. These paid days off can be taken at an employee's discretion and may loosely correspond to public holidays.

Flexible Time Off

Also called FTO, flexible PTO, or flexible vacation, this is time off that employees can take when they choose to and generally don’t have to accrue or count the hours. It can be used for vacation or sick time as needed.

FTO vs PTO

FTO is a type of PTO policy. Depending on the company you work for, FTO may or may not be unlimited.

Paid Holidays

Many U.S. companies offer paid time off on federally recognized holidays such as New Year's Day, Labor Day, and Thanksgiving.

Sick Days

Sick days are PTO time employees can take off when they are ill or if a family member is ill, in some cases. Some companies differentiate between sick time and vacation time.

Unlimited PTO

Also called unlimited vacation or unlimited PTO, employees can decide when and take as much time off as they need without accruing hours and in some cases, getting management approval.

Editor's Take: Should Your Company Offer Unlimited PTO?

Despite its growing popularity, unlimited PTO may not be the best choice for every company.

At first glance, the concept of unlimited PTO sounds like a dream for employees and employers alike. Employees would be free to take as much time as they need, while employers gain a recruiting tool that improves employee happiness and costs almost nothing to implement. What could be better?

Unfortunately, unlimited vacation isn’t so simple from a policy or a practical standpoint.

If you’re thinking about switching your PTO policy, take the time to consider why you want to do so.

At the end of the day, any PTO policy should be designed to promote employee wellness. Encouraging employees to take time off, setting good examples at the executive and managerial levels, and being upfront about the parameters around your policy can help your company reach this goal—no matter which PTO policy you choose.