Insights

Unlimited Vacation: Is It Coming To Your Company?


Ever since Google transformed the workplace with ping pong tables, sleep pods, free haircuts, fitness equipment, laundry facilities and on-site medical staff, companies have been tweaking employee benefits to attract and retain top talent.

One increasingly prevalent enticement is unlimited vacation time or PTO (personal time off), otherwise known as a "discretionary time off" model (DTO). Does this signal the demise of the standard two week vacation and five sick days per year? Can an employee take a paid sabbatical and lounge on the beach for a month? And can employees actually stay home sick instead of coughing and sneezing all over their co-workers, so they don't burn a day that could later be used for vacation?

According to a 2014 WorldatWork study only about 2% of companies offer this kind of alternative-vacation model. Still, we're curious to learn how this perk might impact employers and employees. What is driving this change? Is unlimited vacation something that all businesses should consider?

Pioneers

Unsurprisingly, the first companies to offer unlimited time off are based in Silicon Valley. Driven by a focus on producing results, rather than just logging hours, tech companies like Kickstarter, LinkedIn, Netflix, Indeed and Evernote sought to encourage employees to create a better work/life balance and manage their time accordingly.

More recently, larger mainstream corporations including General Electric began offering their senior salaried employees uncapped vacation days. Grant Thornton adopted an unlimited time off policy late last year. LinkedIn also recently announced it will allow employees to take unlimited vacation days. There are some caveats: LinkedIn employees can't opt to work a four-day week, for example. And they can't take months off on end.

One HR executive commented, "It's about time we treat our workforce like adults. Professionals will take vacation when they are able and with technology keeping everyone connected all the time, no one is unreachable." This week, J.P. Morgan announced a new initiative called "Pencils Down," encouraging its investment bankers to take non-essential weekends off, joining the ranks of other Wall Street firms that have acted to retain employees and improve work-life balance. The firm didn't specify how much time employees should take off, or how often they are expected to check work-related emails while away from the office. But the announcement is clearly a move toward freeing people from time-consuming work obligations after hours and on weekends unless a deal is breaking.
Advocates for a DTO policy believe employees should be taking more time off, engendering higher productivity. But according to a survey conducted by research firm Harris Interactive for the career website Glassdoor, U.S. employees only use 51% of their eligible paid vacation time and paid time off. Additionally, 61% of Americans work while they're on vacation. Will a policy of "unlimited" time off be seen as merely a smoke-and-mirrors attempt to placate an overworked and stressed workforce? Or will it truly encourage more leisure time?




Culture Shift

Our culture scorns vacation for various reasons - fears of being overlooked for promotion, worry about work piling up in one's absence, and the pressures of being accessible 24/7. Some companies have found that DTO prevents employees from taking an adequate amount of "rest" time. In addition, because the concept of "unlimited" is difficult to grasp and may be overwhelming, sometimes employees take less personal time than before, becoming disengaged and burned out. Kickstarter, the global crowdfunding site, ended its unlimited time off policy because it found that without guidance, employees were actually taking less time off.
This has been a common experience, especially within a company's first year of implementing an unlimited vacation program. Often employees decide not to take advantage of their vacation time because it's just too difficult to figure out the right amount to take, or they err on the conservative side and take fewer days off -- no one wants to appear greedy.

Logistics vary, but most companies with discretionary time off programs require employees to schedule time off in advance, generally through an online tracking system such as ADP, or email. Sick days typically require notification as well. And although time away is "unlimited," managers and HR departments retain the discretion to deny requested time if it becomes excessive, or issue warnings when employees appear to be abusing the privilege.

From the employer's perspective, introducing an unlimited time off policy minimizes the financial burden created by the employee who hoards vacation time - Me. Astonishingly, U.S. companies carried forward $65.6 billion in accrued paid time off costs last year. According to a study by Oxford Economics, U.S. workers who had paid time off typically left three vacation days on the table.

Allowing employees to self-manage their time away from the office also frees up managers and HR professionals from the administrative burden of tracking time off. Moreover, a flexible vacation policy can help build an ownership mentality, encouraging employees to think and behave with an eye on the company's bottom line.

Providing scheduling flexibility also fosters trust and loyalty between employers and employees. An analyst at a technology company told us that she and her co-workers value being empowered and treated as adults in managing their time. They appreciate the message signaled by leadership: we trust you to know when you need time off in order to be the best employee you can be. For companies looking for an edge in attracting top talent, unlimited time off is a valuable recruiting tool. An unlimited time off policy can also be a strong employee retention tool for valued employees. A senior manager at a growing technology firm stated that although her firm's discretionary time off policy is new, it has created quite a "buzz" among employees, building goodwill and boosting morale.

As with most novel and untested programs, time will tell what the future holds for alternative time-off models. Company leaders will have to lead by example by unapologetically using their own personal and vacation time and clearly communicating expectations. With the many pros and cons, it is incumbent on each company's leadership to determine if, and how, to implement this fresh take on employee benefits.
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