Unlimited PTO: Too much of a good thing? News added by Benefits Pro on May 21, 2014

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By Bruce Jacobs

Somewhere between the military’s R&R and academia’s sabbatical resides the business world’s “unlimited” vacation plan.

Also called unlimited paid time off, the concept is simple: build employee loyalty, morale and community by treating workers as responsible, accountable adults who can be trusted to take time off as needed, provided the work gets done properly and on schedule.

A few weeks in Hawaii? Fine. The afternoon off to watch one of the kids impersonate a flower in the third-grade play? Of course. A “mental health” day or two or five? No questions asked.

Though not a new concept within the benefits community -- remember flextime? -- many companies have taken a fresh look at PTO plans, fueled in part by the influx and increasing importance to the economy of high-tech and knowledge workers, employees whose jobs are primarily task- and deadline-oriented.

Sixty to 80 percent of startups in the San Francisco Bay area, for example, offer unlimited PTO plans, says Brian Helmick, one of the founders of Algentis, a firm that handles human resources for tech companies in various stages of development.

Nevertheless, unlimited vacation time plans are still a relative rarity within the wider economy. According to the Society for Human Resource Management, only about 1 percent of U.S. companies offer unlimited PTO plans to employees, though most of those one-percenters seem happy with the results.

Like most things that sound too good to be true, though, it is.

“Unlimited” doesn’t really mean without limits. An employee who finishes a big project, say, and then vanishes to the south of France for six months to wander the vineyards of Provence is going to return 20 pounds heavier and one job lighter.

The irony for employees, in fact, is that without clarity dictating just how much time off they can really take, they often don’t take any – out of fear, responsibility, or just plain uncertainty – which only contributes to increased stress and resentment, undercutting one of the primary reasons for offering an unlimited vacation plan in the first place.

Two years ago, when Evernote CEO Phil Libin decided to institute an unlimited PTO plan, he worried so much about the potential ambiguity of the policy that he offered employees $1,000 to spend on their vacations, provided they stayed away from the office for at least an entire week.

Libin, whose Redwood City, Calif., company makes a popular app for note-taking and numerous other tasks, believes employees who don’t take vacations are harming themselves and the company. You’re not going to get a lot of work out of someone who hasn’t taken a break in awhile, he insists, adding that the thousand-dollar incentive worked pretty well to get the message across.

On the other side of the equation, employers who think instituting an unlimited PTO plan will release them from the time-consuming and onerous task of tracking worker vacations and sundry days off here and there are also mistaken.

More, not less, communication and scheduling is required to make an unlimited plan work effectively.
Managers need to be particularly aware that requests for time off are fair and don’t adversely affect departmental and organizational goals. Not everyone in the company can take the whole week off prior to Thanksgiving, Easter, Labor Day or the Fourth of July.

And even when an employee does complete his or her part of some overall project, a supervisor will have to query other team members to make sure the employee won’t have to stick around the office for the inevitable last-minute fine-tuning.

And then there are the legal wrinkles.

Jennifer Shaw, an attorney and benefits specialist at Shaw Valenza, a Sacramento, Calif., law firm, points out that firms offering unlimited plans are still required to pay obligations that accrue under the Family and Medical Leave Act and the Americans with Disabilities Act.

And though employers are not required to provide vacation benefits to workers, notes Fenwick & West attorneys Daniel McCoy and Dan Ko Obuhanych, once they do, state laws kick in mandating lump-sum payments of accrued vacation time to any employee leaving the company, which undermines the other major reason for switching to an unlimited plan: elimination of that costly burden. The average employee accrues about nine unused vacation days each year, according to a 2012 Hotwire survey.

Moreover, unlimited PTO plans can be difficult to apply fairly and consistently, particularly in large companies with a range of pink, blue and white-collar workers, cautions Jay Hux, a Chicago-based attorney with Fisher & Phillips.

Employees who feel unfairly treated under an unlimited vacation policy could well seek redress under Title VII of the Civil Rights Act. Lack of case law on the issue, Hux said, means no one really knows whether the courts will view unlimited plans as nothing more than a corporate money-grab at worker expense, and compel payment regardless of company policy.

Still, as long as care is taken to draft policies “so that FMLA and other legally required leave time is considered,” said Joan Casciari, an attorney at Seyfarth Shaw, “a company does not have to obligate itself to pay for such time off.”

As more businesses begin to experiment and adopt unlimited vacation time plans, the semantics are also beginning to change to more accurately reflect the concept’s actual intent and practice. Some experts in the field have tried to counter the “unlimited” misnomer by calling the plans “routine time off policies” or “professional judgment vacation policies.”

At NetFlix, for example, the unlimited PTO policy is considered just one part of an overall corporate culture referred to as “Freedom and Responsibility.” The company encourages its 2,000 employees to get their work done responsibly, to consider the needs of others in the organization, and only then to take reasonable time off.
For those firms considering an unlimited PTO plan, the experts have some advice:
  • Before doing so, allow employees a reasonable amount of time to use existing accrued benefits.

  • Pay employees for unused accrued time when the switch is made. It’s expensive but ties up loose ends quickly and fairly.

  • Foster predictability, fairness and efficient planning by instituting a first-come, first-served policy for time off during peak-demand periods.

  • Establish explicit rules regarding advanced notice requirements and time-off exclusions because of business factors unique to the company.

  • Stay aware of employees who are taking too much time, as well as those who are taking too little.

  • Poll employees a few months after implementation to learn what works and what doesn’t. Fine-tune as necessary.

  • Tailor plans to fit the particular culture and needs of the company. A PTO may exclude non-exempt employees, include all exempt employees, or include just senior executives.

  • Communicate the plan clearly to all levels of employees, particularly to those who might be excluded.
Originally published on BenefitsPro.com
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