Why Unlimited Vacation Isn’t as Great as It Sounds

 

Microsoft Corp., Adobe Inc., Netflix Inc., and Goldman Sachs Group Inc. are among a growing list of companies switching from offering employees a fixed allowance of paid time off to unlimited vacation. To workers, it may seem like a dream. Such plans also can have benefits for businesses and even save them money. Yet there are potential pitfalls in the mix for both employees and employers that can make time off with no limits too much of a good thing.

1. Why would a company offer unlimited time off? 

There are several reasons: 

• Recruitment and retention: A Glassdoor study in 2022 found that employee reviews mentioning unlimited personal time off (PTO) policies were up 75% from pre-pandemic levels — and were overwhelmingly positive.
• Fight burnout: Human resources professionals say the policy can demonstrate trust and show workers that they’re valued, which can in turn improve morale and engagement.
• Save money: Companies don’t have to pay out unused time when an employee leaves like they would under traditional policies. The policy also means less administrative hassle.
• Executive freedom: Such policies are more common for executives whose jobs require them to respond to calls and emails even on days off, things that benefit the company. It’s also generally in line with other policies for executives, such as not clocking their precise office hours.

2. What are the cons for employers? 

• Can backfire: Recruiters like unlimited PTO because it helps them avoid wrangling over vacation time in negotiations. But if the company culture discourages taking leave, an employee may feel duped.
• Not a silver bullet: While unlimited PTO is a widely appreciated perk, HR experts say it’s not a panacea. To counterbalance burnout, more comprehensive workplace change may be needed.
• Potential abuse: Some employees are less responsible than others. If absenteeism becomes a problem, an employee may burden their coworkers and hinder productivity.
• Overlapping vacations: Without restrictions, certain times of the year like summer and winter holidays may bring lots of out-of-office messages. That may leave those still working without sufficient resources.

3. What about employees?

The policy doesn’t work with hourly employees, and it can breed inequity and inconsistency because it depends on the manager's approval. In addition, research suggests that employees often end up taking less time off under unlimited policies than traditional ones for fear of overstepping or losing an edge over those who stay in the office. That’s especially true in highly competitive industries like investment banking. Some people complain that the policies eliminate guidance on how much vacation employees should actually take.

4. How much time off do most people get? 

Of course, it varies by country and industry. The US is the only advanced economy without guaranteed paid leave; others like France, Germany, and the UK mandate employers provide some amount. That said, a 2021 survey by the US Bureau of Labor Statistics found that American private-sector workers got an average of 11 days of paid vacation after one year of service, plus an average of seven paid sick days. A 2022 survey by the HR consultant Namely found that US workers with unlimited days and those with a fixed amount end up taking about the same amount per year — 11 or 12 days. That was a marked difference from the 2018 results, which found those with unlimited PTO took 13 days while those with traditional plans took 15. It attributed the changes in part to economic factors and “uncertainties created by the global pandemic.” To counter the risk of weakening work-life balance, some employers offering unlimited PTO put in place a minimum requirement to take two weeks off each year, according to Namely. 

5. Is it just a fad? 

So far, unlimited time off is still relatively rare. Only around 6% of employers offer it, according to a 2022 employee benefits survey by the Society for Human Resource Management. Many, like Microsoft and Netflix, are in the tech industry, where competition for talent can be fierce. Still, it’s the most popular emerging benefit among US workers, with 72% in favor according to a 2019 MetLife report. Workplace flexibility has topped the list of employee priorities in survey after survey since the Covid pandemic opened the door to remote and hybrid work. HR experts say this preference for flexibility, from remote work to unlimited PTO, is likely to drive trends in employer benefits across industries for years to come.

The Reference Shelf

• For one workaholic banker at Goldman Sachs, unlimited vacation was a mirage.
• Bloomberg Opinion’s Sarah Green Carmichael weighs the pros and cons of such policies.
• Graphics on paid leave by the US Bureau of Labor Statistics.

— With assistance by Arianne Cohen