If you are like the companies we work with you have at least considered going to an Unlimited PTO policy, and it sounds like it would be easy right. No more tracking when someone takes two hours off in the morning because they had to take their dog to the vet or because they worked 14 hours they day before. And it makes sense, you want to treat your employees like the adults they are not like errant teenagers who miss curfew.
The truth of the matter is Unlimited PTO isn’t quite so simple. While you can absolutely have a successful Unlimited PTO policy there are a few areas you should line out before you introduce the change to your company.
First, you still have to track the time that your employees take off… Sorry. Unless you have an entire office of exempt employees and have fewer than 50 employees total you have to track time off. The Fair Labor Standards Act (FLSA) requires employers to track time for non-exempt employees bottom line and if you have more than 50 employees you will need to track any time that qualifies under the Family Medical Leave Act (FMLA). Besides studies have shown that employees who are given Unlimited PTO actually take less time off. So if your goal is truly to emphasize work life balance you will want to make sure that your employees don’t fall prey to this trend; and the only way to do that is to keep track of what they are using. One additional issue with time tracking is accommodating for flexible schedules, will you ask that employees log any time under 8 hours in a day as PTO, or will your marker be 40 hours in a week?
Second, you need to consider what you will do to accommodate a longer leave. This comes into effect when you are considering longer leaves that employees may take, things like an extended illness or Maternity/Paternity leave. After all, with an Unlimited PTO a 12-week leave can get very expensive. You have some option when considering this, but what we would recommend is to offer Short Term Disability Insurance as a company paid benefit if you don’t already. This way when someone takes a leave longer than two weeks the insurance picks up the bill and pays the employee up to 60% of their regular salary. It is a fairly inexpensive benefit to offer and ensures a fair deal for everyone involved.
Third, if you are transitioning from an accrued PTO system, you will need to decide how you are going to treat current employee’s accrued PTO. Accrued PTO is treated as earned income in most instances, the notable exception being for exempt employees if you have a pre-existing company policy that makes it clear that the company will not payout for PTO. Even if you do have a policy like this you will still need to address accrued PTO for non-exempt employees. In most cases it will be easiest, though not cheapest, to buy out accrued PTO at the same time you make the transition to Unlimited PTO. If this is not an option for you can also continue to track unused accrued PTO and buy it back from employees as you are able. If you choose to buy it back over time, be careful to buy it back evenly from employees. For example, at year end buy back one day from each employee and do so every year or on a consistent schedule that works for your budget. Keep in mind though that if employees leave the company before you have bought all of their accrued PTO back from them you will need to pay them for it on their last check.
The last thing you will need to address is messaging. This will most likely be a large shift for employees and should be treated as such. While newer employees and employees who use all of their PTO each year will most likely be quick to support the move, there can be pushback from longer term employees or people who are used to thinking of their accrued PTO as a kind of savings account. You will want to be prepared to address questions regarding current accruals, how ongoing tracking will be done, how that information will be used and you will need to outline rules around compensatory or flex time particularly for exempt employees. Go over rules for how time
off requests should be handled, and how the company will decide if someone is under or over utilizing the freedom that Unlimited PTO provides. And don’t forget to leave the door open for you and your managers to make exceptions, if an unforeseen business need should arise.
Progressive and flexible HR practices are an area where small businesses can set themselves apart from the crowd, and Unlimited PTO definitely falls into that category. Please do not let this article dissuade you from implementing an Unlimited PTO policy if you feel that it will be a good fit for you company but do take the time to plan it out before you run with scissors. And if you want some help in the planning stages
we are always here for you, just shoot us your questions at info@hr-haven.com.