If you are reading this, you already know that PTO stands for paid time off. Many of our clients have asked us the question if they should offer unlimited PTO, or an unlimited vacation policy.
I actually have a lot of feelings on this. There’s a couple different reasons why companies do this, one of the first ones is, it’s kind of flashy. It sounds really cool to new recruits, which makes the actual recruiting process a little easier - especially hard to find engineers. People like the concept of unlimited PTO.
There’s also a financial benefit to the company that’s probably driving a lot of this. In states like California and New York, when someone leaves the startup, you are technically required to pay them their outstanding PTO. So if an employee doesn’t take vacation - or if you have poor HR recordkeeping, this can get expensive. Some states require you to pay this out in a very short period of time, like 24 or 48 hours usually.
And so that’s a liability the company incurs along the way, and it’s real cash. For example, if you have someone with two or three weeks of vacation per year who doesn’t happen to be taking very much vacation, it can add up. You’re actually going to owe them a decent amount of money, especially if you have a startup with the “work hard” attitude, which is what many of the companies in Silicon Valley have. And so some founders think, “Hey, great we get the flashiness on the recruiting side and guess what, we’re not going to have to pay people when they leave. Like how great is that? We’re saving a bunch of money.” And so that’s what’s driving the unlimited PTO trend.
In my opinion, I’m actually slightly negative on unlimited PTO. And I have a couple of reasons why.
First, there’s the cultural problems. So you kind of have two buckets of people. The first more obvious bucket is people who abuse it and take too much PTO. So you have the people who just decide they’re going to take every Friday off, like that’s 50 days or probably 40 days a year. That kind of thing. You have the people who are going to take a three or four week vacation because they have unlimited PTO. And it’s hard for the people who are managing the organization, especially the middle management layer to push back against a definitive company policy and say, “Hey, you can’t take PTO” if your organization has an unlimited PTO policy.
So that’s a problem. And it does put pressure on the management team, especially middle management. And for a fast growth startup, middle management is a huge driver of startup culture. And so adding another thing, especially if you’re going through hyper-growth is very difficult. The second issue I see is, and this is, I’ve seen this documented in a bunch of places in surveys, people who have unlimited PTO, actually most of them perversely take less PTO. In fact, they don’t take enough PTO.
And so what happens is, there’s this building resentment slash burnout that can really creep into an organization. You can try to fight this a little bit by encouraging and messaging people to take PTO and reminding them it’s unlimited. But it’s just hard mentally when they’re not looking in their payroll account and seeing the number of days of vacation they have, or feel like that time is owed to them, for some people to take the time off. And so the nightmare scenario is those people burn out. They start lashing out and they actually create a very, very expensive HR problem at your company. Where you’re starting to lose good people. All because someone who normally would have been a fine actor, a nice contributor just got burned out because they weren’t taking enough PTO.
When you’re doing unlimited PTO it’s nice for recruiting and you don’t have that big amount to payout when a person leaves, but I really personally don’t think the financial benefit of getting rid of that liability is really worth the potential burnout and HR problems you could have with people who aren’t taking enough PTO. You should also note that you may owe accrued vacation to existing employees if you switch from an accrual vacation policy to unlimited PTO - consult with your accountant and HR partner!
Also, another reason is that you may put your middle management into a difficult enforcement situation. They are the ones who really have to enforce this policy and make decisions in the field that are tough to justify sometimes.
At Kruze, we have a PTL policy. People get paid out when they leave, we monitor it. We really encourage people to take vacation. It’s very healthy. It’s healthy for the organization long-term. So that’s my 2 cents, that’s what I recommend. If you have any questions or comments hit us up at kruzeconsulting.com. We’d love to answer your questions.