A couple of years ago, Tom Halterman decided that the 55 employees of his medical therapy management company, OutcomesMTM, should take as much time off as they want.

As long as their manager approves, and they get their work done.

The human resources industry calls it unlimited paid time off, or PTO. Some big national companies have gone to unlimited vacation and sick leave, and a few small companies have tried it in Greater Des Moines. 

With companies competing for new hires, especially for skilled workers, and a culture that pushes for more flexible work hours, what once seemed an outrageous idea is getting some attention.

Policy shows trust 

A check of three Greater Des Moines businesses that have tried the approach — Halterman’s company, an advertising agency and an assurance, tax and business consulting firm — found that a policy of unlimited paid time off showed trust in employees and helped them recharge when needed. In general, employees love it, the companies report. Usually, their employees don’t try to take too much time off. Most need to be nudged to take enough time off to stay fresh, managers reported. (See sidebar for details on these case studies.)

There is no big movement to unlimited PTO, but companies that have tried it say it’s not as wild an idea as you may think. Nationally, just 1 percent of U.S. companies offer unlimited PTO, reports the Society for Human Resource Management. Another 2 percent have thought about it.

Fears that employees would be gone for months on vacation or sick leave under the policy appear to be unfounded. 

Companies that have tried the unlimited approach found that workers tend to take less time off than under traditional plans that give a set amount of vacation. Americans are fairly lousy at taking time off as it is. The U.S. Travel Association reports that 40 percent of Americans don’t use all their vacation days, even when a set amount is allotted.

The policy of unlimited PTO seems to work better in creative and technical fields, but it’s a tougher sell in manufacturing and other assembly-line businesses.

Regardless of the field, some managers fear, often erroneously, that employees will abuse the privilege and take too much time off.

“In the past, I have worked for an organization without a fixed vacation policy,” said Grace Van Cleave, senior director at Stella & Dot, a social selling operation featuring boutique-style jewelry and accessories. ”While many employers fear the policy will be abused, in my experience, I found the opposite was true. Employees do not feel entitled to their vacation days and therefore use less. Less time off equals higher burnout.”

Often, opposition revolves around fear of abuse, though managers typically still must approve time off to make sure the work gets done. 

“I imagine this could be challenging for companies that depend on all employees to contribute to the profit and growth of the business,” said Howard Tempero, experience design strategist at Spindustry Digital. “How do you project business goals or estimate project completion dates when employee participation is a constantly moving target? It would also remove vacation as a negotiation lever in compensation discussion.”

Idea gains ground nationally

Check in with local human resources executives and employment agencies, and you get the idea that unlimited PTO has not caught on in Des Moines, and probably won’t spread widely even among companies that are pressed to hire enough skilled workers.

But nationally, the idea is slowly gaining ground, on a small scale. Local human resources representatives couldn’t name a larger company in Greater Des Moines with unlimited PTO. But published reports around the country list some big national names among those that have installed the policies including, Netflix, Evernote, Richard Branson’s Virgin Group, Expedia and Best Buy. 

Evernote upped the ante by offering a $1,000 bonus to employees who took a whole week off.

Some think that the sheer competition for workers, and the need to truly support work-life balance, may make some incarnation of these policies more popular.

“Companies have gotten a bit more flexible with vacation, but we’re not seeing a movement toward unlimited PTO,” said Mike Gremmer, regional vice president for Robert Half.

Sarah Charlier, president of the Central Iowa chapter of SHRM and a human resources business partner at Merit Resources Inc., said a couple of companies in Iowa have talked to her about the idea. “But I haven’t heard a ton of buzz in the human resources world on that,” she said. “We all may be reserving judgment to see how it works elsewhere.”

“The concept of unlimited PTO really plugs into the company culture,” Charlier said. “It is absolutely differentiating, but it doesn’t fit some cultures well. Sometimes it isn’t feasible if you need boots on the ground or people on the phone all the time.”

Workers wonder about intent

There are certain workers who wouldn’t change their workaholic ways even if their company offered unlimited time off. “If you are very career-focused and well-paid person with interesting work, you enjoy your work and you are not interested in taking off for long periods of time,” Charlier said.

But in some creative fields, and in smaller tech companies, it might make sense, Charlier added. “It can be a real morale booster,” she said.

An Iowa State University management professor wonders how many Central Iowa companies will try the approach.

“It may sound very attractive, but I don’t think many companies will have the flexibility to do this, and if they do, not many employees will take them up on it,” said Paula Morrow, Max. S. Wortman professor of management at Iowa State.

Morrow added that many companies are being pressured to offer paid sick leave at all. A surprising percentage don’t. 

“With 39 percent of U.S. employees not receiving any paid sick leave, I see such a huge gap right now that it is probably unrealistic to talk about unlimited paid sick leave” or unlimited vacation, Morrow said.

David Leto, executive vice president of Palmer Group, said he’s worked with a few companies that have unlimited PTO.

“We do hear about it,” he said. “We have a few clients with it. It’s not something we are seeing a ton of yet.” 

Entrepreneurs buy in 

Small entrepreneurial companies tend to be the most common backers of the policy, Leto added.

“I would see more work-at-home than unlimited PTO” in the future, he said.

Stocking, the ad agency executive, isn’t surprised by the lack of unlimited PTO policies.

“I can’t say if the policy is universal or would work for a large organization,” she said. “I certainly agonized about it before deciding to put it in place. But for our midsize agency, when everyone is on board with our mission and rely on each other, people take the time they need and not much more. I’ve always believed that if you trust people, they’ll rise above your expectations, and that’s been the case so far.”

It’s not all rosy. Sometimes there are legal issues.

The Los Angeles Times announced an unlimited vacation policy for salaried, nonunion employees, but scrapped it when some workers complained that they would not be paid for accrued vacation, SHRM reported.

Massachusetts Institute of Technology professor Lotte Bailyn told Business Insider last fall that the policies can lead to choice overload, like staring at too many items on a store shelf. She also wondered if the move is more about style points than worker welfare.

“People take less time off because they feel they’re not sure if this is really a commitment to them or that this is more of a PR thing,” Bailyn said. 

Case Studies

If anything, his employees don’t take enough time off. “We haven’t had people abusing it,” Halterman said. “I’ve been concerned they haven’t been using enough. We are reassuring employees it’s OK for them to take time off.”

Katie Stocking started her advertising agency, Happy Medium LLC, in 2011. She, too, eventually decided her employees should be trusted to get their jobs done, regardless of how many hours they put in.

“I started Happy Medium with the defining values of honesty and transparency, and that extends not just to our clients but also to the people who work here,” she said. “I’ve worked in places with limited PTO, and it can be constricting and counter to the type of creative environment I have worked hard to create.”

So, in 2013, Stocking started offering unlimited paid time off. “The employees are legitimately happier,” she said. “It’s a genuine relief to people to know that vacation days are never something they have to worry about.”

“The cons are, of course, the potential that your employees are gone all the time,” Stocking said. But managers still have to approve the time off, and “we have a tight-knit group here, and we did the work to communicate to everyone that taking time off means doing more work immediately beforehand and delegating in their absence,” she said. “So far, nobody has abused the policy and employees appear to love it.”

Bill Pinegar, human resources manager for McGladrey LLP, and a former employee at OutcomesMTM, also sees benefits. McGladrey offers unlimited PTO to those at the director level or higher.

“It supports our culture of employee empowerment,” Pinegar said. “We trust these employees to manage their work-life balance, and unlimited vacation is the best way we know how to accomplish that.”

Weighing the pros and cons

Advantages
– Boosts morale.
– Could help recruiting.
– Eliminates the need to track time off.
– Encourages responsibility.

Disadvantages
– Could cause legal or financial trouble over payments for accrued vacation. 
– Workers could be confused, or feel pressured not to take vacation.
– May not work for manufacturers and some other employers.
– In rare cases, employees may try to abuse the privilege, though generally managers still have to approve time off.

Online poll finds differing opinions

Business Record online readers tended to support the idea of unlimited paid time off in an unscientific survey taken beginning Feb. 26.

After two days, the poll, conducted using SurveyMonkey, had recorded 151 responses, with 71.5 percent in favor of unlimited vacation and sick leave, and 28.5 percent opposed. Many readers provided thoughtful critiques of the unlimited PTO policies, which are examined in this issue.

A majority of employees, middle managers and executives said they would support this type of policy. Only among the CEOs and presidents did a majority say they wouldn’t. Again, this was an unscientific survey, so the results do not necessarily reflect the actual breakdown of opinions in this market. In large part, we were more interested in readers’ comments about the idea.

Many respondents said they like the idea, but some wonder if it would work well in practice. There was widespread fear that employees would feel pressured not to take much vacation at all, defeating the purpose of the move. Some suggested an employer offering unlimited PTO should require employees to take a certain amount of vacation as a base, plus whatever time they wanted to add for more vacation or because they were sick.

Many thought abuse would be minimal, and not much different than under conventional plans that award employees a certain amount of vacation and sick leave.

Employees made up the largest segment of respondents at 36 percent, followed by middle managers at 26 percent. Executive-level managers comprised 22 percent, and top executives such as CEOs accounted for 16 percent. Those figures are rounded. Age brackets were fairly evenly represented, with slightly fewer in the 40-49 and 60 and over segments.

Survey Responses

Here is a selection of comments from respondents for and against unlimited PTO

Favor

The bottom line for any good employee should be to get the work done that is assigned to them, and if they complete the task at hand in less time than expected, there should be no reason not to allow them to take some additional time off. Getting away from the day-to-day allows someone to refresh and recharge so they can be more efficient when they return. Taking time off should be a requirement.” 
Jim Boyd, news director, WHO radio

I currently work for a company that has unlimited vacation. This benefit is invaluable. This lack of structure surrounding paid time off has removed unnecessary stress from our work environment. There is peace of mind knowing I can take time off whenever I need it.” 
Liz Mooney, technical specialist, OutcomesMTM

I believe that PTO is one affordable way to have a huge positive impact on employee morale. Having gone from a company that offered a fairly generous PTO package, to one that offers VERY limited PTO, I know firsthand how directly the OPTION of time off impacts how you feel about the work you are doing and the employer you are doing it for.”
Stacey Nay, office manager, Silent Rivers Inc. 

Working professionals understand the “job and accompanying goals” that need to be accomplished and will strive diligently to succeed. Those who do not should be addressed by managing the people and not through a ‘process.’ Implementation would create a more successful environment for those driving the same successes companies depend on.” 
Anonymous employee, age 50-59

If you treat employees with respect and trust, the employer will benefit from an enthusiastic and motivated workforce, which leads to greater revenues and profits.” 
Anonymous executive-level manager, age 40-49

Oppose

A few employees would likely abuse the policy, causing stress and hostility from those who do not.” 
Anonymous middle manager, age 50-59

Since it is paid time, I believe it would be abused. No one wants to work, really. If you could stay home, do nothing and get paid, why wouldn’t you?”
Anonymous employee age 40-49

I’ve seen too many co-workers over the years that make a concerted effort to use every hour of vacation and sick time possible whether needed or not. Sad, but true.” 
Anonymous middle manager, age 50-59

My wife had unlimited vacation a long time ago at one of her jobs, and it was awful. There is intense peer pressure to not take vacation. And your peers are keeping track, even if your employer isn’t. It is a bad situation for an employee and ultimately for an employer as the employees begin to distrust each other.”
Anonymous middle manager age 50-59