Benefits Column

Creating an Unlimited Paid-Time-Off Policy

When crafting an unlimited paid-time-off policy, HR leaders need to assess important variables including how workers use and carry over their paid-time-off, and the size of their long-term staff.

Monday, September 24, 2012
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Time off from work is important to me. So critical, in fact, that I negotiated additional paid-time-off with every employer who recruited me. But, I never once took all the time I accrued. What I wanted was assurance I could take a breather from work or be available to my family when needed.


When I took a break from business, my employers benefited, too. I often created my best ideas while I was playing.

Paid-time-off along with paid vacation and sick leave are on many HR executives' radars lately. As companies try to produce more with fewer employees, reducing paid absences appears to be a viable option to increase man-hours.

On Aug. 30, a Hartford, Conn.-based healthcare company announced its decision to eliminate PTO-bridging for returning prior employees, along with capping its workers' paid-time-off accrual rate "to better align [our] expenses with those of other healthcare companies." The 2,500 employees with more than 25 years of service were the only workers impacted by the PTO reduction.

For publicly-traded companies, reducing the line item associated with accrued compensation and benefits -- under which paid absences are recorded -- improves their balance sheets.

But, there is another option, which more employers are considering: unlimited PTO.

I first wrote about unlimited paid leave after reading Rosemary O'Neill's blog post entitled Unlimited Paid Leave? Oh Yes. O'Neill, president of the social-media company Social Strata, used her blog to publicly announce the new benefit's availability to her full-time employees.

More than two years later, O'Neill reports she doesn't regret her decision.

"The staff took the policy in the spirit it was given," O'Neill says, "and felt tangibly respected."

Social Strata benefited from a work environment infused with "trustworthiness" and has retained 100 percent of its employees. That says a lot about the company, particularly in the technology industry, where competitors and start-ups constantly recruit good engineers.

When I initially began tracking the unlimited vacation concept in 2009, the majority of employers using this benefit were tech firms. Now, most inquiries about how to get started come from a range of companies, including law firms, manufacturers and non-profits.

So, here's my advice for HR leaders as they consider going down the unlimited PTO road.

Start the process with a brutal evaluation of the company's culture, including a clear understanding of how employees will react.

For me, the culture litmus test is whether a company possesses an established track record of managing by objectives and/or functions as a results-only-workplace-environment. If not, moving toward these operating principles is key before taking on any flex-time policy, including unlimited PTO.

Contemplate how employees will respond to changes in paid leave. Important variables to assess include how workers use and carry over their paid time off and the size of your long-term staff. People who've worked for the same firm for many years may resent being placed on the same PTO playing field as new employees.

Many employers limit their initial foray into unlimited PTO to exempt employees who are accustomed to working as needed to complete projects.

Donavon Roberson, a culture evangelist, helped New Hampshire-based Dyn establish a Take the Time That You Need policy in May 2012. He learned several early lessons.

Even when your company uses ROWE, it may be harder to understand and measure results in some areas such as human resources and accounting. Work with managers before releasing the program to establish how to review employee performance and manage employee time-off.

O'Neill advises HR executives and managers to remain cognizant about how to fire employees when warranted.

"You have to take care of performance problems as quickly as possible," O'Neill warns, "or you will destroy your own ecosystem."

Brian McDermott, an Indianapolis-based labor and employment lawyer as well as a shareholder at Ogletree Deakins, recommends employers clearly communicate the benefits and expectations of the unlimited PTO policy to managers and employees.

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It is important to understand the state labor laws where an employer operates. But, generally, McDermott advises that an employer states it does not offer vacation or paid-time-off. Instead, employees are free to work when they want -- as long as they meet their objectives.

The company should also advise from the beginning that employees who leave the company are not owed PTO or vacation payments.

McDermott suggests employers announce the unlimited PTO policy prospectively to allow employees and managers time to transition.

Netflix -- which has not offered vacation to exempt employees since 2004 -- does not track time off. HR leaders should consider, however, tracking when workers take paid leave.

Social Strata records employees' time off. This is due to a clause in their leave policy which requires staff to take a minimum of two weeks away from the company every year. Since the two-week-minimum is stated, employees who may leave the company will be paid the equivalent of two weeks salary less whatever time they have taken off during the calendar year.

Dyn tracks employee time away for several reasons, including making certain employees balance between taking too little and too much time off and to account for the waiting period for short-term-disability benefits.

Tracking, too, will help employers prove compliance with disability, paid sick leave and family medical leave regulations.

Dyn has safeguards in place as well. Employees who take more than 10 continuous days away from work must receive the manager's approval, and more than 15 days off the job requires a vice president's approval.

Finally, it is important to review the impact of an unlimited PTO policy at least annually. Both Social Strata and Dyn look at employee utilization on a monthly basis.

Even though Dyn only released their policy four months ago, they compared time away under the new program with the same time period last year. They found no difference in time away from work. And the employees love the program.

So, HR executives who find themselves charged with maximizing employee performance and reducing the balance sheet liability associated with paid absence have a new option to explore -- unlimited PTO. The concept brings smiles to most employees' faces and can improve the bottom line.

Carol Harnett is a widely respected consultant, speaker, writer and trendspotter in the fields of employee benefits, health and productivity management, health and performance innovation, and value-based health. Follow her on Twitter via @carolharnett and on her video blog, The Work.Love.Play.Daily.

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