Five Steps to Implement an Unlimited PTO Program

UnlimitedPTO.BLOGAmericans, if they’re fortunate enough to have a job that offers vacation, average just 14 paid vacation days per year, according to a 2013 study by Expedia. The study also indicated that 67 percent of Americans work while on vacation and most don’t even use the full 14 days they are allotted. Do these statistics resonate with you and your organization?

Unlimited PTO Plans (UPTOPs) have captured the attention of the human resources community and claim to make it easier for employees to take the time off they need to find work/life balance. While that claim is dubious, they do a marvelous job of preventing accrual of PTO that must be paid out at separation.

Note: MSEC is concerned that UPTOPs may be susceptible to legal challenge. Accordingly, MSEC has adopted a wait-and-see posture and does not currently offer a sample UPTOP policy. However, because of their growing popularity, MSEC offers the following in response to member questions:

Pros

  • Employees enjoy autonomy and self-determination
  • Employees view their employer as forward-thinking, which helps attract the younger (Millennial) generation
  • UPTOPs eliminate the administrative burden of tracking time off and the financial burden of paying out earned and unused PTO upon termination

Cons

  • Managing time off under the ADA and FMLA can be challenging
  • Employers must determine what to do with existing accrued PTO or paid vacation
  • Usually, once vacation or PTO is earned, it cannot be forfeited
  • The potential for abuse is high

Implementation Steps

If you decide to implement an unlimited PTO program, here are five recommended steps:

Step 1: Decide who is eligible.

It’s up to you as the employer! Certain jobs, or levels of jobs, may lend themselves to UPTOPs while others may not. You may decide that only exempt employees receive the UPTOP benefit, or maybe only the executives.

Step 2: Figure out payroll logistics.

Work with your payroll vendor if you have one and find out if there are system programming issues. For the existing PTO or paid-vacation bank, you have a few options. You can pay it out, let it run out before the employee can use UPTOP, or pay out a percentage over the years. Other payroll considerations may include tracking PTO hours worked under the Affordable Care Act, federal time-tracking requirements, and making sure you are compliant with special local/state sick-time programs.

Step 3: Decide how you want leaves and the UPTOP to work together.

You will need to coordinate any paid leave benefits like short-term disability, long-term disability, and workers compensation with the UPTOP. For example, you will need to decide how to treat UPTOP usage during newborn bonding leave under the Family and Medical Leave Act (FMLA). Be sure to work with your disability leave and workers’ compensation providers when establishing coordination policies. Also, be sure to include a guideline explaining the leave and UPTOP coordination in your employee handbook, and make sure this benefit is managed consistently.

Step 4: Train your managers.

This step is critical. Managers will most likely be the ones approving the UPTOP time off for employees and will need training. You can already hear employees complaining, “Why did Johnnie receive three weeks off while I was denied?” Managers will need clarity on how to balance the business need with approving time off in a non-discriminatory manner. They can set parameters with their teams so that everyone knows when they can’t take time off—for example, during a busy season—and when they can. Managers can also create a leave calendar where employees coordinate with each other to make sure there is appropriate coverage to meet business needs before requesting time off.

Step 5: Communicate with employees.

You will need to communicate to employees the job titles and/or levels that are eligible for UPTOP and which are not. You will also need to anticipate how employees who are not eligible for UPTOP may feel about it and how you will respond. Also, you will need to address the concerns of employees who feel their bank of paid time off or paid vacation time will be going away (even though it is still available until it is exhausted).

In the right situations, unlimited paid time off plans afford your employees great flexibility in managing their time off. There are, however, practical implementation issues that need to be considered to maximize the program’s effectiveness, foster employee morale and understanding, and minimize legal risk.