There are several legal concerns with transitioning to an unlimited PTO policy, says employment law attorney John Viola of the firm Thompson Coburn.

An unlimited PTO policy conflicts with the obligations set by some states that require the payment of accrued but unused vacation time on separation of employment. To avoid any problems in such states, employers’ unlimited PTO policies should:

• Clearly explain that employees’ ability to take paid time off is not a form of additional wages for services performed but is part of the employer’s promise to provide a flexible work schedule–including employees’ ability to decide when and how much time to take off;
• Spell out the rights and obligations of the employee and employer and the consequences of failing to schedule time off;
• Allow sufficient opportunity for employees to take time off or work fewer hours in lieu of taking time off; and
• Be administered fairly so that it does not result in inequities, such as where one employee works many hours and takes minimal time off, and another works fewer hours and takes more time off. See McPherson v. EF Intercultural Foundation, Inc., 47 Cal.App. 5th 243 (2020).

An unlimited PTO policy may create issues since it may be difficult to determine or police time worked by hourly employees while they are on PTO, which may be problematic under the Fair Labor Standards Act (FLSA) and certain state laws.

Unlimited PTO policies may conflict, or create, coordination problems with other paid and unpaid leave benefits, including mandatory paid sick leave, federal and state family and medical leave, pregnancy leave and military leave.

Companies offering unlimited PTO should keep in mind the freezing effect this might have on employees, according to Linda Noskewicz, Head of HR.

If managers don’t take time off (which often happens), employees may feel they must follow suit. In that case, they aren’t taking advantage of the benefit. It can result in lower productivity, burnout and decreased morale.

There are also legal implications, so companies should set a base requirement for PTO that must be taken each year. On a limited level, a few slackers out there may take advantage of the benefit, so staggering the “unlimited” PTO to one or two weeks at a time can be helpful.

For an unlimited PTO program to work, employees must be accountable for their work and meet their deadlines or face repercussions if those deadlines aren’t met, says HR Manager Kristen Pederson.

The company will also need a system to track when people will be on PTO so everyone is not out of the office at the same time. Have a good communication system set up with management teams and their team members to ensure:

• All employees are held accountable for their share of the workload, and
• No one is taking advantage of unlimited PTO.

With a strong group of accountable, happy, goal-oriented individuals, the unlimited PTO structure can be very effective.

Make sure you think through all the questions that will come up as well as any potential downsides, says HR Manager Ellen Huelmann. For example, consider:

• What will our approval process be?
• How will we handle any abuse of the policy?
• What if the policy is culturally embraced but workloads are too much for employees to take advantage of this benefit?
• What if an employee who has resigned says they were too busy to take any of their unlimited PTO and wants to negotiate some type of unused PTO payout?
• What if everyone wants to use PTO at the same time (i.e., spring break)?
• How will we manage interpersonal conflict if some team members use unlimited PTO frequently and their peers are frustrated by having to pick up more work on a regular basis?

If you do decide to proceed, a pilot program is advisable. Roll an “unlimited PTO” pilot program out on a trial basis, for say six months, and indicate that the success of the pilot will be evaluated at that time to determine whether it will become official policy.