You may have heard a lot about “unlimited paid time off” and have the impression that more and more companies are offering this as a benefit to employees. But what is unlimited Paid Time Off or PTO, and is it right for your business?

PTO commonly means time off that can be used for any reason, including sick time, vacation or other personal time off. “Unlimited” means employees can take as much time as they want each year as long as they satisfy the performance and production requirements of their job. Employees will no longer “accrue” PTO under this type of policy.

Unlimited PTO can definitely have its pros, including:

• Boosting employee morale by providing more flexibility in how employees take time off and sending the message that you trust them to manage their time off.
• Unlimited PTO can be seen as a recruitment and retention tool.
• From a financial perspective, unlimited PTO can also help keep the financial liability of large, accrued vacation balances off the books.
• When done right, unlimited PTO can reduce the administrative burdens of tracking time and accruals.

Unlimited PTO may work particularly well for full-time, exempt employees in a non-production environment.

Although many companies have publicized the fact that they provide some of their employees unlimited amounts of PTO, there has been very little analysis of the legal issues that arise from having such a policy. In fact, these policies may raise a number of issues, including:

• The potential for inadvertently creating an accrued or earned vacation benefit that could be viewed in some states as an impermissible “use-it-or-lose-it” vacation policy, and an attempt to circumvent the obligation to pay accrued and unused vacation upon termination of employment;
• Compliance issues with mandatory paid sick and safe time and other paid time off laws;
• Challenges navigating the intersection of unlimited PTO and leaves of absence (e.g., FMLA, ADA); and
• Handling the transition from accrued to unlimited PTO.

While it may seem like a great way to enhance employee benefits, companies will want to carefully review the impetus for creating such policies, and determine if they are best suited for their employee population. Of course, it is always advisable to work with your employment counsel to assess these and many other considerations that may come into play for your organization. For more information on engaging employees in today's workplace, please reach out to your Littler attorney.