Pitfalls of Unlimited PTO Policies

By Giuliana Gabriel , J.D., HR Compliance Director

Unlimited Paid-Time-Off Programs have gained popularity amongst many employers, but is unlimited PTO really the way to go? Some things are too good to be true and Unlimited PTO plans for businesses in California may fall into this category. There are a number of reasons California employers are cautioned against these plans, ranging from employee satisfaction to compliance. If you have an unlimited PTO policy or are contemplating one, consider the following:

Employee Satisfaction

While unlimited PTO might sound enticing when during the recruiting process, employees often become disillusioned by these programs. Statistically, employees who fall under unlimited PTO programs end up taking off less time than those who accrue their benefits. The ambiguities surrounding an unlimited PTO program can leave employees wondering exactly what amount of time taken off is acceptable or frowned upon by management. Therefore, many employees are skeptical about whether the time off is truly unlimited. And, savvy employees will figure out that most unlimited PTO programs do not have any cash out value should they leave your employment.

Compliance Concerns

In California, unlimited PTO also creates compliance concerns for employers. For example, there is an argument that if PTO is truly unlimited it could turn every leave of absence into a fully paid leave. For example, if an employee goes out on a lengthy family and medical leave (under CFRA/FMLA), or needs to take leave as a reasonable accommodation (under ADA/FEHA), you may be on the hook to pay for the employee’s entire absence.

We recommend having a separate mandatory paid sick leave policy, to ensure compliance with California’s requirements and to avoid extending all of California’s PSL protections to your unlimited PTO program.

For those employers with unlimited PTO policies, we recommend you consult legal counsel on these potential risks, and also include the strongest policy language possible to carve out protected leaves of absence from your unlimited PTO program.

Do you need additional guidance or assistance with handbook policy customization? Reach out to CEA’s HR experts at 800.399.5331!