If you know anyone who works at a buzz-y tech company, you may have heard some complaints about one of the “perks” frequently offered at startups. Unlimited paid time off (PTO) is an increasingly popular benefit because employers competing to recruit top talent believe it gives them a leg up over other companies. Infinite vacation sounds like a dream come true to most candidates—but that’s often just an illusion.
The reality is, unlimited PTO usually benefits employers far more than the employees who are tempted by its promise of never-ending tropical getaways. In addition to the recruitment boost it provides, employers can use this benefit to save on attrition costs, simplify payroll functions, and even discourage employees from taking extended vacations. These are likely the real reason why unlimited PTO is becoming as commonplace among startups as bottomless snack drawers and ubiquitous kegerators of cold-brew coffee.
There are a couple of major reasons why this perk usually isn’t mutually beneficial to employees, however:
Unlimited PTO is not compensation
If you’ve ever worked at a company that offers earned PTO, you probably noticed that your available days off accumulate throughout the year and are tracked on your pay stubs. That’s because you’ve earned those days as part of your personal compensation package, and you can use them at your discretion. Any unused portion of that time is still yours, though. At the end of your employment, your employer owes you the monetary value of the unused time off you earned.
On the other hand, unlimited PTO is not earned, therefore, it is not part of your personal compensation package and it can never be owed to you. This means the opportunity for a cash payout at the end of your employment is eliminated, which saves costs for companies with high attrition rates. They can avoid paying out PTO balances to every employee who leaves. And because unlimited PTO isn’t earned, the employer doesn’t even need to track it as part of the payroll function. On the books, unlimited PTO really means no PTO.
The value of unused earned time off is especially relevant to millennial candidates, a demographic that changes jobs every two to three years, on average. That week or two of unused earned PTO could amount to a couple of thousand dollars in compensation that you’ll give up by signing on for unlimited PTO.
Competition dictates behavior
You may think, “Who cares if I don’t get paid out as long as I can take as much time off as I want while I’m employed?” It’s a great point, but competition can make it difficult to actually take advantage of unlimited PTO. Talent is a market, and you’re always competing against other talented people. There are few environments more competitive than working on a team within a rapid-growth startup that pushes for “moon-shot” goals.
Competition can be stressful, and it often impacts our day-to-day decisions. How long should you take for a lunch break? Can you afford to slip away to a doctor’s appointment for a few hours? How does your time management look to the rest of the team who regularly stays in the office late to get work done?
Competition also affects our decisions around taking time off. How much time off is too much? When is a good time to take a vacation? If I take a vacation, will that change the way my boss currently relies on me over my peers? Will I be taking my work with me while I’m away, anyway?
When PTO is earned, it’s way easier to justify using it. When it’s not earned, it might feel more like you’re taking what’s not yours. It’s a fact that employees who have access to unlimited PTO actually use less vacation time, which may be another reason why it’s so appealing to some employers.
Flywire’s approach to PTO
When candidates ask me if Flywire offers unlimited PTO, I’m proud to tell them that we do not. Instead, Flywire offers more than six weeks of total time off per year, which includes earned time off as well as holidays and floating holidays.
We work hard at Flywire, but studies consistently show that it’s critical to take time to rest. By creating space in our lives away from work, we’re able to maximize our productivity while at work. Plus, there is no guilt for taking what’s yours when you’ve earned it. This is a real perk with no catch. It’s yours. It’s tangible.