What Your Employer Won’t Tell You About “Unlimited” Time Off

Every once in a while I come across a posting where a company markets its “Unlimited Time Off” policy. While these are typically younger tech companies focused at attracting top talent, we also see industry heavyweights like GE (senior EEs) and Netflix with such policies.

The message is typically focused on trusting their employees, supporting their lives and families and eliminating the overall hassle of needing to plan around and report on vacation days. This all sounds great in theory, but how do these plans hold up in the realm world?

While I am not against such a policy, it does bother me employees don’t seem to fully understand the pros and cons of such a policy. This lack of understanding may actually disadvantage companies who do not offer unlimited time off to employees. In fact, experts estimate about 2% of companies have an unlimited time off policy. I believe that in general, such a policy works mostly in the favor of the employer and not the employee. Here’s why:

According to Glassdoor, approximately 75% of employees do not use all their eligible vacation days. There are a number of reasons cited, including fear of losing their job, fear of getting behind and no one else at the company being able to do the work. If employees have high anxiety of taking time off when they have clear accrued vacation days (sometimes also hitting a cap), I believe the level of anxiety would be significantly higher in an unlimited time off environment. At least when a worker has accrued vacation days it simplifies the conversation. There are no stats that I have found as to how much vacation employees take in an unlimited time off environment, but I would bet it is no more than in a limited vacation environment, and more likely less.

The biggest misalignment between the US worker and an unlimited time off policy is the fact that there is no accrual of unused time off, and therefore no payout on termination of employment. At a time when employees are anxious about taking time off and only 25% take all their vacation days, it means the majority of employees are losing money from such a policy.

As I said before, I am not blanket against an unlimited time off policy, but I think the market should understand this is primarily an employer and not an employee benefit. These benefits include no accrual of vacation days on the balance sheet (and hence no payout on termination), less administrative overhead of having to track vacation days and potentially attracting better talent with a time off story that sounds great.

There may be one big benefit to employees though. If these policies truly help companies attract better talent, then you may get to work with better people. This perk aside, it’s important for employees to completely grasp the disadvantages of an unlimited time off policy. It might look good at first glance, but keep in mind it’s more profitable to the employer.

3 thoughts on “What Your Employer Won’t Tell You About “Unlimited” Time Off

  1. ivojansch

    The title insinuates that there’s some evil scheme going on at companies with such a policy. That’s an unfair way to put it. As an employer with such a policy I may be biased, but I firmly believe this has benefits to both employer and employee. Correct, people don’t accrue days, but in countries where accruing is impossible anyway (such as the Netherlands; unused days are simply gone 6 months after the year ends), this is hardly an argument. And certainly not one to keep secret. ‘I’ve always wanted to go to Australia, can I go for two months?’ Is a lot easier to say yes to in a company where vacation is based on mutual trust. What I noticed in our company is that there’s a healthy discussion about responsibility. People are great at judging whether a vacation is warranted or not, and in return for that responsibility the company then doesn’t limit them in the amount of time they can take once they take it.

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    1. I was writing this article mainly with the US in mind. You can cap accrued vacation days but typically e.g. California you can’t just have them go away if unused… And while it may be theoretically true that it would allow you to go to Australia for two months in the US a two month vacation is not the norm and I think most employees would be reluctant to take that if they were on an unlimited days off policy. Folks typically do that on an official sabbatical which is part of the companies policy or they take some unpaid vacation. In Europe it may be different as most European countries have a culture and policy of more vacation days than the US.

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  2. Good points Andi! The reality is, that ‘unlimited vacation’ idea has quite a few ‘if’s and ‘but’s around it e.g. what if I want to take a week off every month? No employer would be happy with it.

    What would be better is, if the companies offer a hybrid policy. For example:

    “We offer unlimited vacations (minimum 24 days) and daily breakfast and fruits” – this way, the employees will at least have 24 holidays and that could be further increased under the ‘unlimited’ quota but never be decreased. Only then will I call it an employee friendly offer perhaps.

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