Unlimited Paid Time Off for Startups: Pros and Cons

Many early-stage startups offer unlimited paid time off as a benefit. There’s a lot to recommend unlimited PTO: It shows trust in your employees and lowers administrative burdens. On the other hand, employees can very easily take too much (or too little) time off. So does unlimited vacation actually work for startups? We’ll break down the pros and cons of the policy, and provide ways to mitigate its downsides.

Advantages of unlimited vacation time

The effect of vacation time on productivity is well-documented: Taking time off boosts concentration, creativity and morale. And since startups pride themselves in fostering autonomy, trust, and self-awareness, giving employees full rein to take vacations can be a recruiting tool as well as an investment in long-term productivity.

Unlimited PTO does the following:

Avoids burnout

First and possibly most important, unlimited PTO allows your hardworking employees to recharge mentally and emotionally. Not only do startup employees keep longer hours at the office, they often take work home with them. While 15 days’ vacation may be sufficient for a truly 9-to-5 workplace, it may not be enough for 50- or 60-hour workweeks.

Builds a culture of trust

Part of the reason people sign on with an uncertain, more demanding, and sometimes lower-paid startup job is that they value independence and confidence from their managers. Unlimited PTO is a great way to show employees that you don’t care how work gets done, as long as they do it.

Fits the flexible nature of startup work

The implied contract in many startups is “Since we’re asking you to work much more than a large company, we’ll let you decide how and when you work.” A 12-hour workday is much more palatable if part of that work is done at home, doesn’t start at exactly 8:00 every day, or is broken up with a two-hour gym session. Particularly if you have remote workers and flexible work hours, unlimited PTO fits nicely with the just-get-it-done ethos.

Suits the feast-and-famine startup work cycle

The buildup to a major launch can require around-the-clock work from the entire company – and lead to great output. Crunch mode productivity, though, isn’t sustainable in the long term: Research shows that employees who consistently put in more than 40 or 50 hours a week are less productive than those who only do so infrequently. If you’re asking the team to go through three or four pedal-to-the-metal cycles a year, unlimited PTO lets them recharge and get back to a sustainable schedule. This can also be helpful if different positions have different work hours. If three engineers are working 60-hour workweeks and trading on-call shifts, it’s not unreasonable for them to take more PTO than another employee who works a set eight hours a day.

Lets sick people stay home

If you have a set number of vacation (or split out vacation and sick) days, employees may come in to work even when they’re not feeling well, rather than use precious time off. Contagious workers in the office are a pretty clear productivity killer – especially with open floor plans.

Minimizes paperwork

The process of filing for vacation, getting it approved, and tracking vacation time can be cumbersome, particularly for companies with no or small HR teams. Unlimited PTO lets you avoid these administrative burdens.

Cuts down on complexity

If you have a set number of vacation days, you’ll have to think about rolling over unused PTO, payouts for employees who leave the company, prorating vacation for those who join mid-year, half-days, and working holidays for an extra vacation day. Unlimited vacation wipes out these concerns.

Looks great on the careers page

As unlimited PTO gains popularity, more and more startups advertise their vacation policies to potential new hires, along with benefits like an employer-matched 401(k). The policy gives you a leg up on larger companies, and is increasingly becoming standard for smaller ones. This type of benefit also stands the test of time in the way that ping pong tables don’t. See “Silicon Valley is Growing Up: How Startup HR is Changing” for our take on this.

Where unlimited vacation falls short

Of course, there are downsides to giving employees and managers full discretion on vacation days. Unfortunately, the policy also does the following:

Actually deters employees from taking vacation

Ironically, one of the most important concerns with unlimited PTO is that workers may not actually take it. Just as those who stay at the office are viewed positively even if they’re less productive, so-called “vacation martyrs” can gain managers’ favor even as they fast-track their own burnout. As we mentioned before, taking a break is beneficial to the company long-term; a 24/7/365 working standard is unhealthy for employees and employers alike.

Can be subjective and/or unfair

“Unlimited” usually means “subject to manager’s approval.” This policy is completely reasonable, allowing managers to time breaks around crunch times and other teammates’ schedules. However, it relies on subjective judgments – certain managers may be stricter, or one might be more likely to grant requests from certain employees. Even if this isn’t the case, employees’ perception of bias can erode morale.

Puts a burden on one-person teams

If you have exactly one salesperson, engineer, office manager, etc., it can be difficult to cope when they’re away – especially for the long chunks of time that allow employees to truly rest and recharge.

Can be abused

Obviously, if you give employees free rein, they might take advantage of your generosity. However, abusing unlimited PTO is a symptom, not a disease – it’s an indicator that an employee is a poor fit or that the culture needs readjustment, not a mark against the policy itself.

How to avoid unlimited PTO pitfalls

Many studies show the benefits of unlimited vacation to both company and worker. Even if you’re not on board, you might eventually have to implement the policy to attract top talent. So how can you enjoy the benefits while mitigating the downsides?

Establish mandatory minimums

Make sure that “unlimited time off” isn’t translated to “no time off.” Minimum vacation time forces your employees to recharge. Depending on your business, you can try policies like:

• Vacation bonuses. Evernote, for example, offers $1,000 bonus for employees to encourage them to actually take their vacations. Womply offers “Real PTO” to compensate salespeople in particular for lost commissions on their vacation days.

• Office shutdowns. The week between Christmas and New Year’s is a common shutdown period.

• Half-day Fridays or every other Friday off during the summer. Because let’s face it, many people duck out early anyway.

• Quarterly minimum vacation days. This ensures that employees recharge regularly and stay sharp.

• Mandatory block leave. For example, you can require two one-week breaks or one two-week vacation.

Set a good example

Many workplaces have an unwritten standard that employees can’t leave before their bosses do. They look to you for guidance on how much, how long and when they should work. Take advantage of the unlimited vacation policy yourself – not just for your own sanity, but to show your team that PTO is encouraged. (While you’re at it, you can set communication limits too – TV producer Shonda Rhimes famously doesn’t check her email after 7:00 or on weekends, and encourages her staff to do the same.)

Implement a lightweight request procedure

While you don’t want to get bogged down in paperwork, some clarity helps both managers and employees. Outline how early employees should request time off and when they should be in the office (e.g. two weeks leading up to a launch). This way they can reference it in the future as needed and you’ll spend less time fielding individual questions.

You may also have your team cc the COO or HR when they ask their managers for PTO, so you can flag employees who take too much (or too little) time off, or managers who inconsistently approve or deny requests. While it may be tempting to make and receive all these requests in person, it’s best to have a “paper trail” so that you can keep an accurate count of requests and have a record of all communication.

Zenefits has a lightweight Online Time Off Tracker built into their HRIS, if you want a more automated system. This may work better than email for larger teams. Any other time off trackers you’ve tried and loved (or hated)? Let us know in the comments!

Build a “next man up” system

If employees think no one else can do their job (or worse, if their managers think so), they won’t feel comfortable taking the time off they’re entitled to. Managers should establish “next man up” systems for their teams so that urgent requests for an absent employee can be forwarded to someone else. This is especially important for one-person teams where the next man up isn’t simply another squad member. Office managers who don’t have operations teams, for example, may not know who should take care of lunch, invoicing, etc. while they’re on vacation. They can feel compelled to check email on vacation or simply not take breaks at all. Next man up systems encourage employees to take and managers to grant PTO – and can be more generally useful in case an employee gets sick, has to take a longer-term leave, or quits.

There’s a lot to recommend unlimited PTO, ranging from fostering trust to reducing overhead. Implemented correctly, it keeps your employees happy, motivated and productive.