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Pitfalls of Unlimited PTO Policies

Posted by Giuliana Gabriel, J.D., HR Compliance Director on February 1, 2024

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Unlimited Paid-Time-Off Programs have gained popularity amongst many employers, but is unlimited PTO really the way to go? 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, make sure you consider the following:

Employee Satisfaction

While unlimited PTO might sound enticing during the recruiting process, many employees 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 often leave people wondering exactly what amount of time taken off would be frowned upon by management. Many employees are skeptical whether it 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 also 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.

Some things are too good to be true and Unlimited PTO plans for businesses in California may fall into that category. 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!