Staying relevant in today’s market is a tough job for any employer, and now that employees are being offered flexible and remote work options, gym memberships, snack machines and yoga classes on-site, how do small business owners keep up? How can you attract the type of employee you want in your company, but not compromise core values or break the bank in the process?

One benefit that has been growing in popularity is unlimited PTO (paid time-off). The idea started at Silicon Valley tech startups and is now gaining traction in other industries. According to Fast Company, back in 2015, unlimited vacation policies changed the culture of one company significantly. It may sound a bit extreme to those of you who are used to punching a clock, banking your vacation hours for that much-anticipated trip to Hawaii, or “borrowing” time you haven’t yet accrued. But, it’s working for many companies, and it just might help you save money on employee hours spent tracking time off, and increase efficiency throughout your organization.

Misconceptions of Unlimited PTO

Let me start by saying that I know what you’re thinking. How can a company function if its employees can take off as much time as they like? It’s like letting a puppy roam free in your office space; no rules and no boundaries must equal complete chaos, right? So, let’s clear up a few of these misconceptions about unlimited PTO. This type of time-off policy does not give employees carte blanche to come and go as they please, but it does allow employees to request time-off without caps on the amount taken each year, eliminating the need to track time accrued on endless spreadsheets or internal time clocks, or even more painful on the pocketbook, paying an employee to maintain vacation records for everyone else in the office.

Where to Start

How can you, as a small business owner, make this type of policy work for your company? I would suggest starting with a written definition of what unlimited PTO in your organization looks like. Include this in your existing employee handbook and distribute it to your employees. I’d suggest that you include a requirement for employees to provide advanced notice as much as possible, especially for vacations that will last more than two days. Your written policy should also account for a step-by-step procedure to follow when more than one employee in a small department is requesting the same days off. Not only won’t your company function very well with an entire department shut down for weeks on end, but employees will want to know if seniority (or some other factor) plays a part in who gets granted vacation when there’s a conflict.

The Benefits of Unlimited PTO

At the end of the day, an effective unlimited PTO policy can certainly eliminate a lot of the “busy work” in maintaining a traditional vacation policy and the procedures that come with that. Another good bonus, policies like this give your employees the impression that management trusts them not to abuse the system, and can go a long way in boosting company morale.  An employer who offers unlimited PTO is essentially telling its employees up front that trust is a cornerstone of their organization – and that trust goes both ways. A policy such as this proposes a mutually beneficial arrangement in which employees are expected not to take advantage, and the employer is freed up to spend their administrative resources on tasks that will bring profit to the company, rather than tracking hours of vacation time, and requesting a time off slip every time an employee wants to attend their child’s award assembly at school or take a two-day camping trip.

As a small to mid-sized business, do you allow your employees to bank tons of vacation hours? If so, this is a potentially huge financial hardship to you when that employee walks out the door. Imagine having to pay out a vacation balance of 400+ hours on an employee’s last day of work. Wouldn’t it be more beneficial in some cases to have an unlimited PTO system with zero vacation payout when an employee resigns because there’s no accrual happening? Instead, it’s a simple “cut your losses and on to the next” mentality for both you and the employee, versus a pricey parting gift for your former employee.

Which leads to another question, will your employees be in favor of this policy change? Undoubtedly. It may bring its own challenges in terms of conflicts within departments when multiple employees are out at the same time, but this just gives you another reason to encourage cross-training across company departments. As change comes, workplaces will have to become more fluid in many of the traditional views and policies governing how people work. From non-traditional workspaces and floating office spaces to unlimited PTO and broad cross-training, the workplace is changing in so many ways, and keeping up with the business next door will require you to seriously evaluate how new policies and innovative ways of approaching traditional workplace issues can benefit your entire organization.

How to Set up an Unlimited PTO Policy

Below is the Cliffs’ Notes version of how you can change the rules of the game and shake things up with your business’ vacation policy. Say goodbye to vacation accrual and tracking time-off, and hello to loosening the reins!

  1. Create a policy document that includes the scope of the unlimited PTO offerings and any restrictions or expectations.
  2. Distribute it to employees, and update your current employee handbook with the new policy. Employees should sign on the dotted line acknowledging receipt and understanding of the new policy.
  3. Allow employees to set up their own cross-training and identify a backup to cover their desk. Put the responsibility in the employee’s hands to make sure these loose ends are tied up.
  4. Request advance notice from employees whenever feasible (but leave wiggle room for that unplanned scenario just in case).
  5. Restrict time-off during busy seasons if your organization is impacted by certain times of the year. Think blackout days at amusement parks and follow suit!

Although unlimited PTO is a little out-of-the-box for many small business owners, there are plenty of advantages of switching to this type of policy. The most important point to remember when modifying any workplace policy is to communicate it clearly to your employees (both in writing and verbally) which can eliminate ambiguities and frustrations when rolling out the changes.