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When deciding on your employee PTO policy, you have to take various pros and cons into consideration as well as the legal requirements for your state. — Getty Images/Morsa Images

Paid time off (PTO) is an important benefit that helps employees maintain a healthy work-life balance. As an employer designing a PTO policy, it’s vital to know the legal requirements of PTO, the advantages and disadvantages of unlimited PTO versus earned PTO, and what will work best for your business.

Legal PTO requirements

Currently, there is no nationwide statute regarding PTO, and it is not a federally protected right employees have in the United States. Businesses are not required to offer PTO as a benefit unless it is mandated by state law and/or is part of a negotiated agreement, like in executive contracts or unions.

While PTO isn’t a mandatory benefit nationwide, businesses should follow their state guidelines regarding employee PTO. There are 24 states with PTO laws covering a variety of employer requirements, from mandatory paid sick leave accrual to payouts upon employee termination.

What is an unlimited PTO policy?

Unlimited PTO policies forgo a set number of days an employee can take off in a given year. As long as employees are meeting their employer’s expectations, and their time off doesn’t interfere with their work, they can take off as many days as they want.

[Read more: What to Consider Before Offering Unlimited PTO]

Pros of unlimited PTO

Unlimited PTO promotes a level of trust from management in their employees to get their work done and not be frivolous when taking time off. Managers can also expect to see increased productivity, a healthier workplace, and enhanced communication and time management from their employees. Unlimited PTO also helps fight burnout, which has skyrocketed in the last few years.

In addition to the employee-specific pros of unlimited PTO, businesses will be providing an attractive retention and recruitment benefit. It also offers the potential to save money at the end of the year by not having to pay for unused time or when someone resigns. Companies offering unlimited PTO will also have a lot less paperwork because employees will no longer have to record reasons for requested time off.

Cons of unlimited PTO

There can be a downside to unlimited PTO, including less time off used by employees due to confusion and discomfort about the unlimited PTO policy. However, on the opposite side of the spectrum, unlimited PTO opens the door to potential abuse of the PTO policy. It could even create a competitive environment between employees and cause unnecessary conflict about who is taking “too much" or “not enough" time off.

With an unlimited PTO policy, companies can no longer offer more PTO time as a reward for loyalty over the years or good performance. Also, depending on the policy in place, employees’ time off may overlap, causing a lack of coverage across departments and possibly the need for overtime hires.

[Read more: How to Structure Employee Paid Time Off Policies]

There can be a downside to unlimited PTO, including less time off used by employees due to confusion and discomfort about the unlimited PTO policy.

What is an earned PTO policy?

Earned PTO is an amount of time off employees accrue over a period of time. For example, this might look like an annual allotment of days a business offers its employees at the start of each year that can be used at any time.

Pros of earned PTO

Earned PTO can offer many benefits, like a yearly rollover of days to the next year or a payout at the end of the year for time not used. This type of PTO policy also offers equality to employees company-wide because they receive the same opportunities to earn their PTO. In addition, lump-sum PTO at the beginning of each year allows a sense of privacy for employees who may need more sick time than others without having to ask for time off because of an illness.

Cons of earned PTO

Earned PTO can get costly to pay out at the end of the year and the “one-size” PTO allotment doesn’t always fit all employees (i.e., special circumstances, illnesses). Earned PTO also creates the potential for mismanagement as the business would have to keep track of each employee’s PTO time and be sure they are not docking days accidentally and are properly accounting for time off.

[Read more: 7 Inexpensive Perks and Benefits to Offer Your Employees]

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Published July 13, 2022