On October 21, 2021, Nick Reiter was quoted in American City Business Journals on implementing an unlimited vacation policy. According to the article, interest in offering unlimited paid time off is rising as companies seek to save money and distinguish themselves in a competitive labor market.
Under traditional vacation policies, companies are often required to carry a liability on their books to cover payouts of unused vacation when an employee leaves a business. That can put a dent in a company’s bottom line, and it’s one reason unlimited vacation policies are attractive. While a shift to unlimited vacation could save money in the long term, it could also have significant short-term costs – especially if employers aren't strategic. According to the article, it’s not as simple as just converting the policy at the beginning of a year. Companies need to determine what happens to PTO earned under the prior vacation policy.
Reiter said states have varying rules about potential payouts for that time and other requirements that employers need to be aware of. Working through those issues could be thorny for companies with operations in multiple states. There have been cases where employers didn’t follow best practices or require workers to use all of their previously accrued time before the switch and then were hit with a significant cost when they had to pay out the time.
“Savvy employers will consult with their employment lawyers and craft a policy where before an employee can become eligible to use PTO under the new unlimited PTO policy, they must exhaust their PTO under the old policy,” Reiter said. “That [can] nip in the bud all the claims that could come about for your old time that was earned under old policies.”
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