How to implement an unlimited holiday or PTO policy in 2024

Offering unlimited holiday or paid time off (PTO) can attract and motivate candidates to join a business, but the policy comes with both benefits and risks.

Unlimited holiday or PTO policies can help team members maintain a healthy work/life balance, leading to fewer staff absences for sickness, and offering flexibility that candidates increasingly want.

However, these policies do have drawbacks. Key employees may not feel able to take advantage of the perk at busy times when a business depends on their contributions. Unlimited holiday policies can also be difficult to administer fairly, and can mean some employees get more holiday than others.

Below you will learn what unlimited holiday and paid time off policies are, how they link to employment law, how to administer and execute the polices, the risks and considerations for employers, and alternative policies to consider.

What is an unlimited holiday or PTO policy?

These policies were first introduced in the United States by various employers in the 1990s and have been adopted by other companies, particularly US technology employers – notably including Netflix – over the last decade.

Under the Working Time Regulations 1998, full-time equivalent (FTE) employees are entitled to 28 days annual leave per year. An unlimited annual leave policy is a flexible option that extends this, allowing employers to offer as much holiday as staff want, to both motivate and offer them flexibility.

Employees are not given a specific number of days’ holiday to use over an annual leave period. Instead they can, in theory, take as much or as little holiday as they like, as long as they meet the requirements of their role. In essence, employees who manage their job responsibilities and work schedule effectively then have the option to take more holiday.

This allows employers to demonstrate to staff that they value their wellbeing, encouraging them to have a healthy work/life balance and promoting a positive company culture.

How does it fit with legal requirements around annual leave?

All employers still have to offer FTE employees the statutory minimum of 28 days paid annual leave, including bank holidays. This includes agency workers, workers with irregular hours, and workers on zero-hour contracts.

Once these legal requirements are met, employers can offer extra days to employees or adopt other policies including unlimited holiday and PTO.

“It’s about offering more freedom while still looking out for staff wellbeing,” said HR expert and founder of Kleo, Jake Ward. “After all, nobody wants burned-out employees!”

How do these policies work in practical terms?

An unlimited PTO holiday policy can be complicated for HR teams to administer fairly and still comply with relevant employment law.

HR teams and startup owners must clearly explain to employees how unlimited holiday policies work in practice, and include this information in employment contracts and company handbooks to reduce misunderstandings.

“Unlimited holiday sounds great on paper but workaholics might never take a day off, while others might treat every week like a holiday.” Ward told us. “It can be a real juggling act for managers trying to keep things fair and productive.”

Employers need to match the policy to the needs of the business. In reality, this means that not all employees will get to take holiday when they want it due to the business’s needs, and the requirement that the employee must cover their responsibilities before taking time off.

Many employees can’t have the same week off, whether unlimited holiday policies are in place or not. Usually, the decision of who to grant holiday to depends on which employee books time off first. Effectively, this is no different to how most employers grant annual leave, whether an unlimited holiday policy is in place or not. Employers can still dictate when employees take holiday.

These points illustrate why some people think unlimited holiday policies have drawbacks.

“In practical terms, they don’t work,” said Finn Bartram, HR expert at People Managing People. “You still need policies in place to not take more than two weeks at one time, or to work a certain number of days per month. In the end, it’s going to feel like a broken promise to the employee and a burden for the business.”

HR teams must allocate leave fairly and transparently. Refusing one employee’s holiday request over another’s can cause conflict between fellow employees and between employees and the managers who make the decision. This can eliminate the potential benefits of an unlimited holiday policy.

In contrast, some employees with major roles and career ambitions may avoid taking annual leave. Without a specified allowance, they may take very little holiday, increasing the risk of burnout, underperformance, and reduced productivity. Employers then risk not meeting their statutory duty to ensure the health and safety of their employees in the workplace.

How should HR teams execute unlimited holiday policies?

After considering how to integrate the needs of the business within their holiday policies, employees should design a policy that works for their business. This involves several key considerations.

To avoid some employees taking too much leave and others not taking enough, introduce a mandatory number of annual leave days each employee must take as a minimum.

This can be tracked and reviewed, giving employers insight into annual leave patterns which can aid workflow planning.

To ensure all staff receive equal and fair treatment, insist on rotational leave so all employees get regular breaks. Balance this policy with deadlines, and seasonal business peaks and troughs. Support this with bi-annual reports that gather employee feedback on the annual leave policy, and what is and isn’t working well. Make amendments to the policy if necessary. This empowers employees to be part of the process.

What are the pros and cons for employers and employees?

The decision of whether to introduce an unlimited holiday policy is, for most employers, finely balanced with benefits and drawbacks. There are a number of considerations to make regarding whether the policy is suitable for your business, and how to implement it.

Are there any alternative policies to consider?

There are alternative policies that allow businesses to retain the benefits that employees seek and introduce new options to balance employees’ wishes while ensuring the efficient running of the business.

Employers can offer extra holiday, but not unlimited amounts. They should consider how to encourage employees to take holiday throughout the year to maintain cover for the business and ensure employees get regular breaks from work.

“One alternative is to offer traditional time off policies with greater flexibility,” said Bartram. “Perhaps the employee doesn’t want to take off a specific holiday, such as Easter, but would like to use that day elsewhere.

“Flexible holiday scheduling also helps those from diverse backgrounds who may have different holidays where they can’t work.”

Employers could create a bespoke holiday policy that combines the benefits, minimises the drawbacks, and targets meeting business needs during seasonal trading patterns whilst still offering flexibility to employees.

For instance, such a policy could include:

• 30 days PTO a year, and staff are encouraged to take at least 28 days, including bank holidays, every year
• Enabling staff to buy additional annual leave days if they want them
• Suggesting that employees take at least 3 days off each quarter
• Flexible bank holiday rules
• Restrictions for busy trading periods
• A Christmas closure that is not taken out of the annual leave allowance
• Setting a number of days that can be rolled over to the following year

Other options that can be included in the wider annual leave policy to build more flexibility are unpaid leave, flexible working hours, amended summer working hours, hybrid working arrangements, temporary reductions in hours, sabbaticals for long-term employees, and time off in lieu (TOIL).

Conclusion

An unlimited holiday policy allows a business to offer employees a different type of benefit. At its best, it can empower employees to manage their work effectively and motivate them to be more productive to gain additional holiday.

It is most effective if an employer can create a bespoke policy that supports the specific nature of their business, and is clearly communicated to staff and applied consistently and fairly.

It does have drawbacks though. If applied inconsistently, it can penalise some employees over others and cause bad feeling between staff members and managers. Some employees will avoid taking holiday, while others will abuse the policy and take too much holiday.

“For HR teams, rolling out an unlimited holiday policy takes some careful planning,” said Ward. “Clear guidelines are a must, and managers might need some coaching on how to handle requests fairly.”

Find out more about employment law.