Unlimited Time Off: An Employees Dream Or a Potential Liability?

By Jonathan Pocius of Payroll Services, LLC

A new trend is popping up in some companies: Unlimited Time Off.

UTO policies are becoming more popular in startups, tech companies and nonprofit organizations trying to make up for salary gaps. There are pros and cons to UTO Policies, however there are serious questions that need to be considered before implementing a UTO Policy.

Many questions are now being asked in regards to UTO Policies. How do the new Paid Time Off laws throughout the nation work with a UTO Policy? Many States have laws that require the company to pay out any time off the employee has earned on separation. How much of UTO is paid out? FLSA provides an employee up to 12 weeks unpaid leave guaranteeing a similar position upon return. Does a UTO policy mean that all 12 weeks are now paid? In many States, the amount of time off an employee has to be shown on the paystub — what should be displayed now? These questions have not been resolved and pose big potential liability problems. The unfortunate part is most of these answers will not be answered through regulation or DOL opinions, but through lawsuits.

Aside from the potential legal ramifications, UTO also has some expectations that may not promote a “healthy workplace”. Studies show that employees with UTO policies rarely take more time off than the average employee. Time Off is designed to allow staff to refresh and come back with a good mental state. With UTO, employees are not taking the time off. Additionally, UTO is met with the expectation to get your job done and then “do as you please”. In a normal vacation most employees “check out” from work. With UTO, if the expectation is to get your job done, does the employee truly get a chance to “check out”. Is working during vacation truly considered time off? These are the questions being raised among HR Professionals when considering the validity of UTO.

UTO does have a big benefit to the company, and that is the message it sends to the employees. UTO sends the message that the company is not tracking an employee’s time off and is giving total flexibility to the employee. No scheduling requirements or permission necessary. UTO conveys a message of trust to the employee. Enough trust to believe that the employee will ensure their job, tasks and responsibilities are always taken care of. Finally UTO sends a message that you are treating employees as individuals. An individual that has real life needs that can pop up at any time.

UTO does send powerful messages to employees as long as the company lives by their message. Many companies cannot offer this flexibility. How many companies can afford to let employees take time off whenever they like on the spot? How many companies have an entire employee base they trust to get their job, tasks and responsibilities done?

UTO still has many questions that need answered both practical and legal. Before implementing an UTO Policy be sure to understand the uncertainty around the topic.