“Unlimited PTO” is the benefit employers reach for when they want to look modern without spending a dollar. It sounds generous: take what you need, trust your people. In practice it delivers less rest to employees and more risk to employers than the accrual policy it replaces.
Unlimited PTO is a bad deal for both sides, and most companies should not use it. A well-designed accrual policy beats it on fairness, on outcomes, and on the law. Here is the case, with the research.
Why unlimited PTO caught on
Unlimited PTO costs almost nothing to administer, it ends the work of tracking accruals, and it markets well — job postings advertising it jumped 178 percent between 2015 and 2019. It signals trust, and surveys show roughly 82 percent of employees feel positive about it. The trouble is the gap between how it sounds and how it works.
It shortchanges your employees
Start with the promise of more freedom and more time off. The data runs the other way. A Namely study found employees with unlimited PTO took about 13 days a year, against 15 for those on traditional accrued plans. The findings across studies are mixed, but the mechanism is consistent and well documented: when there is no defined number, people stop knowing what “normal” looks like. Employees with unlimited policies take less because they fear appearing less committed than their peers. Remove the number and you remove the permission to rest.
Then there is the money. Under an accrual policy, vacation is earned, and in many states, it is treated as wages the employee owns. If they leave, they are paid for what they did not use. Under unlimited PTO, nothing accrues, so nothing is owed. The person who grinds through the year and barely takes a break walks out the door with nothing to show for it. The “benefit” erases a real asset and moves the savings from the employee to the company.
It shortchanges you, too
This is where employers get surprised. The supposed win — no balance-sheet liability, no payout — is exactly where the legal risk hides, and courts have started looking past the label. In Colorado, the Supreme Court ruled in Nieto v. Clark’s Market (2021) that earned vacation is wages and that use-it-or-lose-it forfeiture is void. State guidance now warns that a policy called “unlimited,” but that in practice caps what people take, can be treated as a determinable, payable benefit — meaning you may owe the very payouts you thought you had designed away. The accounting hack turns into a litigation exposure.
The costs do not stop at the courthouse. A policy that leads people to take less time produces more burnout, lower output, and higher turnover — the expensive problems, not the cheap ones. Managers are left to police a standard that does not exist, which breeds inconsistency and resentment about who gets to take what. And as candidates catch on, the recruiting shine fades: a perk that delivers less rest than the company down the street stops winning offers. You end up paying in trust, in health, and in attrition for a line item you believed you had eliminated.
What accrual gets right
A clear accrual policy fixes the things unlimited PTO breaks. Employees know exactly what they have earned, which gives them the permission to use it. The time is a real, ownable asset — and a real recruiting number you can state plainly instead of a vague promise. It is straightforward to benchmark against your market and simple to administer with modern tools. Built within your state’s wage laws — a reasonable accrual rate, sensible caps where the law allows, and payout on separation where it is required — it keeps you on the right side of compliance instead of betting against it.
What to do instead
If you want a competitive, honest time-off program, build it on accrual and make it generous on purpose:
- Set a defined, generous accrual — and say the number out loud in job postings and offers.
- Add a minimum-use expectation or an active nudge so people actually take their time, not just bank it.
- Allow reasonable carryover within your state’s legal limits, rather than forcing forfeiture.
- Pay out earned, unused time on separation where the law requires it — and budget for it as the real obligation it is.
Do this and you get the goodwill unlimited PTO promises, without the false economy or the legal trap underneath it.
The bottom line
Unlimited PTO sells freedom and delivers ambiguity. It gives employees less rest and less money, and it hands employers a compliance risk dressed up as a marketing perk. Name the number, fund it, and expect people to use it. An honest accrual policy is the better deal — for your people and for your business.
Sources
SHRM — “Here’s How Many Days Employees with Unlimited PTO Take” (Namely data)
Workforce.com — “Unlimited Paid Time Off Is a Deceptive Ploy in Today’s Workplace”
CBS News — “Unlimited vacation can save companies billions. But is it a bad deal for workers?”
Ogletree Deakins — Colorado Supreme Court, Nieto v. Clark’s Market (use-it-or-lose-it void)
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