If I Have Unlimited PTO, Do I Need a Leave Policy?

Unlimited PTO has several benefits

Many employers have “unlimited” paid time off policies. And while I’ll never let my clients call it “unlimited” (it’s not!), I'm in favor of the intentions behind them. These companies prioritize high-quality, timely work, while caring a lot less about butts-in-seats. They convey trust in their workforces, and treat employees like mature, responsible adults. Also, getting rid of accruals reduces HR’s administrative burden. Finally, finance and investors dislike carrying big PTO liabilities on the books since many states require payout. Those liabilities don’t exist with unlimited PTO plans. Cleary, I’m a superfan.

However there are also big risks, particularly relating to leaves of absence

As much as I sing the praises of what I prefer to call discretionary PTO, these policies require careful crafting. Of particular note is a protection that’s baked into traditional accrual plans, but absent in unlimited plans. Paid time off under accrual plans is finite, and usually capped. But there’s no accrual in unlimited PTO. There’s often no maximum or even suggested ranges. So what prevents an employee’s application of unlimited PTO to a long-duration leave of absence?

Unless the unlimited policy explicitly states that certain leaves of absence don’t fall under the PTO policy, there's risk of an innocent but significant misunderstanding. Or, there’s that one employee who loves a good loophole and will attempt to take advantage of the omission. If your policy is incomplete or unclear, do you have an argument against misuse? Not only have you got a personnel conflict, but you’re potentially on the hook for paying full wages for the entirety of a long leave, which is not the intention of most employers.

A clear and explicit PTO policy is key

Avoid painting yourself into a corner. Define leaves of absence in your PTO policy, and carve them out from your plan. For example:

“A leave of absence (LOA) does not fall under the Unlimited Time Off policy. An LOA is defined as an absence and period of non-work greater than X consecutive weeks, or by classification as a legally-mandated leave (pregnancy disability leave, for example). Less commonly, a leave of higher frequency but shorter duration may be classified as an LOA. For example, an employee with physician-directed weekly physical therapy appointments would likely qualify for a leave of absence. People Operations will help you determine if your absence falls into the LOA category. You’ll find additional information in the Leave of Absence section of the Handbook.”

Other considerations for explicit leave policy language include:

• The possibility of leave extension

• Employer pay during an unpaid Short Term Disability waiting period

• A cap on employer pay applied to "top off" partial wage replacement benefits from the state or voluntary SDI plan

A handful of clarifying sentences in your policy can prevent a tricky, undesired, and potentially expensive situation. After all, “unlimited” PTO isn’t really unlimited. Avoid blurring the lines so no one can argue otherwise.