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Time-Off Economics; Finding Value in Unlimited PTO

Time-Off Economics; Finding Value in Unlimited PTO

As our own boss at Empulse took some necessary time off, it got me thinking about the particularly commodified benefit of PTO. Paid time off has always been a bargaining chip in salaried employee hiring, an essentially low-cost bonus for any company to offer. The value of a day of PTO is much higher to an employee than an employer, therefore an incredibly valuable negotiation tool. From a basic economic stand point, as long as companies are using a day-off as a bargaining tool in salary negotiations, they are assigning a tangible value to a day-off.
The fascinating aspect of PTO in America is that very few employees take their fully allotted vacation. This Oxford study shows that 4 out of 10 employees leave PTO on the table ever year. Employees site, “heavy workload, management, and peer pressure” as reasons to not take their time off. Some employees rationalize not taking their PTO because they can monetarily redeem unused days at the end of their employment. Ahidden cost study shows the average employee carries about $1,989 in Vacation Liability. Because there is a real, dollar value assigned to these days, an employee isĀ more likely to budget and manage that value.
In the past few decades, however, small, start-up companies have found the beauty in a benefit of PTO by offering it unrestricted. They have effectively disposed of this old integrative bargaining system where either party can increase the value of a day. By making paid days off unlimited, they have inflated the market of a PTO day so far that they have become much less valuable. Additionally, this is cost-effective for the employer as they don’t have to pay Vacation Liability.
It makes economic sense for a company to offer ‘unlimited’ PTO. When a company offers unlimited PTO, it is usually with the understanding of a few things: 1. you don’t abuse it, 2. you get all of your work done, and 3. it is proportional to the time everyone else takes off.These parameters are largely unspokenĀ and very undefined. Obviously, there are limits, but unlike in a traditional environment, you don’t know what these limits are. As a new employee, you look to your peers for guidance what is considered appropriate. With all eyes on one another’s time off, what ends up happening is that nobody takes it, for fear of abusing it.
Factor in the ‘unlimited’ resource of PTO as a bargaining tool in small or start-up companies, often in exchange for a higher salary, in addition to a traditional company’s Vacation Liability, and the unused potential in income becomes staggering.
If you agree to a company policy of this unlimited or even “responsible PTO”, you are agreeing to manage your schedule and be slightly aggressive about it. This is a push-your-luck kind of game, where you come out ahead if you take the maximum days without consequence. This policy puts the agency in the hands of the employee, so it is imperative you know what your time-off needs are, and how you manage them. Unused PTO is worth zero, just like unvested stock is worth zero. Understanding your benefits brings the value back to who they were meant for — you the employee.