We are increasingly seeing US-based employers looking to introduce unlimited paid time off (‘PTO‘) (also known as vacation or holiday) policies for their UK and EU workforces.
On paper, an unlimited PTO policy is a win-win. Employees don’t have to worry about allotting a finite number of holiday days to fulfil their commitments outside of work and for employers, it’s a way of attracting the best talent to work for them, citing benefits such as a healthy work-life balance. However, employers should be cautious about implementing an unlimited PTO policy outside the US without considering the practical implications of doing so in local markets.
A foreign concept that needs adapting for the UK market
Importing an unlimited PTO policy into the UK is not straightforward. Crucially, the working culture and legal entitlements in the UK and EU differ to those in the US, so companies will need to take account of the following key points in particular:
- The UK already has relatively generous statutory minimum holiday entitlements (especially compared to the US), which need to be met regardless of having an ‘unlimited’ holiday policy.
- In the US, ‘PTO’ doesn’t necessarily just refer to holiday/vacation. But in the UK (as in many other countries), there are a raft of different statutory leave entitlements for which different rules apply, and cannot easily be lumped together under a generic ‘PTO’ heading.
- UK employees have stronger dismissal protections than their US counterparts, which are likely to be strengthened further in the coming years by revised employment laws via. the Employment Rights Bill (see our Reform Hub here). This means that employers need to think about implementing guard rails for access to the benefit, and giving themselves sufficient flexibility to discipline an employee where they consider that they are abusing the unlimited PTO policy.
We look at these points in more detail below.
Practical tips
We recommend that employers consider the following practical points before introducing any unlimited PTO policy:
- Non-contractual. It could create issues if unlimited holiday is granted as a contractual (i.e. binding) right in an employee’s employment contract. Employers should consider confining the terms setting out eligibility for unlimited leave to a non-binding policy which the employer may amend or withdraw at any time at its sole discretion. Even doing this, in some countries removing a benefit can be problematic and may, for example, require consultation with (or the agreement of) staff representatives.
- Statutory holiday entitlement. Regardless of what holiday policy provisions companies put in place, UK and EU employees have a statutory right to a more generous minimum amount of annual holiday/vacation leave than those in the US. In the UK this is 5.6 weeks’ paid leave per year (which equates to 28 days for a full-time employee), including public holidays. Any unlimited holiday offering would need to operate in addition to the statutory minimum leave rather than replacing it.
- Performance factored in. Will there be a minimum performance standard before accessing unlimited PTO? An employee’s use of unlimited PTO could be conditional on them performing the expectations of their role to a standard which the employer considers acceptable, rather than the extra holiday being granted as a no strings attached benefit.
- Pre-approval. Similarly, any unlimited PTO should be subject to company approval in the same way as any holiday ordinarily would be, such approval to take into account the employee’s performance as above, their workload, and the company’s business needs at the time.
- Carve-outs and policy abuse. Consider restricting an employee’s eligibility for unlimited PTO where they are subject to any disciplinary or performance related investigations/proceedings, or where they are under notice that their employment will terminate, whether given or received (including whilst they are on garden leave). Similarly, think about how you will police any perceived abuse of the entitlement. In the context of UK employees’ legal dismissal protections, employers are advised to build in strong parameters to enable them to monitor whether the policy is being misused, because giving an employee an unlimited benefit without any guard rails on accessing it may make it difficult to police if you think it is being abused.
- Other PTO. The phrase ‘unlimited PTO’ has the potential to lead to employees conflating an entitlement to potentially unlimited paid holiday with separate statutory rights to paid (and unpaid) leave for other purposes, such as sick leave, parental leave, jury duty etc. Wrongly applying unlimited PTO can have serious consequences – for example, where an employee takes ‘unlimited PTO’ rather than paternity leave on the birth of their child, it can affect whether their employer can claim back statutory paternity pay and it may impact the employee’s legal protections. Employers are therefore advised to be clear that ‘unlimited PTO’ applies to holiday only, and that employees should use the correct type of time off depending on their circumstances.
- Termination. An employee’s accrued and unused holiday can only be paid out on termination. Where they are eligible for unlimited holiday, this can complicate matters unless the employer has been explicit that any pay-out applies to unused statutory holiday only.
