eliminating outdated pto policies

ELIMINATING OUTDATED PTO POLICIES

Eliminating Outdated PTO Policies

Cyle Moore

St. Edward’s University

10/08/2013

MSLE6314 FA2013 Building Ethical Organizations

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Abstract

The purpose of this research is to help investigate why there is a growing trend with small

startups and other organizations today to move away from a formal paid time off policy (PTO) to

an unlimited policy. This perk has been mentioned as a great benefit to culture, retention and

even in recruiting new employees. The focus of the research is in regards to understanding why

this change is occurring, who has implemented this policy, what they have learned from the

experience, and if this is a good policy for all organizations. Additional research has also been

added to help organizations understand the pros, cons, and legal risks associated with

implementing an unlimited PTO policy. This study also highlights a growing movement to

change the perceptions of how people work, where they work, and why companies are driving

cultural change to meet employee needs.

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Do unlimited PTO Policies attract and retain staff?

There is a growing trend with small startups and organizations today to move away from

a formal paid time off policies (PTO) to unlimited policies. This perk has been mentioned as a

great benefit to culture, retention and even in recruiting new employees. The belief is that once

we understand how work is done in our highly mobile and connected world, a new approach is

needed. This approach is to let go of our current static PTO plans. Allowing employees to

become empowered creates increasing happiness, engagement, and productivity. In short, the

prevailing argument is that current PTO policies are controlling, the policy of tracking and

allowing employee’s time off is broken!

Why is this important?

Americans treat vacation as a luxury. In 2010 the median number of vacation days US

workers took was 14; in 2011 that number decreased to 12 says a

survey done of 9,000 US workers by Expedia.com (Expedia,

2011). A study done in 2011 by Harris Interactive on behalf of

CareerBuilder of 5,671 workers, states that 30% of employees

work while on vacation (CareerBuilder, 2011).

Another poll in 2012 by Gallup (Gallup, 2013) of over

25M employees states that 44% of employees who take all their

vacation are more engaged and more productive compared to their counterparts. These studies

would suggest that a move away from current standard vacation policies would be highly

beneficial to improving employee happiness. As employees take more time through progressive

flex time and PTO policies their engagement and productivity would also increase, creating

positive bottom line results for their employers.

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Who has implemented this strategy and why?

There are multiple companies in the United States, such as Best Buy, Evernote,

GoHealthInsurance.com, Hotel Tonight, HubSpot, Netflix, SigFig, Xobni, Zotto, Zynga and

many more that are using this unlimited vacation perk to recruit young, bright, talented staff.

Michael Mahoney, vice president of Consumer

Marketing and seven-year veteran of

GoHealthInsurance.com, says “Unlimited

vacation fosters productivity and loyalty

because it favors results over input. If we trust

employees to make the right decisions with the

time they spend at work in pursuit of our

aggressive goals, we can trust them to make

responsible decisions about when they choose to take time off of work” (Dishman, 2013).

The CTO and co-founder of HubSpot says “over the past few years, the way in which

people live and work has changed fundamentally. Employees check e-mail on their smartphones,

collaborate on documents from home and complete many of their daily tasks in the cloud. But

the vast majority of vacation policies are more like The Flintstones than The Jetsons: they simply

don’t reflect the needs and demands of a modern global workforce” (Shah, 2013).

So what challenges have these companies learned that we should consider?

The feedback from companies that have changed to unlimited policies outline some areas

to pay attention to when considering implementing an unlimited policy. “Simply telling people

they can take as much vacation as they want doesn’t mean anyone takes more, in fact, quite the

opposite has been proven – they take less. Though, the “perfect attendance” award is not given

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officially, people who work long hours or never take a vacation are still revered as being hard-

workers and they wear self-sacrifice like a badge of honor” (Needham, 2012). Here are some of

the stated additional challenges they faced:

Employees are protective of their current PTO policies and are used to banking time.

Employees are suspicious that this is a tricky way to make them work harder.

Employees are reluctant to take vacation because of a perception they will be

considered a slacker.

There is a fear that employees will abuse and take advantage of the new policy.

Increased engagement by employees is a direct result of empowering employees.

To be successful a change in culture may be needed, with perceptions, values, and

expectations realigned.

These challenges sound tough, is my organization a good fit for a policy like this?

Understanding the challenges then begs the question, is this a good strategy for all

organizations and what is the best way to implement an unlimited policy? Unlimited policies are

not a one-size-fits all solution, each organization has to consider the challenges in front of them

and decide on how best to approach each problem. Below I have outlined some approaches

taken, though these will not fit every situation they can provide a starting point for dialogue and

consideration.

Employee fear of losing saved vacation time: Instead of changing the policy all at

once through a “Big Bang approach,” try an incremental solution. Some examples

such as stop tracking the hour trip to the dentist or trying to manage sick days. As

employees get use to this and trust builds, removing time tracking all together become

much easier.

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Employee’s suspicions: Employees that work overtime consistently tend to become

task oriented, this limits their ability to look for and find ways to make a larger

impact. Setting specific goals, clear expectations, and a more results-only work

environment will allow them the freedom to look for solutions to avoid becoming

singularly task oriented. Sometimes the only way to accomplish this is to take a step

back and disconnect from the daily demands of work.

Fear of being considered a slacker: Many employees fear that if they take time off

they will be considered a slacker, even worse some will be confused by the choices

created through a new no limit policy. Too much choice is restrictive and confusing.

Sheena Iyengar, a professor at Columbia Business School, calls this phenomenon

“choice overload.” By creating mandatory minimums, such as two weeks, these

issues can be alleviated and provide staff the needed time off from work to rejuvenate

(Bailyn, 2013).

Abuse of policy: Though there is always risk of abuse, the policy if implemented

correctly, can actually become self-managed by coworkers. Additionally if using a

performance based model, abusers of the policy will find it increasingly difficult to

meet expectations.

Engagement: Real change only occurs when employee’s performance expectations

are part of evaluations. When managers can integrate performance with benefit

initiatives they feel empowered and so do their staff. This collaboration gives them

input and allows them to feel that they can have significant impacts on the work they

do every day.

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Realigning your culture may be the toughest consideration: If you have a segmented

workforce this might be a great opportunity to build in more cross functional team

collaboration. When staff members rely on each other to get work done, they have to

collaborate when planning a vacation, to insure work demands are met while they are

away. There are also ways to use performance evaluations to help integrate or scale a

no limit strategy. One suggestion is called, Result-only work environment (ROWE).

ROWE is a performance based model with an understanding that today’s workforce is

constantly connected, and evaluating employees should be based on performance

instead of presence (Ressler & Thompson, 2013).

Is this just a fad or is the workforce changing?

As the workforce changes and more Gen Y employees (Gen Y also known as the

Millennial Generation, is the demographic cohort born after the early 1980’s through 2004) enter

the job market there is an increasing demand for flexible vacation policies. A popular website

called Lifehacker.com did a poll surveying over 11,900 employed workers (Glenn, 2012). Of

those 11,900, 3.55% of responders have flexible vacation policies and another 7.23% have over

30 days. Though this is not the most used policy, these numbers reflect a growing trend towards

more flexible or unlimited policies.

Poll: How Many Vacation days do you get each year?

0-5 days 4.88% (584 votes) 6-10 days 11.42% (1,366 votes) 11-15 days 24.01% (2,873 votes) 16-20 days 19.92% (2,383 votes) 21-25 days 17.83% (2,133 votes) 26-30 days 11.16% (1,335 votes) 31+ days 7.23% (865 votes) Flexible 3.55% (425 votes) Total Votes: 11,964

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Additionally Ressler & Thompson cite the following statistics around Gen Y employees:

⅗ of students think they have a right to work remotely with a flexible schedule.

Students want access to corporate information and Networks from home computers and mobile devices.

7/10 of students believe being in an office regularly is unnecessary.

In 2010, 60% of workers of ALL ages believed it was unnecessary to be in an office, and in 2011 that number grew to 69% (Ressler & Thompson, 2013).

How has this approach helped these companies go from good to great?

“GoHealthInsurance.com reported a 200% improvement in productivity when allowing

unlimited vacation time for employees; HubSpot has been ranked the #2 fastest growing

software company on the Inc. 500 since allowing an unlimited vacation time policy” (The Daniel

Group, 2013). In the first quarter of 2013, Netflix emerged as the best-performing stock in the

benchmark Standard & Poor’s 500 index (Wharton University of Pennsylvania, 2013).

“In the past decade, Netflix has gone from

being a tiny US DVD-by-mail company to an

international phenomenon that is disrupting the

traditional TV industry. One reason for Netflix's

ongoing success is the company's culture, which

emphasizes performance, freedom, and responsibility”

(Blodget, 2011). These examples reveal that these

companies understand how people want to work, they

are considered forward thinking organizations by current

and potential employees.

What are the legal risks of changing a PTO policy?

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As with any policy change there are risks to implementing. Being cautious and

understanding these risks ahead of time will help avoid legal issues. Colorado Employment Law

letter cites some of the issues to be aware of as:

As unlimited vacation becomes a growing trend, the following legal issues may arise.

Claims of differential/discriminatory treatment. This issue can develop when

there are differences among those who are eligible for unlimited vacation and

those who aren’t. For example, if some hourly nonexempt employees for whom

it’s just not going to work, it probably makes sense to carefully look at statistics

and the background of the workforce. Look for differences between race, sex, and

any other kind of issue that might be perceived as discrimination. This would also

be the case if moving to such a policy only in certain departments or in certain job

categories.

FLSA wage-claim issues if employees are later found to be misclassified. In

the last several years, there has been a lot of collective action on Fair Labor

Standards Act (FLSA) issues, and a lot of the big cases have been related to

employee misclassification. If a group of 50 employees who say they should have

been classified as nonexempt and paid overtime and a court rules for them, this is

50 employees with no time records anymore because of the unlimited vacation

policy.

FLSA wage-claim issues if the transition isn’t handled properly. This issue

mainly arises regarding what to do with the bank of vacation days and PTO days

already on the books.

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Intersection with other leave laws and policies. With an unlimited vacation

policy, there may be an issue with other leave laws and/or policies because of not

knowing the reasons somebody is out (Colorado Employment Law Letter, 2011).

Summary

Unlimited PTO policies are a growing trend because statistically when people take

vacation, the results are increased productivity. When organizations impliment and market an

unlimited PTO strategy, they send strong signals to current or potential employees that they

understand:

Today’s workforce is more technically connected to work than ever

Today’s workforce demands more flexibility in how/where/when they work

Productivity is both positively impacted by using vacation days

Highly flexible PTO policies require setting expectations up front

Highly flexible PTO policies help retain talented staff in a highly competitive market

Highly flexible PTO policies are helpful in recruiting talented Gen Y graduates

Highly flexible PTO policies build a culture of trust and loyalty

Organizations moving to plans like this have learned that if you want extraordinary effort,

you have to treat people extraodinary! Empowering employees creates trust which in turn

builds loyalty, lowers operations costs, and increases productivity. Organizational leaders who

approach and implement unlimited PTO policies, 100% understand that people are the key to

helping a company go from good to great (Collins, 2001).

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eliminating outdated pto policies

Technology

performance based model

formal paid time

current pto policies

flexible vacation policies

unlimited vacation policy

unlimited policies

todays workforce

ressler