Lessons Learned from One Year of Flexible Paid Time Off

In the fall of 2016, FMP shifted to a self-managed, flexible paid time off (PTO) policy. By moving away from a fixed allocation of PTO hours, we hoped this shift would increase flexibility, boost employee engagement, help us attract and retain top talent, and reduce the administrative burden often associated with tracking and managing PTO. While many companies market similar policies as “unlimited” PTO, we felt that this title might unintentionally set an unrealistic expectation. Because flexibility is a core value at FMP, our new policy reflects what we communicate and put into practice with our workforce: flexibility works best when it goes both ways. Employers flex when employees need to take PTO to address obligations outside of work (or when they need a vacation!) and employees flex to take business needs and performance expectations into consideration when making PTO decisions.

With more than a year of the new policy under our belts, we were interested to see whether we saw the benefits we intended. Now that we’ve had time to develop, implement, and evaluate our flexible PTO policy, here’s what we learned through our research and experience:

Where does flexible PTO work?

Flexible use of PTO may not be suited for every organization; however, there are certain characteristics that are common in organizations where it works well. These organizational traits include:

• Entrepreneurial environments where employees understand that they are still responsible for bottom line performance
• Results-driven culture
• High-performance organizations
• Little or no requirements for employees to perform their duties on-site at fixed hours
• Project-oriented work environments

Implementing a flexible PTO policy

In the world of employee benefits, flexible PTO has the ability to positively impact your employees and the organization as a whole. These policies can:

• Lead to a more engaged workforce
• Attract and retain top employees
• Build company loyalty
• Convey trust and respect to employees
• Increase employee flexibility
• Support employees’ lives and families
• Increase employees’ autonomy and self-determination
• Reduce administrative burdens related to tracking PTO

While the benefits of flexible PTO are numerous, it’s important to consider the policy design, roll-out, and management carefully. In doing so, you can avoid many of the downsides often associated with these policies, such as:

• Potential for Abuse – Research indicates that the potential for employees underutilizing PTO is greater than the potential for abusing it by taking too much time off. To minimize this risk, organizations should ensure that they effectively communicate that employees are still responsible for hitting their performance expectations. During the roll-out of FMP’s flexible PTO policy, we consistently communicated that everyone was still held accountable for meeting their performance objectives, including their billable hours targets. Frequent and consistent communication, especially during the initial roll-out of the program and for new employees, will help mitigate the risks associated with policy abuse.
• Conflict with Other Leave Policies – Aligning the flexible PTO policy with your organization’s other leave policies is critical to administering the benefit equitably, avoiding unintended outcomes, and ensuring compliance with legal mandates. To help differentiate between flexible PTO and other leave policies, many companies limit the number of consecutive business days an individual can take off under flexible PTO prior to being subject to a different leave policy, such as maternity leave, short- or long-term disability, FMLA, or a sabbatical.
• Potential for Employee Burnout – Flexible PTO policies often fail because the benefit is underutilized by employees. A key to successful implementation is to ensure that the company’s leadership appropriately models and supports the behavior. Organizations should also clearly communicate expectations to the workforce and managers to support consistent application of the policy. In the first year of FMP’s flexible PTO policy, employee PTO usage remained in line with historical averages and budget estimates. While the policy allowed people greater opportunity to take PTO when and in the amount they needed, the policy shift did not change the overall behavior or cost to FMP.
• Inability to reward long-term employees – Organizations often reward employee tenure with additional days of time off. Organizations can continue to reward long-term employees through involvement in other benefit programs, professional development, and other growth opportunities within the organization.
• Inclusion of Part-Time, Hourly, or Contract Contingent Employees – Organizations should consider the impact of flexible PTO on various employee types. Part-time and hourly employees may or may not currently receive paid time off, and a fixed amount of paid leave may be better suited for these groups. Contract contingent employees often work under contracts that have an expectation of availability; thus, it may make more sense for contract contingent employees to have a fixed amount of leave in accordance with their contracts.
• Impact of Naming the Benefit – Many organizations have found that how they name the benefit or policy can impact how employees view it. Like FMP, some companies choose not to call the policy “Unlimited PTO” in favor of choosing a title that is better aligned with the company culture. To help promote buy-in and long-term success, the benefit or policy should be named in a way that aligns with and supports company culture.

FMP’s recent move to a flexible PTO policy gave our employees the autonomy to manage their time given their personal targets, goals, and FMP’s performance expectations. When we looked back at the past year, we found that we were 1.15% below our budgeted figure for the year, meaning there weren’t any dramatic shifts as a company above or below what we had internally budgeted based off of previous years’ usage (when we had a fixed PTO policy). We did see more variations in the amount of PTO used at the individual level – some employees took more PTO than in previous years while some took less – but these individually-specific decisions did not manifest as any performance issues. We are excited to see that our employees are using the policy in the way it is intended by taking PTO when they want or need to, while continuing to meet performance expectations.

Although a flexible PTO policy may not work for every organization or every employee, a well-crafted policy and thoughtful implementation can lead to a very positive outcome: happy, engaged employees who use PTO thoughtfully and feel empowered to manage their time.

If you’re interested in learning more about FMP’s capabilities and services in this area, please contact [email protected].

About the Author: Since joining FMP in 2011, Dan has provided analytic and strategic consulting services to private and public-sector organizations across multiple disciplines. When not at FMP, you can find Dan exploring his new neighborhood – Capitol Hill – with his dog (Lulu) or enjoying some time off utilizing FMP’s Flexible PTO policy.