Unlimited paid time off (PTO) sounds almost too good to be true, conjuring up images of beach-soaked days and jet-setting trips on a moment’s notice. Even for employees with more mundane (and realistic) desires, not having to track a fixed number of paid time off days over the course of the year is appealing.
But how does it work in real life? And is an unlimited vacation (or unlimited PTO) policy viable for a small business?
Read on to find out the pros and cons of an unlimited PTO policy, the legal aspects to consider, and some sample policy language to include if you decide to do an unlimited PTO policy at your business.
What’s an unlimited PTO policy?
Unlike traditional PTO policies, where employees earn or receive a set number of days each year, unlimited PTO policies let employees take paid time off as needed. These policies are also called discretionary, flexible, or open time off.
There's no cap on how many days employees can take, but requests are usually subject to manager approval and coverage needs.
Some unlimited policies cover all time off, including sick days and personal days. Others cover vacation only and keep a separate sick leave policy.
Unlimited PTO | Traditional PTO | |
Amount of time off | No set cap; requests usually need approval | Set number of days, earned or granted each year |
Tracking | No balances to track, but you still record time used | Track accruals and balances |
Vacation payout | Generally none, if the policy is truly unlimited | Required in some states, or by company policy |
Sick leave laws | Policy must still meet state and local requirements | Accrual can be set up to match sick leave laws |
Best fit | Salaried teams with flexible coverage | Hourly or shift-based roles |
Offering unlimited PTO is uncommon, and interest may be cooling. Only about 7% of employers offer unlimited or open leave, according to SHRM's 2024 Employee Benefits Survey. And Indeed reports that job postings mentioning unlimited PTO fell from 8.8% in March 2022 to 2.9% in June 2025.
What are the pros and cons of an unlimited PTO policy?
Unlimited PTO can make your business a more appealing place to work, but it isn't the right fit for every team. Here's where it helps, and where it can create problems.
Pros
It builds a culture of trust. Unlimited vacation policies treat employees like responsible adults who understand time management.
It can help attract and retain talent. Flexible time off can be an appealing recruitment perk.
Less vacation tracking. Without a finite bank of vacation days, you don't need to calculate accruals or monitor balances. You'll still need to track some time, though. Paid sick leave laws, the Family and Medical Leave Act (FMLA), and good management practice all require it. More on that below.
No payout of accrued vacation. Some states, including California and Colorado, require employers to pay out unused vacation when an employee leaves. If employees never accrue time, there's no balance to pay out. However, this is only true if your policy is genuinely unlimited in how it’s enforced.
No year-end time-off crunch. When employees have a set number of days that expire or hit a cap, many rush to use them before the deadline, which can leave you short-staffed during the holidays. With unlimited PTO, there's no expiring balance, so time off tends to spread more evenly across the year.
Employees are less likely to work sick. When sick days don't come out of the same limited bank as vacation, people have less reason to come in while sick.
Cons
Unlimited PTO can create coverage gaps. This is especially true for small businesses with fixed staffing needs, like a front desk that always needs to be covered. You might not have enough staff to shift around.
It requires more manager judgment. With no set allotment, managers have to decide what's reasonable. That includes how much time is too much, how many people can be out at once, and how long a single stretch of time off can run. Without clear guidelines, those calls can get inconsistent, and inconsistency can feel unfair to employees.
Employees may take less time off, not more. Without a set number of days, many people aren't sure how much time is acceptable, so they hold back. Research from Empower (2024) found employees with unlimited PTO take only about two more days off per year than those with a set allotment (16 days vs. 14). Over time, underusing paid vacation days can lead to burnout, which takes a toll on employee wellness, engagement, and productivity.
Sick leave rules still apply. If your unlimited policy covers sick days, it still has to meet any state or local paid sick leave requirements. That typically means you can't deny sick time for a covered reason, and you may still need to keep records of time used.
Employees give up banked time. Under a traditional policy, unused vacation can have cash value when someone leaves. Under an unlimited policy, it doesn't, which some employees see as a loss.
What are the legal risks of unlimited PTO?
Like most workplace policies, unlimited PTO comes with legal considerations, which fall into three main categories.
1. Accrued leave payouts
Some states, and many company PTO policies, require you to pay out unused vacation when an employee leaves. Unlimited PTO can remove that obligation, but only if the policy is truly unlimited. If you never approve more than a set amount of days off, you may owe departing employees the unused portion of that amount.
In a 2020 California case, a court required an employer to pay out vacation under its "unlimited" policy. The policy wasn't in writing, wasn't clearly communicated to employees, and in practice capped time off at a few weeks.
To keep your policy on solid ground, put it in writing and communicate it clearly. You can still deny requests for business reasons, like coverage, but don't deny them because someone has hit an unofficial limit. Make sure managers and teams are applying the same standards.
2. Coordination with other leave laws
Unlimited PTO has to work alongside the leave you're legally required to provide rather than replace it. See how these types of leave affect your policy:
Federal leave laws. If you have 50 or more employees, FMLA gives eligible employees up to 12 weeks of unpaid, job-protected leave for certain family and medical reasons. If you have 15 or more employees, the Americans with Disabilities Act (ADA) may require leave as a reasonable accommodation.
Paid sick leave. A growing number of states and cities require paid sick leave. An unlimited policy can be set up and administered in a way that satisfies these laws. Unlike vacation, though, you generally can't deny sick time for a covered reason, and you may still need to keep records of time used.
Paid family leave. Several states run paid family leave (PFL) programs that provide partial wage replacement. Your policy should explain whether employees can use PTO alongside those benefits.
Make your policy language specific when it comes to these laws so you don’t accidentally create obligations. For example, an employee on 12 weeks of FMLA leave might argue that an unlimited PTO policy entitles them to be paid for the entire leave, so be clear about what does and doesn't apply.
3. Hourly employees
Many employers limit unlimited PTO to exempt employees and give hourly, non-exempt employees a traditional accrual-based policy. There are a few reasons for this:
You're already required to track hourly employees' hours, so an accrual system doesn’t add much extra work.
Paying hourly employees for unlimited time off makes labor costs harder to predict.
Paid sick leave laws often use hour-based accrual rules that map more naturally onto hourly roles.
If you take this approach, make sure employees are classified correctly so you can apply the correct leave policy.
If you extend unlimited PTO to non-exempt employees, add language to your policy clarifying that paid time off doesn't count as hours worked for overtime purposes.
Should I track employees’ PTO even if I have an unlimited PTO policy?
Even with an unlimited policy, record how much time employees take off and why. Tracking helps you:
Meet paid sick leave recordkeeping rules and properly designate FMLA leave.
Show that you approve time off consistently if an employee claims unfair treatment.
Spot employees who may not be taking enough time off for their own well-being.
If an employee's performance slips, you can review their attendance. Just don't count protected leave, like FMLA, paid sick leave, or leave taken as a disability accommodation, against them. Doing so can expose you to a retaliation claim.
With Gusto, you can set up different time off policies for different employee types — for example, unlimited for salaried employees and accrual-based for hourly employees — all in one place. Time off syncs with payroll, and time off reports show who's been out and when. For companies created on or after August 31, 2026, unlimited policies require the Plus or Premium plan.
Sample language for an unlimited PTO policy
Ready to adopt unlimited PTO? Use this template as a starting point, and have an employment attorney review it before you roll it out.
Unlimited paid time off policy template |
Purpose. [Your business] trusts employees to manage their work and personal lives. This company policy gives eligible employees the flexibility to take paid time off when they need it. Eligibility. This policy applies to full-time exempt employees. Non-exempt employees receive paid time off under [name of accrual-based policy]. How it works. Eligible employees may take as much paid time off as they reasonably need. Time off under this policy does not accrue, vest, or carry over. It has no cash value and is not paid out when employment ends. Requesting planned time off. For vacations and other planned absences, submit requests to your manager at least [X] days in advance. Managers will consider requests based on business needs and team coverage, and will apply this policy consistently. Sick time. You may use this policy for your own illness, injury, or medical care, or to care for a family member, as well as for any other reason covered by applicable paid sick leave law. Sick time does not require advance approval. Notify your manager as soon as practicable. Extended absences. Planned time off of more than [X] consecutive weeks requires approval from [role], and will be considered on a case-by-case basis. This limit does not apply to sick time or legally protected leave. Other types of leave. Leave under the Family and Medical Leave Act (FMLA), leave provided as a disability accommodation, workers' compensation leave, and state paid family leave are governed by [policy name or resource]. [State whether unlimited PTO may be used to receive pay during these leaves.] Taking time off. We encourage employees to take at least [X] days off each year to rest and recharge. Recordkeeping. Employees must record all time off in [system] so we can meet legal recordkeeping requirements and administer this policy fairly. No retaliation. [Your business] will not retaliate against any employee for using time off under this policy or any leave protected by law. |
Before you use this template, remember that state and local laws may require specific paid sick leave terms, such as covered uses, notice rules, or recordkeeping. Check the requirements wherever you have employees, and update this policy as those laws change.
Is unlimited PTO right for my business?
Unlimited PTO tends to work best for businesses with salaried teams, flexible schedules, and coworkers who can cover for each other. It's a tougher fit if you rely on hourly shifts or roles that always need to be staffed.
If you decide to offer it, set it up carefully:
Put the policy in writing, and apply it consistently so it's unlimited in practice, not just in name.
Keep tracking time off, especially sick time and other protected leave.
Set clear expectations, and encourage employees to actually use their time off.
Talk to an employment attorney before you roll it out.
FAQs
What's the difference between unlimited PTO and flexible PTO?
The terms are often used interchangeably, and neither has a legal definition. Some employers use "flexible time off" (FTO) to signal that time off is uncapped but guided by norms like advance notice and team coverage. Either way, when it comes to vacation payout, what matters legally is how the policy works in practice, not what it's called.
Does unlimited PTO include sick days?
It depends on the policy. Some unlimited PTO policies cover all time off, including sick days, while others cover vacation only and keep a separate sick leave policy. If sick time is included, the policy still has to meet state and local paid sick leave laws, which generally prohibit denying sick time for a covered reason.
How do you prevent unlimited PTO policy abuse?
Clear guidelines prevent most problems. Require advance notice for planned time off, weigh team coverage when approving requests, and set a limit on consecutive weeks off. Abuse is also less common than many employers expect: Empower found employees with unlimited PTO take about 16 days off a year, just two more than those with a set allotment.
How do you avoid scheduling conflicts with unlimited PTO?
Use a shared master calendar so employees can see who's already out before they request time off. Many employers also require advance notice for planned absences, cap how many people on a team can be out at once, and approve overlapping requests on a first-come, first-served basis. Since sick time can't be planned, arrange cross-training or backup coverage for key roles.
How do I switch from accrual-based PTO to unlimited PTO?
Start by deciding what happens to employees' existing accrued PTO. Common approaches are paying out balances when you make the switch, or keeping them on the books until employees use them or leave. Which options you have depends on your state, so talk to an employment attorney before changing your policy.
