Unlimited PTO

What is unlimited PTO?

Unlimited PTO is a leave policy with no set number of paid days off. Employees do not earn hours per pay period and have no balance to run down; they ask for time off when they need it, and a manager approves it when the work is covered. The same kind of policy is also called unlimited vacation, open PTO or discretionary time off (DTO).

Like paid time off itself, the term is American. US employers decide their own leave allowance, because the Fair Labor Standards Act does not require payment for time not worked, such as vacations. That leaves a company free to replace its accrual system with an unlimited one. Unlimited describes the missing cap. It does not promise that every request is granted.

Where the limit goes when the balance disappears

A PTO balance does two jobs. It tells the employee how much they may take, and it tells the planner how much absence to expect. Remove the balance and the first job goes, while the second falls to the manager. On a shift schedule the real limit becomes cover: how many people can be off on the same shift before it falls short.

A restaurant kitchen has eight cooks on an unlimited policy, and Saturday dinner needs at least six. Two cooks can be off on any Saturday. A third request for the same Saturday is declined, however few days that cook has taken this year, while on a quiet Tuesday lunch four can be off at once. The yearly allowance has gone, and Saturday dinner still has room for two.

This is why unlimited PTO is mostly offered to salaried staff whose work can wait a day, and less often to hourly teams on a schedule. An hourly employee's day off is a shift somebody else works, and those hours are paid and recorded either way.

Pros and cons of unlimited PTO for employers

Each of these drawbacks can be written into the policy. A minimum, such as at least two weeks off a year, works against under-use, and so do managers who take their own leave. A limit per shift answers the first-come problem on peak dates. A record of days taken keeps fairness visible, for the employees as much as for the manager.

Is unlimited PTO legal, and is it paid out when someone leaves?

Unlimited PTO is legal in the US. No federal law sets a minimum or requires paid vacation, so the questions that matter are payout when someone leaves and state leave laws.

California is where unlimited policies are tested hardest, because earned vacation there vests and must be paid at termination under Labor Code section 227.3. In McPherson v. EF Intercultural Foundation (2020), the Court of Appeal held that an employer owed vacation pay to three former employees: its unlimited policy was not in writing, and staff had never been told they had one. The court stressed that it did not hold every unlimited policy to trigger payout. It described one that may not, a policy that:

• says in writing that time off is not a form of extra wages for work done;

• spells out the rights and obligations of employer and employee, and what happens when time off is not scheduled;

• gives employees a real chance to take time off, or to work fewer hours instead;

• is run fairly, so it neither becomes use it or lose it in practice nor lets one employee work far more than another for the same pay.

Paid sick leave is a separate question. Where a state or city requires paid sick leave, check whether the unlimited policy meets that law's rules on use, notice and records, or keep sick leave as its own type of absence.

Switching from accrued PTO to unlimited PTO

The switch raises one question first: what happens to the hours people have already earned. Employers usually choose between paying the balances out on the switch date and freezing them, so employees can still use them or be paid for them later. Writing them off is the option to avoid, and in California it is not open at all: the DLSE treats earned vacation as wages that cannot be forfeited, so frozen balances stay owed until they are used or paid.

Plan the date around the schedule as well. A switch just before summer or the end of the year, with old balances to use up and a new policy to try, brings a wave of requests for the same weeks. Announce the date early, and set the limits per shift before the first request under the new policy comes in.

What to keep track of under unlimited PTO

Without a balance, the record of time taken matters more. Planners who run unlimited PTO well keep four things in view:

• Who is off on each shift, so a request is judged on cover and not on a number.

• How many days each person has taken this year, to spot the ones who never stop and the ones who take far more than the team.

• Sick days and other leave apart from vacation, where state law or your own policy treats them differently.

• Requests for the same peak dates, decided by a rule everyone knows.

The record also supports the policy itself. A real chance to take time off is one of the points the McPherson court named, and a history of approved time off is how an employer shows it.

In Shiftbase, unlimited PTO runs through the same request flow as any other leave. Your team requests time off in the app, you approve with the schedule in view, and a limit per department for busy days, such as a maximum number of people off at once, keeps each shift covered. Approved time off shows on the schedule and lands on the timesheet, so absence management gives you the record of who was off and when, ready to export for payroll.