Unlimited PTO is fine. Unlimited vacation will not normally satisfy state and local sick leave laws. So, PTO that is allowed for all sorts of reasons would be richer.

The Pros of Unlimited PTO

There are many potential benefits to having an unlimited PTO policy. Unlimited PTO creates:

A useful recruiting tool to attract job candidates
An easier way to retain top talent
Flexible policies around vacation that will foster trust and avoid burnout among employees
Employees that are more likely to feel valued by their employer
Higher morale and productivity
Better employee health as sick employees will be more likely to stay home and take sick days, reducing the spread of illness in the office
Financial benefits to the employer, because days off are not accrued and, depending on applicable state laws, an employer may not have to pay out for vacation time when an employee leaves the company

The Cons of Unlimited PTO

The potential drawbacks and risks of having an unlimited PTO include:

More required planning and rollout time than normal vacation policy
Risk of policy abuse by employees, which can be mitigated with a properly worded PTO policy and some planning
Risk of employee burnout if they are fearful to use it
Inconsistent application of unlimited PTO that may create animosity among employees
Unequal administration and approval of PTO that may lead to potential discrimination claims
Risk of violations and retaliation claims if sick days and vacation days are combined into one unlimited PTO policy as California policy requires employers to provide a certain amount of paid sick leave.

Unlimited PTO Best Practices

Many of the drawbacks outlined above can be mitigated by a carefully written PTO policy and proper implementation. Here are some best practices:

Consider your employees.
Unlimited PTO may not be appropriate for all employees. Full-time exempt employees, who are entrusted with the discretion and judgment to balance work obligations, may be more appropriate candidates than commissioned-based employees, or non-exempt workers.
Consider your company culture.
Unlimited PTO may not be appropriate for all companies. An unlimited PTO policy works best when the company culture already operates on a goal-oriented basis that tracks performance and goals.
Set parameters around what “unlimited” means.
Defining the “unlimitedness” of the policy, especially if an employer is in a state where PTO is paid out upon termination or layoff, can go a long way in preventing any claims against your company.
Base leave on performance evaluations.
Employers retain the right to hold employees to performance and productivity requirements. The key for employers is to set boundaries on the PTO policy based on performance criteria
Establish a protocol.
Employers should provide guidelines on how to request time off, such as requiring a 4 weeks’ notice when requesting 3 or more days of PTO. Also, each policy should come with a caveat that an employer can reject a PTO request due to workload or scheduling conflicts from other employees.
Draft a thorough policy.
Employers must draft policies to explain the interaction between protected leaves (i.e. FMLA), unlimited PTO, and other wage replacement benefits (i.e. state disability benefits or sick leave). The policy should address the coordination of overlapping paid benefits as well. For example, if employees have unused PTO time from the previous policy, then this must be addressed before the transition to an unlimited PTO.

Legal Risks

If you are an employer in a state that requires a payout of accrued leave there are additional legal risks and concerns to consider when dealing with unlimited PTO.

In many states, earned vacation time is considered wages that are earned. Vacation accrues, or “vests,” as work is performed, and this cannot be forfeited. The vacation time accrued must be paid out at the time of termination.

Under an unlimited vacation or PTO plan, it can be argued that there is no accrual, and thus, no vacation payout is required at termination. However, courts have provided little insight into the legality of unlimited PTO policies.

Many courts require the application of the “equity and fairness” principles to vacation policies. An “unlimited” policy that is unfair in this application may violate state laws. So, be consistent and fair.

We have a sample in HDD Flexible and Unlimited PTO Policies https://helpdesksuites.com/forms-documents-policy-and-procedure-library/