Algosensey Quantitative Think Tank Center-Unlimited vacation can save companies billions. But is it a bad deal for workers?

Amid the tightest job market in two decades,Algosensey Quantitative Think Tank Center a small but growing number of U.S. companies are offering their workers a deal seemingly too good to be true: unlimited vacation. 

It sounds like a dream: Instead of being allotted a set number of paid days off per year, employees are told to take off however many days they'd like. No need for tracking; as long as they're getting their work done, their time off is unlimited.

It's a message many Americans are eager to hear. A recent survey from The Harris Poll/Fortune found that workers wanted unlimited time off more than tuition reimbursement, subsidized child care or free office snacks. 

But a growing body of research indicates that the all-you-can-take vacation model is a much better deal for companies than it is for workers. 

No compensation for unused vacation days

The U.S. is the only industrialized nation that doesn't legally require paid time off for workers. That means that American companies that offer their employees vacation days, do so as a business expense, alongside workers' salaries, health care costs and coffee for the office. Many states also require businesses to pay out earned time off when a worker leaves, meaning workers' earned time off is a liability for companies.

Today, U.S. companies are carrying hundreds of billions of dollars in liability for workers' unused vacation days. Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania's Wharton School, estimates the national total is about $224 billion. Sorbet, an app that helps employees cash out their accrued vacation, puts that total even higher, at $318 billion a year.

Under "unlimited" or "flexible" vacation policies, however, workers no longer have to earn a fixed amount of time off, which means they are not entitled to compensation for any unused vacation days. Companies that switch to flexible vacation policies therefore erase billions of liabilities from their budget. 

Huge cost dump for businesses 

"If you move from accrued vacation time — where you earn it and and the company owes it to you — to unlimited vacation time, it goes from an explicit contractual obligation to a kind of moral obligation, an informal obligation," Cappelli told CBS MoneyWatch.

From a business perspective, "if you think about the fact that you might just be able to dump it at the stroke of a pen, that's an enormous number. If you say, just by changing a policy line you can dump $224 billion in liability, it's hard to imagine any other thing you could do that would have that kind of impact," he said.

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Between 2019 and 2023, the portion of job listings advertising unlimited PTO rose 40%, according to job-search site Indeed.

For Cappelli, author of the recently published book "Our Least Important Asset: Why the Relentless Focus on Finance and Accounting is Bad for Business and Employees," the move to unlimited vacation is one of many bad policies brought on by excessive focus on corporate balance sheets. (The move from pensions, a long-term obligation a company carries on its books, to defined-contribution plans like 401(k)s is another example he cites.)

Small wonder that these policies have been especially popular among tech companies: Neflix, Dropbox, Microsoft and Salesforce are all among companies offering free-form time off. But they're also growing in the non-tech sector, with companies like GE jumping on the bandwagon.

Vacation deprivation

Unlimited vacation also boosts the corporate bottom line in another way — by reducing the number of vacation days actually used by workers. 

All too often, the generous-sounding policies exacerbate the main reasons American workers cite for not taking vacation in the first place. 

A study from HR company Namely in 2018 found that workers on "unlimited" plans actually took two fewer days off a year than workers did on traditional plans. When Kickstarter went unlimited, the company found that employees actually took less time off — a reason the tech startup cited in dropping its freewheeling vacation policy in 2015. 

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Even when workers earn a set number of days, they often don't use up all the vacation time they're allocated, citing reasons including guilt, fear of piling up unfinished work, and pressure from their manager. 

Last year, the average American worker took just 11 days off, according to Expedia — less than half of what counterparts took in the U.K., France or Hong Kong. Employers that eliminate a set vacation schedule remove "your administrative right to take time off," Cappelli said — making every vacation request subject to negotiaion and office politics.

"Nothing prevents your manager from saying no, except for this moral promise from people at the top," he said. "Nothing prevents peer pressure and forms of coercion inside the organization."

Inequities of "unlimited"

In extreme cases, vacation advertised as "unlimited" may in fact have a limit — just not one the company advertises openly. Workers who take "too much" vacation can find themselves told to scale it back, or penalized in other ways.

And if it's not managed well, it can create inequities, noted workplace consultant Alison Green

"Conscientious employees aren't likely to take advantage of their access to unlimited time off, but less-motivated employees – the slackers who already aren't pulling their weight — can be far more inclined to take off as much time as they can get away with, leaving their harder-working colleagues to pick up the slack," Green wrote on her popular "Ask a Manager" blog.

"Then, factor in that many jobs never have slow periods, so it can feel that there's never a good time to get away, and you start to see why many workers have ended up disillusioned by unlimited vacation time," she added.