Why Generous Paid Time Off Policies Pay Off for Employers…

This may sound like one of those Zen koans – such as, “What’s the sound of one hand clapping” – but I assure you it’s not:

What can you offer your employees as incentives not to work that are, in fact, incentives to encourage them work?

In today’s highly competitive market for top talent, fast-growing and innovative companies are offering employees what seem to be generous incentives to stay away from the workplace.

Netflix, for example, is giving employees unlimited paid maternity and paternity leave. It covers births and adoptions. Further, when employees decide to come back, they can work part time or full time and even take additional time off if situations arise that warrant it.

“This new policy, combined with our unlimited time off, allows employees to be supported during the changes in their lives and return to work more focused and dedicated,” says Tawni Cranz, the company’s chief talent officer.

In similar moves, many companies are killing the old two-week vacation policy and giving employees unlimited vacation days. Paid time off policies are going through a major evolution right now.

Employers promote these generous perks as reasons to come work for them, and I think that’s great. However, there are a lot of upsides for the employers as well. The first of these is obvious: the flexible PTO policies may lure in some top talent.

(By the way, I just heard a report concerning a large Silicon Valley firm that’s a major email provider. The company can’t find enough qualified people to move forward on several important projects. Being unable to hire talent carries a huge, somewhat hidden, price tag.)

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But the actual cost of these generous time-off programs may not be as high as you would initially guess. I say this for two reasons.

• Career-mind individuals tend to not take very much time off, and
• Defined vacation benefits are a financial liability for a company.

If your goal is to bring in the most qualified talent, these individuals put a high value on career advancement and generally that means they are dedicated to their work. I have seen many studies that say this and you probably know this from experience: top workers seldom use up all their vacation days.

This leaves employers with a financial liability. When these workers move on, they have to be paid for their unused vacation. Currently, it looks like the undefined, flexible, approach to offering time off doesn’t give companies the same financial burden.

So a benefit that seems altruistic on the surface, may be, in fact, much better for the bottom line as well.

I haven’t seen studies on the unlimited maternity/paternity leave benefits; it’s probably too new and too rare. However, I don’t see very many reasons that the same principle wouldn’t apply. Highly motivated careerists won’t abuse the benefit. They’ll be back on the job fairly soon, or if they decide to take time off to raise their families, they’ll let their employers know.

To go back to the pseudo-Zen koan I offered at the top: These benefits that look like incentives for people not to work, will actually turn out to be incentives to make more people work for the companies that offer them!

I think they’ll result in a net increase in productive hours from in-demand professionals. This might encourage you, as a small business owner, to experiment with some of these more generous PTO policies.

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