An unlimited vacation policy comes with challenges, but can provide numerous benefits for your organization.

One of the bizarre things about unlimited vacation policy is that it seems to have the opposite effect of what's intended. For instance, when British photography equipment company Triggertrap began offering unlimited paid time-off (UPTO) in 2015, the average employee took less vacation than before the change, according to Slate.

We will explore why that was the case below. But for finance leaders, UPTO remains a top consideration. Though just 1-2 percent of employers offer UPTO, trendsetting Silicon Valley firms like Netflix, Evernote and Hubspot offer the option and stalwarts like General Electric have followed suit. At the time of this writing, the national unemployment rate hovered around 4 percent, meaning employees are clearly in demand. UPTO is one perk that can help firms stay competitive.

Benefits of UPTO

UPTO can be an employer's way of signaling that they trust their workers, which, in turn, can make them act more trustworthy. When San Antonio law firm ATKG tried UPTO in early 2016, it found that it significantly cut back on hours for bookkeepers because there was less unclaimed time to manage. The firm's COO, Debbie Roos, told The Journal of Accountancy that staff loved the policy because they no longer feared they'd run out of vacation time. Some employees also said they felt more responsible.

Another advantage: removing the average vacation liability saves $1,898 per employee. U.S. companies carried forward some $65.5 billion in accrued paid time off costs in 2014, according to Project:Time Off.

When UPTO Falls Short

The biggest problem with an unlimited vacation policy is that it could backfire. As Triggertrap found, employees tended to take less vacation with UPTO. In part, this was because without accruing vacation days that they needed to take, there was no urgency is scheduling time off. The other reason? The common requirement that employees can take time off as long as there is no interruption in their work.

That means that, in practice, employees can either feel guilty about taking time off because someone else will have to do their work, or they might feel that taking time off is more trouble than it's worth since they'll have more work when they come back. As Triggertrap CEO Haje Jan Kamps also noted, all employees don't take time off the same way. Some decide to take a day here and there rather than a week or so at a time.

"The problem with the latter is that it seemed like they were always away," Jan Kamps wrote. "That's OK, of course, but if other members of the team feel as if someone's taking the piss, that's bad for morale all around."

How to Provide Intelligent UPTO

The solution, Jan Kamps found, was to require team members to sign off on others' vacation requests. Another suggestion is to check what has worked or not worked at other companies. Kickstarter, for instance, abandoned its UPTO policy in 2015 because workers were taking less vacation. Kickstarter called in human resources to offer guidelines about allocations of work versus leisure time, according to The Week.

One answer to the dilemma might be that each workplace will handle UPTO differently. For example, employees might be responsible enough to take time off to avoid burnout and to do so in a way that will leave the least amount of unfinished work behind. But in another example, a group of employees might abuse the policy, requiring a more standard policy of set days off.

Some experimentation might be in order too. Jan Kamps took to paying his employees bonuses for taking 14 days off each half of the year. That sounds counterintuitive, but if you factor in the costs of burnout and slack morale, he may have been onto something.

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