· ShiftFlow Editorial Team · Glossary · 6 min read
What Is Discretionary Time Off? Definition, Examples & Guide
Learn what discretionary time off (DTO) means, how unlimited PTO policies work, benefits like improved retention (25% higher) and reduced administrative costs, challenges including potential underuse, and proven implementation strategies for trust-based leave systems.
What Is Discretionary Time Off?
Discretionary Time Off (DTO), also called unlimited PTO or flexible time off, is a leave policy where employees take needed time off without accruing or tracking specific vacation day balances. Instead of earning 15 days annually at a fixed rate, employees take time off as needed with manager approval, based on trust and professional judgment.
DTO eliminates traditional accrual tracking, annual caps, and use-it-or-lose-it rules. Employees request time off through normal approval processes, but their “balance” doesn’t limit availability.
Quick Answer
Discretionary time off (DTO) provides flexible leave without tracking accrual balances or preset limits, relying on employee judgment and manager approval. Studies show DTO users average 13 days off annually compared to 15 days under traditional PTO, despite the perception of “unlimited” availability.
According to research from the Society for Human Resource Management, approximately 6% of U.S. employers offered unlimited PTO policies as of 2024, up from 1% in 2015. However, employees under these policies average fewer days off than traditional PTO users—13 days versus 15 days annually.
How Does Discretionary Time Off Work?
Under DTO policies:
- No accrual tracking: Employees don’t earn vacation days monthly or annually
- Manager approval required: Time off still requires advance notice and approval
- Business needs first: Requests may be denied during peak periods or insufficient coverage
- Documentation required: Submit requests through normal channels for tracking
| Aspect | Traditional PTO | Discretionary Time Off |
|---|---|---|
| Accrual | Earns at fixed rate (1.25 days/month) | No accrual; available as needed |
| Balance tracking | Required (6.5 days remaining) | Not tracked |
| Annual cap | Fixed limit (15 days) | No preset limit |
| Termination payout | Usually required for accrued balance | No payout |
| Average days taken | 15 days | 13 days |
| Administrative burden | Moderate (tracking, adjustments, payouts) | Low (approval only) |
| Liability on books | Yes (accrued PTO is financial liability) | No (no accrued balance to carry as liability) |
What Are the Benefits of Discretionary Time Off?
For Organizations:
- Reduced administrative costs (20–30%): Eliminate time spent tracking accruals, processing adjustments, and calculating termination payouts
- Removed PTO liability: Traditional PTO creates financial liability on balance sheets; DTO eliminates this
- Competitive recruiting advantage: 72% of job seekers rate unlimited PTO as highly attractive
- Higher retention rates (25%): Organizations offering DTO report 25% higher retention
For Employees:
- Flexibility for unpredictable needs: Take time for unexpected situations without depleting a fixed bank
- No use-it-or-lose-it stress: No December scrambles to use expiring vacation days before US holidays
- Elimination of accrual anxiety: No need to check remaining balance before booking trips
- Trust and autonomy signal: Being trusted to manage your own time off increases job satisfaction and employee empowerment
What Are the Challenges of Discretionary Time Off?
Employees Take Less Time Off:
Without clear guidance, employees average 13 days off under DTO compared to 15 days under traditional PTO. The lack of defined “earned” days creates uncertainty about what’s acceptable.
Manager Inconsistency:
Without objective accrual balances, managers approve or deny based on personal judgment, creating inconsistency and potential favoritism concerns.
Operational Coverage Issues:
DTO doesn’t work well when coverage is mandatory. Shift-based businesses struggle with DTO unpredictability.
Legal Compliance Risks:
California, Colorado, Montana, and Nebraska treat accrued vacation as earned wages requiring payout upon termination. DTO policies must be carefully worded to avoid creating implied accrual.
Cultural Implementation Failures:
If executives never take time off, DTO becomes performative regardless of policy.
How Do You Implement Discretionary Time Off Successfully?
Establish Clear Guidelines:
- Set minimum expectations (10–15 days annually)
- Define maximum guidance (“most employees take 15–25 days”)
- Clarify blackout periods (year-end close, seasonal rushes)
- Require appropriate notice (2 weeks for 5+ days)
Create Approval Frameworks:
Train managers on consistent approval standards considering team coverage, critical deadlines, employee patterns, and peer requests.
Track and Monitor Usage:
Generate monthly/quarterly reports showing usage, flag outliers below minimums or above maximums.
Foster Healthy Culture:
Leadership must visibly take time off, celebrate vacations, encourage pre-scheduled time off, and eliminate overwork martyrdom.
Address Legal Compliance:
In California, Colorado, Montana, and Nebraska, explicitly state that time off does not accrue and no balance exists. Consult employment counsel before implementing.
When Does Discretionary Time Off Work Best?
Ideal Characteristics:
- Results-oriented culture measuring output rather than hours
- High trust environment
- Professional salaried roles
- Organizations under 500 employees
- Stable operations without extreme seasonal volatility
When to Avoid DTO:
- Shift-based operations requiring specific coverage ratios
- Hourly non-exempt workers
- Low-trust cultures
- States with strict accrual laws (California)
- Rapid growth phases
The Bottom Line
Discretionary time off (DTO), also called unlimited PTO, is a trust-based leave policy where employees take needed time off without accruing or tracking vacation day balances. While marketed as “unlimited,” research shows DTO users average 13 days off annually compared to 15 days under traditional PTO systems.
Benefits include 20–30% reduction in HR administrative costs, removal of PTO liability from balance sheets, 25% higher employee retention, and competitive recruiting advantages. Challenges include potential underuse without clear minimum expectations, manager inconsistency, operational coverage difficulties in shift-based roles, and legal compliance complexity in states requiring vacation payout.
Successful implementation requires setting minimum expectations (10–15 days annually), establishing clear approval frameworks, tracking usage to flag underuse outliers, fostering culture through leadership modeling, and ensuring legal compliance with state-specific policy language.
DTO works best in results-oriented cultures, high-trust environments, professional salaried roles, and organizations under 500 employees. Avoid DTO in shift-based operations, for hourly non-exempt workers, in low-trust cultures, and during rapid growth phases.
Try ShiftFlow’s time off management tools to track discretionary time off requests, monitor usage patterns, ensure fair approval processes across teams, and integrate seamlessly with your employee roster planning.
Sources
- Society for Human Resource Management – PTO Policies and Practices
- U.S. Department of Labor – Wage and Hour Division
- California Labor Commissioner – Vacation and PTO Requirements
Further Reading
- Unpaid Leave Policies – Alternative leave arrangements
- Unauthorized Absence Management – Handling unscheduled leave
- Absenteeism Reduction Strategies – Improving attendance patterns
- Employee Life Cycle – Retention strategies
- Workplace Behavior – Time-off policy compliance
Frequently Asked Questions
What is discretionary time off?
Discretionary time off (DTO) is a flexible leave policy where employees take needed time off without accruing or tracking specific vacation day balances. Also called unlimited PTO, it relies on trust, manager approval, and employee judgment rather than preset annual limits.
How does discretionary time off differ from traditional PTO?
Traditional PTO accrues at fixed rates with tracking balances and annual caps. DTO eliminates accrual tracking and preset limits, allowing employees to take time off as needed with manager approval. Studies show DTO users average 13 days off versus 15 days under traditional systems.
What are the benefits of discretionary time off?
Benefits include 25% higher employee retention, 20–30% reduction in HR administrative costs, improved work-life balance, competitive recruitment advantage, and removal of PTO liability from balance sheets.
Do employees take less time off under unlimited PTO?
Yes, employees under unlimited PTO policies average 13 days off annually compared to 15 days under traditional systems. Without clear expectations, employees often take less time off due to unclear benchmarks or guilt.
Is discretionary time off legal in all states?
DTO is legal federally and in most states, but California, Colorado, Montana, and Nebraska require payout of accrued vacation upon termination. Organizations must structure DTO policies carefully to avoid creating accrual obligations.
How do you prevent DTO underuse?
Set minimum expectations (15 days annually), track usage and flag employees below thresholds, encourage managers to model healthy time off behavior, require pre-scheduled vacation planning, and celebrate breaks rather than overwork.
