Can an Unlimited Paid Vacation Policy Work for Your Company?

Posted: April 10, 2017

Unlimited vacation policies allow employees to take as much paid vacation time off as they want, as long as the employees get their work done.  These policies started in Silicon Valley and were adopted by some more traditional companies, although they are not widespread.[1]

Would unlimited paid vacation policies work for your company?  Here is brief review of some of the benefits and drawbacks.

Benefits

  • Unlimited vacation policies can be useful for recruiting talent and for retaining employees. They can be a valuable perk, and can show prospective and current employees that the company trusts and respects its workforce.  As such, these policies can attract top talent, improve employees’ morale and engender employees’ loyalty.
  • Unlimited vacation policies can also provide a financial benefit to employers. Some employers, by policy or as required by state law, roll over accrued and unused vacation time and pay out its value when the employee resigns or is terminated.  These policies and laws require employers to track vacation time and to carry on their books the liability for accrued and unused time.  By switching to unlimited vacation time which is not accrued or earned but is simply permitted to be taken as desired, employers can free up their personnel and take the liability off their books.  Employers in states that require vacation payout on termination of employment should note that they might be required to pay out accrued and unused time as part of a switch to unlimited vacation time.

Drawbacks

  • Unlimited vacation policies can negatively affect company morale if some employees abuse the policy leaving others to pick up the slack.
  • Employers who do not closely monitor productivity may incur administrative burdens ensuring work is getting done by all employees—and not just the industrious few.
  • Policy abusers can also affect work and service quality, if they are not putting in sufficient working time to meet deadlines and satisfy customer/client needs.
  • Others may not take enough, or any, vacation time, being scared of being labeled as a “slacker” or “abuser” so burn out when they really need a break.

Practical Steps

  • Consider your employees’ workflow to determine if unlimited paid vacation policies can work for your company. Employees whose jobs are project-based, such as web designers, architects, engineers and even attorneys, are better candidates for such a policy than employees who can perform their job only at a certain location during certain hours, often as part of a team or crew, such as factory and warehouse workers.
  • Employers who choose to implement unlimited vacation policies cannot recommend, in writing or otherwise, an acceptable maximum amount of vacation time. Otherwise, it looks like the policy is capped, rather than truly unlimited.
  • Employers should, however, make clear to their employees that they are expected to take vacation, and perhaps recommend a minimum amount.
  • Executives and officers should also lead by example by taking vacation time, fostering a culture in which employees feel comfortable taking the time they need.
  • Written policies should clearly spell out which employees are eligible for this benefit and how it works, including specifying that it is for traditional vacation/personal days – not for sick days off. Including unlimited paid sick days in such a policy, unless the company thinks such a policy through with counsel, could obligate the company to payment in situations that were not intended.
  • Employers should also make clear that they will not tolerate abuse of the policy and will hold accountable any employees whose productivity or work performance suffers because of excessive vacation time.
  • Employers can also set guidelines to control work flow, such as requiring employees to clear their vacation with a supervisor or provide advance notice of vacation time.

Employers should consult with counsel to ensure that their vacation and sick time policies conform to applicable federal, state and local laws.

[1] Unlimited vacation policies were adopted by 1 to 2 percent of companies nationwide, according to the Society for Human Resource Management’s (SHRM’s) 2016 Employee Benefits report.  https://www.shrm.org/hr-today/trends-and-forecasting/research-and-surveys/pages/2016-employee-benefits.aspx (last viewed March 30, 2017).