Should Your Company Offer Unlimited Vacation Time?
April 13, 2016
Unlimited vacation - is it right for your company?

Unlimited vacation: Is it a fit for your company’s benefits package?

With spring breaks behind us and summer soon upon us, is it time for your company to consider offering unlimited vacation as an employee benefit?

Unlimited vacation policies are almost as simple as they sound: employees can take as much vacation as they’d like. Typically, companies pay employees for all of the time they take off, or in some instances, they pay the first couple of weeks and give employees the chance to take off as much time as they want or need on an unpaid basis.

There are just a few catches: First, employees need to make sure they get their jobs done. They need to discuss their scheduled time off with management and ensure there is proper coverage. Managers also need to communicate well with their teams to prevent things from slipping through the cracks.

What’s in it for employers?

Many employers have started offering unlimited vacation policies as a way to distinguish themselves in the competitive employment marketplace. Currently, only about 1-2 percent of U.S. employers offer unlimited vacation time to their employees, according to information from the Society for Human Resources Management. But within the past year, more and more have followed suit, with promises of the trend catching on quickly.

In addition to serving as an employee recruitment and retention tool, offering unlimited vacation may also help companies save money. For example, if your company offers paid vacation days, you may have some risk in the equation: When an employee racks up a lot of accrued vacation, that’s a liability on your books because when the employee leaves the firm, you’ll have to pay all that unused vacation out. That can mean you’re writing a check for thousands of dollars when you don’t expect to, possibly at the very time you need to replace an employee. By offering unlimited vacation, you can ensure your company doesn’t get side swept with a big accrued vacation bill when the employee leaves.

Offering unlimited vacation can also help companies avoid an end-of-year rush to take unused vacation days before they are lost. It also has the potential to save your human resources team man hours, as anyone in HR knows that categorizing paid time off and sick days takes time and effort that could probably be better spent elsewhere.

Still, the most compelling reason to offer the unlimited vacation perk is probably to set yourself apart from competing employers.

So what could go wrong?

While some employers report having terrific success with the program, others have canceled or rolled back their unlimited vacation or unlimited time off policies, or limited them to executives and professionals.

Why? One potential issue is employees taking too much time. Obviously, you may have employees taking unfair advantage of your generosity – especially when you’re offering unlimited paid vacation.

If you’re losing key skill sets, or you have already overstressed employees struggling to cover for the absent worker, or your company has difficulty functioning because employees are taking too much time off, then such a program probably isn’t going to work for your company.

However, in practice, this doesn’t seem to happen very much. In reality, the biggest challenge most companies face is quite the opposite:

Employees could take too little time off. Perhaps its counterintuitive, but among the organizations that have reported offering an unlimited vacation policy and have reduced or eliminated it, the most commonly cited reason why seems to be that workers wound up taking too little time, not too much time.

Workaholic middle managers (you know who they are!) may be afraid to let go, or to delegate tasks to manage work in their absence. Ambitious and driven young people may be eager to impress and therefore prefer not to take time off, even though HR experts and managers know that they will likely be more productive if they take more vacation time. According to a 2014 survey from Glassdoor, the average American worker reports taking only half of authorized vacation. And 15 percent of those surveyed report taking no time off at all.

In other cases, employers reported that workers simply didn’t know what was expected of them. Some cited managers or leadership that couldn’t or wouldn’t take time off – creating a chilling effect on junior employee requests for time off.

This was the issue cited by prominent crowdfunding website Kickstarter. They had offered unlimited vacation time, but found that employees were hesitant to actually take the time off. So they dropped the unlimited policy and instead settled on 25 days’ paid vacation.

Of course, an unlimited paid time off or vacation policy won’t pay off everywhere. It turned out to be disastrous at a prominent newspaper company. The Tribune Publishing Company had a high percentage of unionized hourly workers, and they saw the policy as a backhanded way of taking away the cash value of their unearned vacation benefits. Union workers protested and began readying a lawsuit against the company. Management rescinded the policy less than a week after they rolled it out.

But for companies who have a high percentage of salaried or professional employees, and where management is engaged without being overbearing, an unlimited vacation policy can work out beautifully.

How can offering employer student loan payments as a benefit help your company attract and retain top talent? Download our Guide to Student Loan Contributions as an Employee Benefit to learn more!