Benefits of Implementing an ‘UNLIMITED’ or ‘NO’ Vacation Policy

March 20, 2012 - 12 minute read - Posted by

Many of us have experience with vacation policies either administering them or using them as an employee. And each company’s vacation policy is unique because it reflects their culture and management style; moreover, these policies have evolved over time and vary by province, territory, state, and country. We should be assessing our vacation policies to ensure we are competitive to attract and retain talent as well as innovative to ensure we are changing with the business landscape. Another key factor to consider is the cost (both time and money) of administering a vacation policy. Here we will discuss traditional vs. modern vacation policies such as an unlimited vacation policy known also as no vacation policy. We will also discuss the benefits and risks of modern vacation policies, and possible steps to take when implementing a new vacation policy.

Traditional Policies

The traditional vacation policy allocates a specific number of vacation, sickness, and personal days to each employee depending on length of time at the company. There are various methods of tracking these days off using costly and time consuming accounting and administration methods. Sometimes employees are able to carry over a certain portion of unused vacation time into a new year or they can sell back their unused days to the company. Furthermore, companies are legally required to pay out accrued and unused vacation days when the employment relationship ends.
Modern Policies

As we move into the 21st century, we are seeing a shift where companies are including employees in the conversation, asking for feedback, building radical trust, encouraging them to take ownership and control over their work, and providing flexibility so that creativity is contagious. As a result, we are seeing the line between work and personal life disappearing as passionate and engaged employees spend evenings and weekends working on their laptops or responding to work emails on their smartphone. Not because they are told to, but because they truly love what they do and care about their company’s success. Since these hours are usually not tracked, traditional vacation policies don’t really work here.

One modern direction is the movement to an unlimited vacation policy which is characterized by not specifically allocating time off or tracking it. Employees have the autonomy to manage their own workload and take vacation, sick or personal days whenever they need to and for as long as they need. There is no unused time at the end of the year, there is no carry forward into the next year, and there is no payout of accrued days when the employment relationship ends. A research study done by WorldatWork called Paid Time-Off Programs and Practices shows that the percentage of companies implementing unlimited vacation policies has increased from 1% in 2002 to 6% in 2010. We can look to Hubspot, marketing software platform, based in Cambridge, MA who did away with their vacation policy over two years ago. In four short years HubSpot has grown revenues by an astounding 1,195% and they have hit the leader board with Inc. 500, Forbes, and Deliotte Fast 500 rankings. Other companies embracing unlimited vacation policies are Netflix, IBM, and Toronto-based Social Media Group.

Benefits of an Unlimited Vacation Policy:

  • Empowers a culture of mutual respect, teamwork, autonomy, freedom, and trust which leads to increased employee engagement and productivity
  • Less costly method versus continually tracking, scheduling, and accounting for time off
  • Excellent recruitment and retention tool so you are always attracting the best
  • Fosters personal development and loyalty because employees feel respected and appreciated

Risks of an Unlimited Vacation Policy:

  • Potential for abuse – employees taking too much time off
    Mitigation: hiring the right people, fostering a performance-driven culture to ensure targets are met, implementing a limit on the number of consecutive days taken, and/or requesting pre-approval to ensure adequate staffing/coverage.
  • Skepticism from employees about taking time – afraid peer-pressure will discourage them from taking time off resulting in burnout
    Mitigation: the senior leadership team needs to demonstrate the importance of balance and taking time off. This means that managers need to be taking time off to recharge to act as examples for their staff.
    A study done by CareerBuilder in 2011 reveals 30% of employees work while on vacation (up from 25% in 2010) and 12% of employees report feeling guilty while they are on vacation because they are not at work.
  • Increased vacation time is seen as a reward for long-term service so by offering unlimited vacation time to all staff you may be removing this accumulated incentive
    Mitigation: there are many creative ways to reward long-term service and this could open up new possibilities that are tailored to the individual.
  • Legal risks associated with implementing an unlimited vacation policy in the form of discrimination if not all staff members are eligible for the policy
    Mitigation: employers should handle the transition from the traditional policy to no policy smoothly and accrued days need to be accounted for properly. The organization could put in the letter of offer that there is a two week minimum for each employee to ensure they are abiding by the Canadian Labour Code or the Fair Labor Standards Act in the US. Furthermore, every employee should be classified under the unlimited vacation policy to eliminate the potential for differential treatment of employees.

Let’s be clear…an unlimited vacation policy will probably not work for every company at every stage of development. Here are four key ingredients that need to be in place before a company can make the switch to an unlimited vacation policy:

  1. Performance-Driven Culture – We need to focus on the value people add at work and not on processes/procedures that limit their creativity. A performance-driven culture is one where results are rewarded. Through a discussion with employees, S.M.A.R.T. (specific, measurable, attainable, realistic, timely) goals are discussed transparently and employees are given autonomy as to how they achieve them. By its very nature this type of culture caps vacation because if you’re not hitting your targets, then you won’t want to take vacation and get further behind. We need to be rewarding value, not face time which is discussed by Tony Schwartz at HBR Blog.
  2. Autonomy – Employees crave the ability to direct their own lives. Furthermore, they need to have emotional intelligence (self-motivation, self-awareness, self-discipline, and self-improvement) in order to take their personal development to the next level. Balance comes with knowing yourself. We need to treat employees like adultsaccording to Joe Reynolds at Inc.
  3. Trust – Build deep-rooted trust in your company and with your employees. “If you treat people like they are in jail, then they will act like they are in jail.” Brett Hurt, co-founder and CEO of Bazaarvoice.
  4. Leading By Example – Management needs to ‘walk the talk’. They should be encouraging and celebrating vacation time by taking their own. This will shift peer pressure away from not wanting to take vacation days when an unlimited policy is in place. Leaders need to ensure that their staff is healthy and happy for the long-term.

When making changes to your human resource policies, the company should spend the time understanding the benefits and risks specific to their culture and environment. This discussion should include your staff to ensure you are receiving feedback during the decision-making process.
Early Stage Startup Companies

With early stage startup companies (less than 10 employees), an unlimited vacation policy is tough to offer given that the sole focus is to gain traction in the marketplace as quickly as possible; however, founders and early employees of these companies can find other perks and creative ways to engage and motivate that makes sense for them.
Younger Companies

The unlimited vacation policy is really brilliant for the small to medium-sized businesses that are committed to innovation in their space and truly unleashing human potential in their employees. These companies embrace transparency and goal-setting with continuous feedback. Once an unlimited vacation policy is in effect a company could still choose to place a few protocols within the system. For example, there could be black-out dates for product rollouts when companies need all hands on deck or there could be a first-come, first-served protocol to ensure coverage for customers is not interrupted. Whatever a company decides they should tailor their vacation policy to their unique needs and the needs of their employees.
Mature Companies

On the other end of the spectrum we have companies that have been in business for many years and already have policies in place that are now ingrained in the company. In this case they have an opportunity to make smaller changes toward a more flexible vacation policy versus switching all at once. For example, offering one day a month that is devoted to ‘inspiring creativity’ and that could look different for each person. Another example is from Red Frog Events, based out of Chicago, where they draw an employee’s name out of a hat during their monthly meetings and that person must take two weeks’ vacation during that month. It has turned into a fun competition to see the interesting things people can do with minimal notice.

What are some other benefits to an unlimited vacation policy? Any other drawbacks? I’d love to hear your thoughts!

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