An Employer's Guide to Unlimited Vacation Policies

Learn if it's right for you, and how to implement it

Vacationing woman parked on roadside looking at map with mountains in the background

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It has long been understood that employees do their best work when they are well-rested and healthy. Therefore, having the option to take a few days off for vacation is an excellent benefit to extend to all employees. While it’s not a mandatory benefit, vacation time is the standard for most companies.

Despite the evidence, a Center for Economic Policy and Research study revealed that eligible, full-time American employees only receive an average of 13 days of vacation time, and 7 paid holidays per year, as compared to the minimum 20 vacation days in the EU, along with 10 or more paid holidays in most European countries. Other studies have shown that around 55% of Americans don’t use up all their paid time off. Are we a nation of workaholics?

What if, in order to combat this issue, employers stopped putting a cap on employee vacation time? Interestingly enough, there are dozens of companies already doing this to make the workplace better.

Why Offer Unlimited Vacation to Employees?

To attract high-performance candidates to work for them, more companies are starting to offer unlimited vacation as a way to encourage more work-life balance. They also understand that it’s appealing to candidates who work and play hard. These companies span industries from accounting to warehouses, and they do this in the hopes that their employees have enough time to relax and recuperate from work stress and deal with life’s other responsibilities. The idea is that, in return, employees give their all when they are at work, and this produces a much happier and engaged workforce, capable of outstanding innovation and teamwork.

How Do These Policies Actually Operate?

As an employer, you may be wondering how unlimited vacation policies actually work. You may have some concerns about offering this kind of benefit, including:

  • How can I know employees won’t abuse the unlimited time off?
  • What method will my organization use to track the vacation days used?
  • Is the unlimited vacation policy effective on the first day of work, or offered after a year of service?
  • Can unlimited vacation time ever be denied to an employee, for example, because of poor performance at work?
  • How will managers deal with unlimited time off requests and potential staff shortages?
  • What if an employee decides not to return to work? How is that managed?
  • How are other employee benefits (health care, retirement savings, etc.) handled during extended vacation time off?
  • If an employee is terminated, how much of this unlimited vacation time is the company required to pay the employee?

These are all valid concerns that each company needs to address before implementing an unlimited vacation policy. According to the Society for Human Resource Management, there are some specific steps that any organization can take to ensure a smooth transition from a traditional vacation policy to an unlimited vacation policy.

Give Ample Notice

You will want to gather information and be prepared in advance of an unlimited vacation policy rollout. Give plenty of notice to employees that a new benefit type is coming and explain how it will become part of the overall culture of the company. Educate managers on the policy and how it will be managed. The last thing that your human resource department or management need is a stampede of employee panic on the day it goes into effect.

Put It in Writing in the Employee Handbook

If your company doesn’t currently provide unlimited vacation time for employees, this can be very confusing to employees initially. Create a written policy that outlines the unlimited vacation benefit structure, including eligibility, how to request time off, and any rules around the use of this benefit. Make sure to state that such vacation requests are subject to the approval of management and availability of personnel, and no abuse of the policy will be tolerated. Also state that all employees must use up accrued time first and that once they leave the company, they do not get paid for any unlimited vacation days under the new plan.

Clarify Vacation Day Use

It is important to clarify the purpose of unlimited vacation days. The policy is not designed to allow employees to take weeks or months off work without proper notice and approval. It is also not designed to pad holiday weekends or for extending sick, medical, military training, or maternity leaves. Do be careful, though, not to include any language that recommends a certain number of days off, as this in effect creates a standard paid time off policy.

Create a Self-Managed System for Documentation

Every company that decides to use an unlimited vacation policy needs to have a reliable system for tracking requests, approvals, and absences. Make the system employee self-serve, with managers assigned to approve requests. Run regular reports to ensure employees are taking advantage of this benefit, but not abusing it. Be sure to delineate between vacation, sick, medical, and other forms of leave to comply with ERISA guidelines.

Offer Alternatives to Vacation Time

All employees should have other flexible options for finding work-life balance, such as the ability to work from home or another remote location, so long as they are being productive. Performance can often be tied to how often employees take time off to pursue other dreams because they return to work happier and more optimistic about their jobs. Provide all employees with choices in how they’d like to work, including their shift check-in and punch-out times.

The Benefits of Unlimited Vacation Policies for Employers

While much of the focus of unlimited vacation has been on benefits to employees, there are some unique rewards for employers too. Each year there are billions of dollars in liability for American companies due to unused vacation time. When a company doesn’t have to track unused vacation time, this can save on the cost per employee.

On top of this, if human resources and the payroll departments aren’t required to track accrued vacation time, this is one less administrative task on their plates. They also don’t need to worry about paying out unused vacation time when an employee leaves the company. It provides more time to focus on other aspects of running a successful business, increasing employee engagement, and making the corporate culture better for all.

Unlimited vacation supports greater wellness in employees and their dependents, which can indirectly reduce the cost of other benefits such as health insurance, disability insurance, and employee assistance programs. Employees can easily take time off to address personal needs, such as heading to the doctor or dentist for routine care. They will be less likely to call in sick because they can take breaks when needed, and this helps increase productivity levels for the entire company.

Vacation time can also be used for pursuing professional development and furthering educational levels. They can take time off to study for exams and complete class projects. If they have to travel for educational purposes, they can do so freely. It is especially appealing to career changers and the youngest generation of employees who place a higher value on learning and flexible schedules than working time.

Whether your company chooses to introduce an unlimited vacation policy or not is dependent on your business objectives. But take heed, more companies are now offering this employee benefit, which could lure your employees away to competitors.