Changes in the workplace and its demographics have challenged traditional models for many benefits, including paid vacation. Both employer economic considerations and employee expectations have evolved. An increasing number of companies offer “unlimited” paid vacation. Handled effectively, an unlimited vacation policy can work for everyone. But while this option does offer certain benefits, you also need to be aware of potential pitfalls.
Know Your Legal Requirements
The law on unlimited vacation policies remains underdeveloped. Keep abreast of your requirements and limitations so you can avoid legal risks.
- Most employers are not legally required to provide paid vacations. If you implement a paid vacation policy, it must comply with applicable laws. You may provide for your employees to earn benefits on a daily, weekly or pay-period basis.
- Many states have laws stating that accrued vacation constitutes earned wages and as such, cannot be forfeited. This makes a “use it or lose it” policy illegal.
The Pros and Cons
With an unlimited vacation policy, you allow your employees to take vacation upon request, subject to business needs. The benefits include:
- Better morale. You allow your employees the freedom to take vacation time as needed and the flexibility to balance the work and personal lives. This makes them happier and as a result, more efficient and productive.
- Unlimited vacation is a perk you can offer with minimal overhead cost. And, it reduces your administrative burden when it comes to tracking vacation or PTO accrual. Because they are not accruing paid vacation time, you may be able to avoid reimbursing terminated employees for unused time.
On the down side, unlimited vacation policies may be susceptible to abuse by employees who make unreasonable demands.
- Carefully align your unlimited vacation policy with your employees’ rights to other benefits, such as sick, military and pregnancy leave. Otherwise, an individual may argue that your policy requires full payment of all leave time.
- Make sure it does not appear that you are technically accruing paid vacation time. If this occurs, you may be required to pay it out upon termination.
Make Your Policy Work for You
Here are a few additional tips for making an unlimited vacation policy work effectively:
- You cannot over communicate. Clearly articulate your policy in your employee handbook and all company media. Among your most critical message points is that employees must meet productivity expectations, regardless of their current vacation status. Explain the disciplinary action involved should abuse occur.
- Require management approval of vacation requests. Ensure that your managers uniformly administer the request and approval process. This will reduce the likelihood of favoritism or discrimination claims.
- Provide reasonable notice if you decide to switch to an unlimited vacation policy. Give employees sufficient time to use their preexisting benefits. You may opt to cash people out by paying them for unused vacation at the time of the transition.
Do you need additional guidance and resources as you improve your vacation or other benefit policies? CPS Recruitment has great information available for you in our resource center. If you need additional staffing resources while you have people out on vacation, we can help you with that too! Contact us today to learn more.