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Wage & Hour Laws

Unlimited Vacation. Is It the Best Plan for Your Business?

Mar 01, 2016

unlimited vacationMany people might say that one of the biggest perks to working at companies such as Netflix, Hubspot, Evernote or Virgin is the unlimited vacation time.

Richard Branson commented about unlimited vacation in his book saying, “This is surely one of the simplest and smartest initiatives I have heard of in a long time and I’m delighted to say that we have introduced this same (non) policy at our parent company in both the UK and the US.”

As of now, less than two percent of companies are offering this benefit to their employees, but the idea is growing in popularity.

Under typical vacation policies found at most companies, full-time employees accrue a certain amount of vacation time over the course of the year—and that’s all they’re going to receive.

But with an unlimited vacation policy, employees can take off whenever they want without needing to check their balance, because they don’t have one.

So if your business is considering adopting an unlimited vacation policy, we’ve pulled together a list of some pros and cons to help you make a decision.

PROS of Unlimited Vacation

One of the reasons unlimited vacation policies work—particularly at technology companies—is that employees are already working outside of the typical 9-5 schedule. Supervisors, managers and other professional exempt employees answer emails after work, stay late during the week and come in on weekends to make sure everything gets done.

With a traditional vacation policy, there’s no way to guarantee they are using it to rest up and recharge. Unlimited vacation allows them to take the time when they need it. And at some companies it’s been very successful so far for this reason.

For example, MGM Resorts International’s Michelle DiTondo, senior vice president of human resources, justified its unlimited vacation policy by stating to VEGAS INC, “The majority of our managers, due to the nature of our industry, work long days and holidays. They need to take time off to maintain their productivity.”

Additional pros of unlimited vacation include:

  • Employees feel trusted and more in control of their time
  • Human resource departments can use it as a perk when recruiting
  • Payroll and accounting departments can spend less energy managing vacation time

CONS of Unlimited Vacation

But, one of the downsides to unlimited vacation policies is their newness. Employer lawyers Holland & Hart caution that it’s currently unknown how state agencies and courts will handle potential wage claims based on a company’s unlimited vacation policy.

“For example, many states classify accrued vacation as compensation or wages and will specify that earned vacation pay may not be forfeited. Such provisions mean that unused, earned vacation must be paid out upon separation of employment. These state laws also can prohibit “use-it-or-lose-it” vacation policies where an employee who fails to use his or her accrued vacation time within a specified time frame loses the accrual of paid time.”

Additional cons of unlimited vacation include:

  • Employees might be too scared or anxious and use less vacation
  • Employees might abuse the policy
  • It’s not possible in many industries or with hourly employees

Key Takeaways

At the end of the day, unlimited vacation is a great idea for higher-level employees that work in flexible industries. It’s a nice perk that you can offer, and it helps employees be more productive.

On the other hand, it’s uncertain how the courts will eventually come down on these policies as they relate to existing wage and hour laws. Additionally, with hourly employees and workers in certain industries, it would be too cumbersome to use unlimited vacation policies.

Weigh the options and know that whatever you decide, you can always make the adjustments you need to make it work for your particular business.

And if you’d like to learn more about our wage and hour law training for supervisors and managers, request a demo today.

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