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Unlimited Vacation? 8 Benefits (And a Few Pitfalls)

HR Policies & Procedures
by Stephen Bruce, PhD, PHR

Should you jump on the bandwagon of unlimited vacation? It’s touted as a good way to reward employees without increasing costs. However, it’s not without its pitfalls, says attorney Christina Gomez.

The concept of unlimited vacation is very simple: Employees can take vacation, personal, and sick time (anything that would fit into a paid time off (PTO) bank) whenever, however, and as much as they want.

Most of the time, however, such a policy contains some restrictions. For example, organizations may not limit how much time people can take off, but they might restrict how much employees can take off at once and put procedures in place for requesting vacation, says Gomez.

Gomez, who is an associate at the Denver office of law firm Holland & Hart LLP, made her comments in a recent audio conference “Unlimited Vacation: The Budget-Friendly Benefit That’s Sparking Employee Productivity.” Here’s her take on benefits of unlimited vacation:

Eight Benefits of Unlimited Vacation

Unlimited vacation has some great benefits, says Gomez.

1. It boosts employees’ morale and shows them you trust them. Unlimited vacation works best for employees who you think will have their own incentive to get their work done and strive to do a good job. Showing them that you trust them to do their work on their own time, do a good job, and manage their vacation days in a manner that works may be a productivity and morale boost they can really appreciate.

2. It provides a job perk at little or no cost. You aren’t really paying employees extra because although it may seem counterintuitive, workplaces that have these policies in effect have said their employees don’t take more vacation than they used to. Of course, some employees may take a couple more days a year than they did before, but the organizations are noticing that when the employees are actually at work, they are more productive.


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3. It encourages employees to have a balanced life and explore interests outside the workplace. These policies often mean you have happier and healthier employees. Why wouldn’t you want to encourage that?

4. It improves efficiency and productivity. With these policies in place, employees aren’t just sitting in the office to keep their seats warm for eight hours. They are making better use of the hours they are actually in the workplace. And believe it or not, some of the organizations that have implemented these policies have bragged that their productivity went up by as much as 30 percent.

5. It creates a culture of mutual respect, responsibility, and high performance. Unlimited vacation policies provide employees with a way to focus more on performance, getting the job done, meeting deadlines, and exceeding expectations.

6. It facilitates more flexible work schedules. Unlimited vacation can foster flex-time arrangements. This includes, for example, employees who work from home, come into the office only two or three days a week, or any similar type of working arrangement.


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7. It reduces record-keeping time and costs. This is a key aspect of unlimited vacation and one of the reasons employers implement such policies. You can spend a lot of time and cost on accounting and administrative tasks — counting employees’ hours and trying to figure out what increments to use to count employee vacation and sick time.

8. It may avoid the obligation to pay out accrued and unused vacation time at termination. This may not work for every employer because it will depend on state law and your current policies. However, in many cases — and probably in most cases — if you move to a policy like this and you do it right, you can avoid having to keep vacation time on your balance sheet and can avoid having to pay it when employees leave.

In tomorrow’s Advisor, the risks of unlimited vacation policies, and an introduction to a unique collection of pre-written policies on about 100 critical topics.

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  1. Anonymous        
    August 10, 2011 5:50 am

    That seems like a HR nightmare waiting to happen. Let alone a company nightmare. It sounds great in theory, like a lot of the programs instituted during the dot.com bubble, but I would be interested in hearing how well these copmanies are doing some years down the road–like those dot.com companies.

  2. Anonymous        
    August 10, 2011 8:09 am

    Unlimited vacation is the most ridiculous thing I have ever heard as a benefit. You do have employees who are congnizant of the time they are off and want to do a great job for the company. However, you also have those who will take every day off they can; their kids are sick, their mom is sick, their dead father is sick, the dog, and on and on. I can see many, many discipline issues that override the benefits of this policy. I don’t see why it would reduce record keeping–unless you don’t keep any records of it. Then you have employees who say that one is off more than the other and how unfair it is.

    No, go for PTO and have a controlled environment.

  3. Anonymous        
    August 11, 2011 7:22 am

    I don’t believe what I just read. Unlimited time off? There is only one problem that the Einstein that developed this theory missed. Organizations have customers and the customer wants his product or service when he wants it, and his may not fit into this lax few of employment. Some of the newer generation in the workplace are only focused on time away from the job; this will only exacerbates the issue. I am all about take time away to refersh your mind, but let’s not forget that we need a job to earn money to pay the bills while we are running through the fields singing and dancing.

  4. Anonymous        
    August 11, 2011 10:33 am

    If this is paid time off, and unlimited, what happens when a sick employee legitimately files for FMLA leave, knowing full well he/she will be out considerable longer than the 12-week max. You would surely have to have controls for this, unless cost is no object. And as long as we have to do new policies, might as well skip unlimited and keep what we have, thus saving the time and effort needed to do new ones.

  5. Anonymous        
    September 8, 2011 7:31 am

    So if I am reading this correctly and it is paid time off, they basically want everyone to be on salary so they can take as much time off as they want? I don’t see how you could maintain payroll records otherwise. And yes, I could see most of my workers only showing up the absolute minimum time required if this was done here…

  6. Anonymous        
    October 4, 2011 12:59 pm

    the readers commenting here are missing the point – you have to put protocols in place when you do unlimited time off. Companies that have used this successfully set up blackout dates (certain times of the year where we can’t take time off due to product rollouts or customer rushes) and first come first serve policies so that every department has adequate coverage.

    But honestly, all those policies were in place even when we were tracking finite Paid Time Off.

    Yes, you need to document so you see who is abusing it – so less documentation time is not a benefit

    You also need to set company metrics that say “you have to perform at this level, and you can take as much vacation as you want, but XYZ still has to get done”

    If you have employees who are abusing it, those are the people who will be cut… if someone is taking way too much PTO time their performance will suffer. They won’t meet goals or deadlines.

    If you have a few rockstar employees who can take 4 weeks off a year and maintain or exceed their level of performance, why not let them?

    Your hardest working employees benefit the most and can recharge often, other employees will work harder because they know that time off is directly proportional to performance, and overall in these scenarios less time off is taken on average because there is no “you have 10 days and they expire in one month” scenario that forces people to make use of every single day they have “left”.

  7. Anonymous        
    February 9, 2013 5:45 am

    Unlimited PTO will still have policies behind it. The first being management approval. An employee cannot say I am taking a month off with out approval of their manager.

    Second, unlimited PTO will save a company money. If you have 5,000 employees and need to do a RIF of 2,000 employees that is 2,000 employees who may have accrued several 1,000s of hours of PTO that must be paid out on their final check. The company is then losing additional money which is probably why the RIF needed to happen.

    In regards to FMLA – you would have a separate policy for LOAs. Most organizations do. These leaves are managed differently and are often subsidized by disability plans either from the state or existing std/ltd plans. You can say that you will not pay an employee for medical FML leaves because they can subsidize else where. You are within the law.