HR Policies & Procedures

Unlimited Vacation … Are you Kidding Me?

“Are you kidding me” is bound to be the response of many CEOs to the concept of unlimited vacation, but many CEOs are taking a careful look at the benefits (see Yesterday’s Advisor) and accepting the risks (read on), says attorney Christina 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 risks of unlimited vacation:

Risks of Unlimited Vacation

Although unlimited vacation has many benefits, it isn’t without risks, Gomez says.

  • Potential for employee abuse. The possibility of employee abuse exists, but there are ways to curb it. For example, you can limit how much time off employees can take at once, implement companywide systems requiring preapproval of vacation time, and ensure fair and equal treatment across the board.
  • Some people are skeptical of such policies. Some employees have the perception that when you say “unlimited vacation,” you really mean that there is “no vacation.” In certain organizations that have implemented unlimited vacation policies, some employees have pushed back, thinking their employer is really just pulling the rug out from under them and taking their vacation away.
  • Employees may feel like they are “working” all the time, even when on vacation. Some employees may resent that there is no designated bucket for vacation time unless they feel that they really can take the time off.
  • Loss of one way to ensure productivity and reward long-term service. You lose one way of ensuring that employees are sitting at work and being productive and one means of rewarding longtime employees. However, there are other ways to try to provide that reward and ensure productivity.
  • Uncertainties about when and how long people will be out may make planning difficult. This is why a lot of employers interested in implementing unlimited vacation policies want to include some restrictions.

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Legal Risks of Unlimited Vacation

As unlimited vacation becomes a growing trend, the following legal issues may arise.

  • Claims of differential/discriminatory treatment. This issue can develop when there are differences among those who are eligible for unlimited vacation and those who aren’t.
  • FLSA wage-claim issues if employees are later found to be misclassified. If you have a group of 50 employees who say they should have been classified as nonexempt and paid overtime and a court rules for them, you have 50 employees you might not have been keeping time records on any more because of your unlimited vacation policy.
  • FLSA wage-claim issues if the transition isn’t handled properly. This issue mainly arises regarding what you do with the bank of vacation days and PTO days you already have on the books.
  • Intersection with other leave laws and policies. If you have an unlimited vacation policy, you may have an issue with other leave laws and/or policies because you may not always know the reasons somebody is out.

Leave and vacation policies are critical, of course, but there are a lot of critical policies. Our editors estimate that for most companies, there are 50 or so policies that need regular updating (or maybe need to be written). It’s easy to let it slide, but you can’t afford to—your policies are your only hope for consistent and compliant management that avoids lawsuits.

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  • Anonymous

    Anyone out there offering unlimited vacation? We’d love to get your thoughts on how it’s working out!

  • Anonymous

    I really appreciate the information shared in these Daily Advisors, but it would be helpful to preface the discussion with a description of the topic, ie, what is “Unlimited Vacation”.
    Thanks.

  • Anonymous

    The author of this article is out of touch with reality. What amount do you pay out upon termination (required by most states). From a Finance perspective, what reserve do you accrue for unused vacation (mandatory under GAPP)?