Let's Take a Trip! Creating a Good Unlimited Vacation Policy

By Sandra Wieder Cohen
sandra@cohenbuckmann.com

So, you are thinking about implementing an unlimited paid time-off policy for your employees? I’m not surprised, because there are numerous advantages:

• When you cease accruing vacation, it reduces balance sheet liabilities.
• Builds morale among employees, because the policy affirms a relationship of trust.
• Saves cash, because employees do not have accrued, unused vacation that, in some states, is treated as wages that are payable upon termination of employment.
• Recharges the “genius” in your employees, if time away from the office sparks their creativity.
• Reduces administrative burden on management who will no longer track days away from the office.
• It’s very trendy! All the popular kids are doing it now (LinkedIn, Netflix, etc.).

Challenges for Unlimited Vacation
But of course, it’s not simple to implement an unlimited paid time off policy, because there are legal challenges to overcome.  And these policies are a new trend, so there is little or no cases or law to govern these vacation rules.

If the first thing that comes to mind is “Wow, what if one of my employees abuses the “unlimited” part of unlimited policy and remains always on vacation?”, then this policy is probably not suitable for your culture. An unlimited vacation policy is built on trust (and a good written policy, more on that later).

Second, unlimited vacation is not appropriate for non-exempt employees, who are entitled to overtime pay for hours worked beyond 40 hours in a week. Federal and state overtime laws require copious tracking of hours worked and time off for these employees.

U.S. employers don’t have to offer ANY vacation days to employees, but once the employer offers paid vacations, the unused days are treated like “wages” in some states and then workers in those states cannot be forced to forfeit accrued but unused days. California and Massachusetts are two states where all accrued, unused vacation must be paid at the time of termination. Other states, like New York and New Jersey, permit an employer to adopt a deadline by which unused vacation may be forfeited (“use it or lose it”).

Creating a Good Unlimited Vacation Policy
A good unlimited vacation policy will address the following tricky issues:

  • The Transition to the new policy. What will happen to accrued but unused vacation under the old policy? In some states, these days can’t be forfeited, even after a reasonable time to use them up.  If an employee terminates employment before using all the old days, you may still have to pay them out in cash.  So your vacation-tracking work is not over yet.
  • Carve out disability leave and other statutory required leave, such as FMLA. Those leaves should be handled separately and are not unlimited.
  • Vacations must still be scheduled in advance with a supervisor and are allowed for the convenience of the Company. Be fair.
  • Maintain high performance standards. Reserve the right to review employees’ use of the policy and reserve the right to discipline or terminate employees for abuse.
  • Exclude non-exempt employees.

Enjoy your vacation and "recharge" your genius!