Unlimited Vacation: What Could Be Better?

​Not only does it sound dreamy, it seems like a terrific way for HR to entice talented job candidates to sign on with a company:

Unlimited vacation.

There is no two- or three-week limit on annual vacation. In fact, there are no caps on vacation days. An employee can take as much time off as he or she wants.

While it sounds like the best of perks, the reality is that workers who are offered "unlimited vacation" rarely take off more than the average employee, who gets only a few weeks off a year, research shows.

Who Usually Gets Unlimited Vacation?

Unlimited vacation is a perk typically offered at small start-ups and tech companies and at nonprofit organizations trying to make up for less-than-ideal salaries, as well as to high-level executives, said Paula Brantner, senior advisor for Workplace Fairness, a nonprofit that provides legal information for workers and supports pro-worker public policy.

The benefit, however, should never be offered to nonexempt employees whose paid time is governed by wage and hour laws, said Sahara Pynes, counsel with Fox Rothschild LLP in Los Angeles.

"Companies can choose to apply it to only senior management or to all exempt employees," she said.

So what does "unlimited vacation" really mean?

"Companies that institute unlimited vacation policies generally have a mentality that employees just need to get work done," Pynes said. "They don't have a culture of facetime for the sake of facetime. They expect employees to be professional and responsible in achieving business needs while balancing their own personal needs."

But Brantner said research indicates that employees with unlimited vacation tend to take less vacation each year than workers who have caps on their vacation days. This, she said, is partly because many companies have policies requiring those with limited vacation days to use those days or lose them at the end of a calendar year, which encourages those workers to take off all the time they're allowed.

The 2017 HR Mythbusters report by Namely, which offers HR software and services to midsize companies, found that employees who were offered unlimited vacation took, on average, 13 days off a year, while workers with capped vacation days took, on average, 15 days off.

One reason for this, Brantner said, is that workers with unlimited vacation feel guilty about being away from their jobs for too long.

"Some places have a workaholic culture where CEOs and top leaders don't take a lot of time off," she said. "There is some fear that the company doesn't really expect anyone to take advantage of [unlimited vacation], and if you're the one who isn't aligned with that culture, you'll be singled out."

Is It About the Bottom Line?

Some organizations, Brantner said, began offering this benefit as a way to get around having to pay workers for unused vacation days when they left a company.

"I'm absolutely sure that it originated in some camps as a way to get a vast amount of vacation time off the books. It was something preferred by accountants and others looking at the bottom line. At the same time, there are companies that adopted it with good intentions and that believe in the value of taking vacations."

In November 2017, the Financial Times reported that "a big firm that ditches fixed paid leave for open vacations can wipe millions of dollars' worth of unused leave liabilities from its books that would otherwise be paid to departing employees. At the same time, it can safely offer bottomless holidays knowing most employees will never take them, especially in the U.S., the only major advanced economy in the world that does not guarantee workers paid vacation time."

Create a Culture That Encourages Vacation Time  

Research indicates, over and over, that vacation time increases employee productivity, engagement and retention.

While unlimited vacation can be an excellent way to tempt candidates to sign on with a company, it's up to that company to encourage employees to take advantage of the benefit. Without enough time off to recharge, busy executives, in particular, can quickly suffer burnout and stop performing optimally.

"Executives need to take advantage of downtime and take days off to accomplish personal tasks," Pynes said. "I also think many executives remain 'on call' even when they are on vacation, so they may as well take it."

Namely suggests these ways that HR and company leaders can encourage workers to take advantage of vacation time, whether unlimited or not:

• Lead by example. If workers see their own managers taking vacation time, they will feel more comfortable taking time off, too. This example-setting should start from the C-suite and work its way throughout an organization.
• Eliminate the guilt factor. Demonstrate a genuine interest in employee vacations. Perhaps managers can encourage workers to share vacation photos or talk about their latest adventure at company meetings. Creating a way for employees to talk openly about their vacations can help to alleviate any guilt about taking time off.
• Offer vacation incentives. If a company is able, it might consider offering travel stipends, sabbatical bonuses or other fiscal programs that can encourage employees to get away from the workplace.