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Unlimited Vacation: Is It About Morale or the Bottom Line?

A hammock on a beach with turquoise water.

​At the law firm of Fisher & Phillips in Irvine, Calif., Chris Boman enjoys a perk that sounds pretty awesome: He can take as many vacation days as he wants.

So how much vacation did this labor attorney take in 2016?

He estimates about two weeks.

That doesn't sound like more time off than many employees get at companies that offer limited vacation. The difference? Should Boman ever leave his firm, he won't be compensated for any unused vacation days—because his firm's unlimited vacation policy means that it no longer accounts for vacation days on its financial books.

While the concept of unlimited vacation sounds pretty generous, in practice, some argue that it benefits a company's bottom line more than it benefits the company's employees.

"The upside of not having to pay out vested vacation days is undeniable," said Paula Brantner, senior advisor for Workplace Fairness, a nonprofit that provides legal information for workers and promotes pro-worker public policy. "I think some companies are genuine in that they want to foster a different kind of culture and some [employees] do take more vacation time than the norm, but it's hard to build that into the corporate culture."

Unlimited Time Off Remains Rare

Unlimited vacation first became popular at startups in Silicon Valley and then began to seep into other industries—typically those where employees work independently and can set their own hours. Companies that have embraced unlimited vacation include Netflix, Virgin America, The Motley Fool, Achievers, Jellyvision and General Electric, which offers the benefit to senior employees.

Still, unlimited vacation policies remain rare in corporate America; just 1 percent to 2 percent of companies offer the benefit, according to the Society for Human Resource Management's (SHRM's) 2016 Employee Benefits report. Evren Esen, SHRM-SCP, SHRM's director of survey programs, said that statistic hasn't changed appreciably during the past five years.

Leaders at companies that have adopted unlimited vacation laud the perk. They say there's no more pressure on workers to plan and save days. Meanwhile, they say, employers are freed from the administrative hassle of tracking time off and the financial burden of paying out unused vacation time.

But not all employees view unlimited vacation as a perk. Tronc., which owns the Los Angeles Times, announced in November 2014 plans for a "discretionary time off" policy—in which employees would no longer have set vacation, holiday or sick days, but instead would consult with managers to determine their time off. Employees were suspicious and told media blogger Jim Romenesko that the policy "removed the monetary value of the vacation days that long-term staffers have accrued. Traditionally, staffers cashed those days out when they left the company." The company ended up rescinding the plan.

So is a company's main motivation for introducing unlimited vacation to attract, keep and motivate talented workers? Or is it a way for companies to wash their books of unused vacation time that would have to be paid out when employees leave?

"I think it's a little bit of both," said Michael Wahlander, an attorney in Seyfarth Shaw's San Francisco office.

Unused and accrued vacation can be a liability on a company's balance sheet, he noted. And that liability can run into millions of dollars a year for some organizations. Research from the U.S. Travel Association's Project: Time Off initiative, conducted by the economic analysis firm Oxford Economics, looked at Securities and Exchange Commission filings for 114 public companies. It found that the average vacation liability per employee is $1,898, and that U.S. companies carried $65.6 billion in accrued paid-time-off costs forward on their books in 2014.

Boman said he knows that "some employers are concerned about people not taking vacation and creating this giant liability of accrued vacation when they leave."

But unlimited vacation, he said, is also about flexibility that can boost morale. He noted that he can take a spur-of-the-moment, four-day weekend, as long as his obligations are met.

"Last week, I was skiing with my daughter; we skied for four days and I disconnected," he said.

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Said Brantner: "If it works like it's supposed to, then it can be a positive perk. If it's just a way to deprive employees of vacation and manipulate their behavior, then the workers are going to feel misled."

Potential for Guilt and Resentment

How employees view such a policy, she said, depends in large part on how senior leaders and HR enforce it, whether they take unlimited vacation themselves, and whether there's unspoken resentment for those who take advantage of unlimited time off.

Wahlander notes that at many companies with unlimited vacation, managers encourage workers to take off "if their work is done."

"But [work] is never really 'done' at these kinds of places," he said, noting that this can leave workers feeling guilty about taking days off.

Some suspect the open-ended nature of unlimited vacation actually leads people to take less vacation, and to burn out faster. It was for that reason that Kickstarter, a crowdfunding startup based in New York City, decided to return to a traditional vacation policy after trying out unlimited vacation.

A Kickstarter spokesperson told BuzzFeed in September 2015 that the company decided to cap vacation at 25 days a year. Kickstarter's HR team felt that with a cap, employees would have a better idea of how much leisure time they should take each year.

Sahara Pynes, an attorney in Fox Rothschild's Century City, Calif., office, has clients for whom unlimited vacation has worked well, and others who toyed with the idea, then thought better of it.

"I have a gaming company in Los Angeles that adopted it for their senior management team as those employees frequently worked weekends and after hours to get the job done," Pynes said. "It was also attractive from an administrative standpoint. There was no tracking and no carrying accrued but unused vacation over each year on the books as a payout liability."

On the other hand, she said that a small, creative agency in Los Angeles that had planned to roll out an unlimited vacation policy "because it was trendy and sounded like a good idea" later changed its mind.

"When they realized they would have a hard time denying time-off requests with an unlimited policy and a small, specialized staff, they ultimately determined it wasn't for their culture and workflow," she said.

Brantner noted that such policies also won't work at companies "that tolerate gossip or poor evaluations for those who take the time the policy permits." Managers can't encourage unlimited time off, she said, and then allow resentment to fester when someone actually takes advantage of the perk.

Wahlander noted that another downside to unlimited vacation is that very conscientious employees may not take a lot of time off, while less conscientious ones may abuse the privilege.

"There are definitely people I know who work way too hard and don't take time off, and they should," he said. But in practice, he noted, "a lot of employers are going to encourage [conscientious] workers to take time off because it benefits them. The employee is refreshed."

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