From Netflix to GE, more and more companies are advertising their unlimited paid vacation policies. In fact, in 2015, the number of U.S. companies offering unlimited paid time off doubled, according to the Society for Human Resource Management (SHRM).

Granted, “unlimited” might be overselling such policies. No company would allow an employee to take 200 days off a year. Nevertheless, the fact that there’s no maximum number of paid vacation days typically attracts top-tier job applicants.

There are a number of reasons why companies trying to attract the best talent and increase productivity should offer unlimited paid vacation days, but employers must also keep in mind that such a policy only benefits companies and employees with the right corporate culture and won’t work for every company.

Why Offer an Unlimited Paid Vacation Policy?

1.) Attract and retain the best talent

When competing for top talent, anything that makes your corporate culture stand out to job applicants is a valuable recruiting tool. In a survey of employees, MammothHR found that ”employees ranked unlimited vacation third-highest among the benefits […] just behind health insurance and a 401(k).” 

Flexible vacation policies give employees the work-life balance they crave and let them know that you care about their happiness.

The reason flexible vacation policies are so popular? They give employees the work-life balance they crave and let them know that you care about their happiness. In return, your employees will feel more loyal to you and stay interested in helping you achieve your vision.

Gusto CEO and co-founder Joshua Reeves is just one employer who has benefited from giving employees the freedom to schedule their own vacation time. “We feel that our flexible vacation policy helps build an ownership mentality,” he wrote. “We want our employees to think like owners and consider what’s best for both themselves and the company. Letting them figure out their own vacation time shows that we trust and respect them, which in turn strengthens their commitment to the company.”

2.) Curb burnout

According to a 2012 Gallup survey, many American workers are not engaged at work, meaning that they “lack motivation and are less likely to invest discretionary effort in organizational goals or outcomes.” This is a problem, and a costly one at that. This lackluster workplace performance costs U.S. employers $450 billion to $550 billion each year.

70% of disengaged employees attribute their attitude to burnout, and it’s an excuse that’s easy to believe. In 2013, Americans took the fewest number of vacation days in over four decades. Additionally, a survey of HR professionals found that taking vacation days – whether for a long or short period of time – improved employee engagement, which in turn improved wellness, morale, performance and productivity. 

Taking vacation days improved employee engagement, which in turn improved wellness, morale, performance and productivity.

Samantha Cicotello, senior vice president of customer delight at The Motley Fool, told SHRM that whether it’s simply taking the afternoon off to spend time with their kids or taking two weeks off to travel overseas, employees who take advantage her company’s flexible vacation policy are much less likely to experience burnout. “What we want to do is make sure that [employees are] refreshed and have time to reflect and disconnect,” she said. “[They’re] going to get burned out pretty quickly if they don’t take that time to renew and refresh.”

3.) Productivity improves (but only if it’s measured)

Companies that don’t manage an internal paid time off system save 52 hours a year on average, but that’s just the beginning. What’s more important is that unlimited vacation policies incentivize employees to complete tasks more quickly. When companies stop keeping track of time off, they have no choice but to evaluate employees based on their work, instead of on how much time they spend at their desks.

“[An unlimited vacation policy] creates a forcing mechanism,” said Hired.com CEO Matt Mickiewicz. “Companies are required to articulate goals and hold quarterly performance reviews to hold people accountable based on results, rather than days in the office.”

Unlimited vacation policies incentivize employees to complete tasks more quickly.

However, productivity only increases if work expectations and results are clearly defined, tracked and measured. In other words, if you can explicitly define metrics to measure employees’ success every quarter, such as sales quotas or the completion of an engineering project, they will have the information they need to responsibly decide how many days they can afford to take off while still meeting their goals for the quarter.

On the other hand, an unlimited vacation policy is probably not a good fit for your company if most of your workers are paid by the hour or employee contribution to company goals is difficult to measure.

Reasons Not to Offer an Unlimited Vacation Policy

1.) Employees can end up taking less time off and burn out more quickly.

Some companies have reported that with an unlimited vacation policy, employees ended up taking less time off. For example, Kickstarter discontinued their flexible vacation policy because employees were taking less vacation and burning out faster.

The problem is that without clear guidelines, employees often err on the side of caution.
“Because we weren’t explicitly tracking [it], people felt guilty about taking time off,” writes Triggertrap CEO Haje Jan Kamps.

2.) Employees don’t trust the culture or management

Ultimately, the success of your unlimited vacation policy depends on your corporate culture and the level of trust that exists between employees and upper management. If you have a highly competitive culture with little transparency among employees and executives, people will naturally be skeptical of a flexible vacation policy.

If you have a highly competitive culture with little transparency, people will naturally be skeptical of a flexible vacation policy.

Employees will be fearful that taking time off will make them look lazy in comparison to colleagues who don’t.

“Employees for the most part are really afraid,” said Bruce Elliott, manager of compensation and benefits at SHRM. “We’re uncertain about our jobs, and that’s one of the reasons we don’t take time off.”

4 Ways to Make a Flexible Vacation Policy Work for Your Team

Despite these potential pitfalls, there are many ways in which a flexible vacation policy can work wonders for your employees’ productivity and morale. Here are four ways to ensure that your company’s unlimited paid time off policy functions in the way that it should.

1.) Management must lead by example.

Employees won’t take time off unless they see executives at the very top taking full advantage of an unlimited vacation policy. Make sure everyone knows when upper management takes time off.

2.) Communicate expectations to employees.

“Unlimited” time off might set unrealistic expectations. Make sure all managers communicate limitations to the policy, and employees know how far in advance they need to let their manager know about time off and what goals they need to meet to be successful. 

Make sure employees know how far in advance they need to let their manager know about time off.

For example, at UpCounsel where there’s a flexible vacation policy, managers ask their team to let them know about time off one week in advance for one day off, two weeks in advance for two days off and so on. Of course there will always be exceptions – like when a boyfriend scheduled a surprise trip to Mexico for a member of our team.

Another way to communicate your expectations is to call your policy something like “discretionary,” “flexible” or “self-managed,” said MammothHR CEO Nathan Christensen.

3.) Reward time off.

You might also consider rewarding employees who take regular or longer vacations with bonuses. Companies like Evernote and Triggertrap offer up to $1,000 to employees who take five or more days off in a row. Few employees will pass up the opportunity, and the incentive bonus communicates to employees that taking a vacation is perceived favorably by upper management and not as laziness.

4.) Focus on contributions.

Again, in order to take full advantage of an unlimited vacation policy, make sure your evaluations of employees are strictly tied to their measurable contributions. You should make it clear that employees are valued for the work they produce and not their time in the office.

About the author

Alex Liu

Alex Liu

Alex began his career as a scientific legal consultant and then as a journalist researching and reporting on health policy and health sciences. At UpCounsel, he enjoys researching and analyzing data to help businesses make informed decisions. In his free time, Alex is working on a documentary.

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