Why Unlimited Vacation Is an Incredibly Smart HR Move, Not Just a Lavish Perk

May 23, 2017

Ping pong tables, catered lunches, free gyms, and even “puppytoriums” - these are just a few of the perks some companies have started to offer in recent years. And, while these are all impressive, one of the most alluring perks for many of us is unlimited vacation.

First popularized among startups, bigger companies like Netflix, Virgin Group, Hubspot and more are now offering unlimited vacation to their employees. And, while you might think this is just another lavish perk companies are using to compete for talent, it's actually a very savvy move that can save a company money and also send a signal of trust to its employees.

So, if you are considering an unlimited vacation policy at your company or just wondering what the pros and cons are, here’s a deep dive:

Endless vacation is an attractive perk that makes a recruiter’s job easier

There’s no doubt today’s workers are drawn to companies that respect their need for work-life balance. In fact, 57% of millennials consider work-life balance to be “very important,” according to the most recent Gallup survey.

But the policy holds enormous appeal across generations, too. Who wouldn’t be intrigued by the freedom of unlimited time off? With an estimated less than 1% of companies offering unlimited vacation, this is an attention-grabbing perk that attracts all types of workers.  

An unlimited vacation policy promotes trust and flexibility, while improving employee engagement

Historically, employees don’t abuse the policy and—if they do—it’s a great warning sign that they’re not invested in your company.

With an unlimited vacation or paid-time-off policy, employees get to be responsible for their own schedule. They can assess their workload and decide what time off it can handle—rather than being restricted by what some believe is in outdated time-off system.

This trust and flexibility can lead to a more engaged workforce. In fact, LinkedIn adopted its own unlimited vacation policy, known as a discretionary time off (DTO) model, for that exact reason. Pat Wadors, Chief HR Officer at LinkedIn, explains: “We believe DTO will give our employees the ability to better meet their personal needs, which will then allow them to bring their best self to work," she says. "We are not alone in making this shift to DTO. It’s part of a growing movement to place more focus on results and empowerment, not hours worked.”

Another key word there? Recharge. Statistically, employees that take more vacation enjoy greater success, less stress, and more happiness at work and home. According to a study by SHRM, most HR professionals believe taking more vacation boosts employee performance and productivity—with 74% confirming it leads to higher levels of job satisfaction.

Unlimited vacation can also improve an employer’s bottom line

With traditional paid-time-off systems (PTO), workers accrue vacation time. If they leave the company, those vacation hours convert to dollar amounts that must by law be paid as deferred compensation, if unused. In larger companies, this adds up quickly. With an unlimited vacation policy, employers are off the hook.

Another benefit: HR departments get to stop tracking employee vacation time and chasing people down for PTO documentation, ultimately cutting hours of administrative time.

Ask.com eliminated their PTO system, and calculated that doing so saved their HR department 52 hours per year. That’s 52 hours better spent on other recruiting and retention endeavors.

But there are challenges to unlimited vacation as well...

Due to their fluid structure, unlimited vacation can be tough to organize and manage

Employers need to decide how much time off is actually appropriate for their workplace. Even though the policy is “unlimited,” an employee’s ability to take time off is directly linked to workload, department, and manager.

There may be times when a manager approves one employee’s request for time off, but not another’s. Or the head of marketing may love the policy and encourage her employees to take advantage of it, while the head of sales feels and does the opposite. These scenarios may generate an unfair balance between employees.

For certain companies, structural limitations stand in the way

Companies rife with unionized workers or non-exempt employees—whose hours must be tracked—may find unlimited vacation policies to be difficult to manage. Non-exempt employees don’t receive PTO and union contracts often require specific amounts of vacation time.

The same is true of work that calls for employees to be on-site, like manufacturing, restaurant, and other service roles.

Transitioning from a traditional PTO policy to an unlimited one can be difficult

It’s crucial that companies looking to adopt an unlimited policy compensate employees for any unused vacation time under their old system. In 2014, Tribune Publishing instituted an unlimited vacation policy—only to rescind it eight days later after long-term staff members threatened to sue over the lost monetary value of their accrued vacation time.

Another thing to consider—employees may be intimidated by the policy’s lack of structure, or by the social pressure of what other employees are doing (and not doing), and end up taking less vacation than they would with a traditional system. That’s precisely why Kickstarter went from an unlimited policy to a capped 25 vacation days.

Overall, an unlimited vacation policy offers perks for employees and employers alike. With clear communication and solid transition plan in place, an unlimited policy can recruit top-notch talent, empower your current employees, and improve your bottom line.

*Image by Chris Nitz

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