Case for a Consistent, Comprehensible & Cost-Effective Vacation Policy

This article makes a case for having a vacation policy that is simple, sane and standard across the organization.

Some organizations have unnecessarily complicated vacation policies that require a lot of labor and time to implement, manage and support exceptions for. That is substandard because such vacation policies are costly for the organization, they distract from the organization’s other work and they make some employees feel unfairly treated.

Most companies would be better off with a simple vacation policy for all full-time employees.¹ Here is a such a vacation policy. It can be described in one sentence as:

Every full-time employee gets 25 days (5 weeks) of paid time off per calendar year.

Detailed explanation and justification

To some managers in the United States, it may initially seem that 5 weeks is too much for entry level employees or workers at the early stages of their careers. 25 days is not too much, especially considering that these also include paid personal days off. Many organizations already give employees about 5 personal paid days off (in addition to their vacation days) to use for personal, family, religious, social events, or the day before/after major holiday etc.

An example

So you could think of this policy as: Every FTE in the organization gets 20 days (4 weeks) of paid “regular” vacation, plus 5 more paid personal days off per each calendar year.

Here is one way the 5 weeks could be scheduled: 4 four weeks set aside for “regular” vacation would be meant to be used for typical vacations. As long as it is ok with the employee’s supervisor, it could be one 4-week long trip to another country, two 2-week long vacations, or even 20 separate Fridays taken off during a calendar year.

The 5 remaining days could be set aside as “personal days” would be meant to be used for other purposes like birthdays, anniversaries, personal/family/religious/social events, needing a day off at the last moment to run errands, take off the day before/after a company holiday.

This system actually makes no distinction between regular vacation and personal days off. The above is simply an example of how an employee (in consultation with their supervisor) decide to use the 25 vacation days.

Fair, consistent, and simple

Every FTE from the CEO to an entry-level engineer gets the same number of paid days off.

Vacation time is a necessary downtime for employees to relax, recharge and refresh. It should not be viewed as a perk. By giving senior-level executives more vacation days and making vacation seem like compensation sends the wrong message at multiple levels: Is the organization implying that senior-level people put in less time and effort? Is it implying that being away from work more is a valuable and desirable thing that employees should strive for?

Senior executives and entry-level employees alike get a two-day weekend. They get the same number of company holidays. They have the same sick-day policies. They should also have the same number of vacation days per year.

All prospective employees are informed of this consistent policy: 5 weeks vacation for all full-time employees, regardless of role, level and compensation. This eliminates distracting negotiations during the hiring process about vacation days. After which, existing employees can feel demoralized learning that some of their peers have more vacation days for no fair reason. Unlike compensation, vacation time is not private information. In a team that works closely together, people can often observe how much vacation their colleagues are taking if they choose to.

Speaking of sick-days, a detailed discussion of that is currently beyond the scope of this article and likely the subject of an article about employee health policy. Sick days should be separate from vacation.

Accrual, carry over, and Trading

Vacation days are not collectors items. Also, they do not have any cash value as per this policy. Employees should be encouraged to use all of their vacation days each calendar year. Taking vacation is good for the employees. It increases morale, productivity and innovation.² So it is good for the company. Vacation days may not be carried over from one calendar year to the next, nor can they be transferred to other employees. They can definitely not be redeemed for cash.

In this system, vacation days do not accrue incrementally over the year, so employees can’t redeem any unused ones for money even if they leave the organization. You could think of it this way: They accrue all together at the end of the year. When an employee leaves the company, they are not expected to pay the company back for their vacation days used either.

As for when a new employee (or any employee) can take vacation, that should be discussed between the employee and their supervisor and needs to be signed off by the supervisor. Use trust and common sense. In almost all cases, it would not make sense to take a month-long vacation after just one day at the job.

As for the first calendar year of new employee’s joining, we can apply the following simple formula: The number of vacation days you get in your first calendar year is adjusted based on the number of weeks remaining in that year, using whole numbers rounded up. For example, if you join in the middle of the year with 26 weeks remaining (half the total number of weeks in the year), you get 13 days of vacation that first calendar year (half of 25 days, rounded up).

“Unlimited” vacation policies

These days, a few companies offer open-ended “unlimited” vacation policies, where there is no pre-set limit to the number of vacation days an employee can take, within reason.³ Realistically, these are not unlimited vacation policies, the same way credit cards with no pre-set spending limit don’t allow unlimited spending.

The data on these open-ended vacation policies is not yet conclusive, but initial data indicates that they have a number of potential drawbacks:

1. They have been shown to result in employees taking less vacation time⁴
2. They pressure employees to keep working during their “vacations”, which defeats the purpose and benefits of vacations.
3. They put employees in uncomfortable situations with their employers. For example, when an employee gives 4-weeks notice to leave and wants to use the last one or two weeks for vacation. In such a situation, the employer is likely to feel taken advantage of under an “unlimited” vacation policy.

For these reasons, I recommend this 25 vacation days per calendar year policy over so-called “unlimited” policies.

However, a counterpoint to this recommendation is that if you have a set number of days, you may be required to track them. If tracking is mandatory under that system, then an unlimited vacation days policy where no one has to track anything is preferable.

In some U.S. states if an employee has a set number of vacation days and they don’t use them, the employer is compelled to pay out those unused vacation days. California is one such place and many New York companies operate the same way, so there is still cost. Again, that would make an unlimited policy preferable.

Another good solution would to be have an unlimited vacation days policy with employees required to take at least 3 weeks off each year. 

I support a policy of unmetered vacations to reduce administrative work on part of  both the employee and their supervisor. Since under the policy, vacation days are not carried over nor redeemable for cash, the need for such metering is eliminated.

Employees should inform their supervisor in advance, but should not have to seek permission. The default should be approval. Upon being informed in advance, the supervisor has the ability to override if necessary.

Benefits

A clear, consistent and complete vacation policy like this is likely to lower administrative costs, make employees happier and increase productivity. It is also likely to make the company more attractive to potential hires and improve retention.

Disclaimer

I am not a lawyer nor an HR professional. This is not legal advice. You should run your policy ideas by your organization’s HR and legal professionals.

---

Updated on 2022 November 2nd to incorporate excellent suggestions from my colleague Adwoa Dadzie (with permission).

1. By full-time employee (FTE), I am referring to a person directly employed by the organization who is expected to work ~40 hour/week, typically on a Monday through Friday schedule. [↩]
2. The Case for Vacation: Why Science Says Breaks Are Good for Productivity: article in The Atlantic  [↩]
3. IBM’s un-vacation policy: All you need, all the time: article in The New York Times  [↩]
4. Companies Offer “Unlimited” Vacation Time Because They Know Perfectly Well People Won’t Use It (Slate)
   How One Company’s Unlimited Vacation Policy Totally Backfired (Inc.) [↩]