As Summer Approaches, Here’s What You Should Know About Vacation Policy

by | 4 Apr, 2018

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Every small business owner today faces the challenge of attracting and retaining quality talent, and one of the key factors in doing so is having an attractive array of employee benefit offerings. One key component of employee benefits that is often overlooked is the company’s vacation policy.

Technically, companies are not required to offer any vacation time. Vacation policies are not regulated by state or federal governments, essentially giving each employer free reign in determining the best vacation policy for the workplace. For some employers, this can be challenging, which is why it is critical to have a good understanding of different types of vacation policies and how they work.

Accrued Vacation Time

A very common type of vacation policy is the accrual system, in which employees begin accruing vacation time at set intervals, with the time being added to a “bank” of available vacation time. The logistics of such a system vary from workplace to workplace. That being said, it is common for employees to be able to accrue more time the longer they have been an employee. A typical starting point is allowing two weeks of accrued time for the first year, with that time building each year.

Some companies set rollover terms, which dictate how much accrued time an individual can roll over into the next year. This sometimes involves an accrual cap, in which employees can accrue vacation time only up until a certain amount. Once they hit the cap, they must take some time off to be able to fill up on accrued time again. This is often put in place to encourage employees to regularly take time off.

The only aspect of vacation policy that actually is regulated is what happens to accrued time if an employee quits or is terminated. Some states have laws that require employers to pay out an employee’s unused vacation time at the end of an employment relationship.

Unlimited Vacation Time

In recent years, many companies have begun to offer “unlimited vacation”, which essentially means that vacation time is always available for employees to take as needed. Some companies are opting for this policy to convey that they trust employees to manage their own vacation time as they see fit. It is seen as a holistic investment of the employee and his or her work/life balance. In return, employees are expected to be devoted to the mission of the company, and to use their freedom to take time off responsibly. Despite being called “unlimited vacation”, employers should still set rules around timing and notice period.

Combined Paid Time Off (PTO) Policy

Some companies opt for a combined PTO policy, where all days off, including vacation days and sick days, are pulled from a general bucket of time off. This gives employees more discretion in taking days off for whatever reason as they see fit. This type of policy tends to be a bit easier to administer. That being said, the time off cannot be separated into separate buckets, so if an employee is terminated, all of the unused time off must be paid out.

Each business is different, and employers need to take time to carefully consider what vacation policy works best for the business and its employees. Still, there are some general considerations that should always be made, such as whether or not employees will be paid and what the waiting period will be, meaning how long employees must wait after being hired before vacation time can be used. Another consideration is whether or not employees will be allotted more vacation time the longer they are with the company.

Employers should also set guidelines around required notice time for taking days off. Most companies require employees to request time off a specified time in advance, such as two weeks before the requested time off. There should be a clearly established process for requesting days off, such as a vacation request form that must be filled out, and/or a specified manager who must sign off on time off requests. In addition, it can be helpful to display a calendar that shows who is taking off which days, so that managers and employees alike have an overview of who is going to be off on certain days.

Determining which vacation policy is the best for your business, and then administering and enforcing that policy successfully, can be a challenge. To learn more about how Navigate can help with matters like this and more, contact us for a free consultation.

Tom DiSilva
Tom DiSilva has been providing professional human resource services for over 30 years. As the CEO of Navigate PEO, he actively partners with organizations of all sizes in the Greater New England area and across the country to help their businesses grow. He has expertise in HR and Labor Management, offering guidance and support for key areas of business such as negotiations, operations management, employee coaching, and employee benefits design. He is an active member of The Society for Human Resource Management (SHRM), The National Association of Professional Employer Organizations (NAPEO), Professional Association of Co-Employers (PACE), and The American Payroll Association (APA). He is deeply committed to giving back to the community both personally and through Navigate Cares, which provides support for several nonprofit organizations such as the USO, The Boys & Girls Club, and the 3Point Foundation.

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Disclaimer: this article does not represent expert advice and is provided for informational purposes. Please get in touch if you would like expert HR advice.