The Pros and Cons of Unlimited Vacation Policies
By Alison Griswold
Why employers might not be as generous as the policy implies.
For employees, an unlimited vacation policy can seem like the ideal benefit. For managers, it can be the ultimate recruiting tool.
A small but growing number of American companies are now offering workers the benefit of unlimited vacation days. Under these policies, employees are encouraged to take as much vacation time as they like -- within reason.
That might sound like a recipe for disaster, but human resources experts say it rarely is. Companies that offer unlimited vacation tend to be invested in hiring motivated, responsible employees who will balance taking time off with getting their work done.
"There really isn't a lot of abuse in these plans," said Bruce Elliott, manager of compensation and benefits at the Society for Human Resource Management (SHRM). "They work really well in high-performance organizations."
Currently, 1% of companies nationwide offer unlimited vacation, also called unlimited time off, according to data from the SHRM. Another 2% are considering adopting the policy in 2014. The practice is most common among small startups, but has also been implemented by big-name companies like Netflix, Best Buy, and Evernote
Should your company switch to an unlimited vacation policy? We talked to Elliott and Luis Rodriguez, director of HR and people at career site TheLadders (which offers unlimited vacation to its employees), to get their thoughts on the pros and cons of the policy:
1. Employees can recharge. Unlimited vacation policies allow employees to schedule in week or two-week-long trips that might not be possible under traditional policies. Letting workers unplug for extended stretches is crucial for both workers and employers, since research shows that the more you work, the less productive you become.
Unlimited vacation is a good way to incentivize employees to take the break that could bolster their work output. "We ask people to work super hard, and we also give them the ability to take as much vacation time as they wish," says TheLadders' Rodriguez.
2. Workers receive trust and flexibility. Because unlimited vacation relies on employees to take time off within reason, the policy extends its members a certain degree of trust. That can mean a lot to workers. "The employees appreciate the trust and the flexibility that they’re given," says Elliott.
In general, he adds, employees in high-performance organizations respond to that trust by carefully planning how they'll take time off and still complete their workload. They assess when projects are due and when they have gaps in assignments, and tend to request vacation during those periods.
3. Employers can use it for recruiting. From the company perspective, Rodriguez says unlimited vacation is a "talent acquisition tool." The benefit is extremely attractive to potential hires, he explains, which helps companies like TheLadders land top-notch talent. Companies that don't offer a comparable perk, he adds, are "selling themselves short" on finding the best hires in a competitive area like New York City.
1. It can be hard to implement fairly. The biggest stumbling point with unlimited vacation, Elliott says, is ensuring that all employees are given equal opportunity to take their time off. That comes down to management. The obvious problem is that everyone can't be out at the same time. Companies with these policies, then, need strong managers who can juggle a vacation schedule that is fair to all and effective for the business.
2. Employees might initially take less vacation. Another main problem with unlimited vacation is that many employees don't take advantage of it. Slate's Matthew Yglesias goes so far as to argue that certain companies offer unlimited vacation precisely because they think their workers won't take much time off.
What is known is that people are easily overwhelmed by seemingly unlimited resources. "They become risk-averse or unable to make a decision, which leads them to either make a low-yielding investment choice -- or, worse, not sign up at all," writes former MIT Sloan School of Management professor Lotte Bailyn. With unlimited vacation, she says, "many people decide not to take advantage because it's too hard to figure out the right amount to take."
3. The policy isn't feasible with certain types of jobs. Elliott says that unlimited vacation is most popular in Silicon Valley, and tailored to small companies with results-driven cultures. He thinks employers with large numbers of employees, like manufacturing companies or sales organizations, would have a much tougher time switching to unlimited time off. The same goes for employers with a high percentage of workers who are paid by the hour, and companies that depend on call centers.