Christopher Hanks, founder of the Entre­preneurship Center at Kennesaw State University in Kennesaw, Georgia, loves leading sessions about unlimited vacation. "It's a fun seminar to do, because it's never quiet," he says. "Some business owners get really upset. Others are evangelistic. It excites so much emotion." Unlimited vacation policies are still the exception, but the idea is spreading beyond its Silicon Valley roots. These policies can have unintended consequences, though. "People take less time off than before," Hanks says. That's not good news. Nielsen research shows employees who vacation are happier with their jobs, more engaged, and less likely to quit--or have a heart attack--than their non­vacationing peers. Those who skip vacations are also likelier to be depressed, and to dent office morale.

Leave already!
With Americans notoriously vacation-averse, employers are rethinking PTO (paid time off)
53 percent
of employers offer PTO plans that combine vacation, sick, and personal time, says a 2015 Society for Human Resource Management survey.
2 percent
of employers offered unlimited PTO in 2015, up from 1 percent in 2012, 2013, and 2014, according to SHRM.
41 percent
of Americans in a Skift survey say they didn't take a single vacation day in 2015.
$224 Billion
U.S. companies' total liability for unused vacation time, according to Oxford Economics. That's an average of $1,898 per employee.

Unlimited time off is becoming a requirement for some companies seeking top talent. "We were recruiting from other companies that had it," says Margaret Wheeler, chief people and culture officer at Stitch Fix, which provides online personal fashion stylists. Stitch Fix switched to unlimited late last year. So far, Wheeler is pleased. "People responded really well to it, and it feels correct for us," she says. Other small-business leaders agree that offering unlimited vacation time can be a great thing--if you do it right.

Don't leave people guessing.

The marketing auto­mation company Sales­fusion launched its unlimited vacation policy in 2014. Some of its 72 employees, uncertain about how much vacation is too much, started taking less. So the company created an FAQ document to address issues like how much vacation to take at a time (two weeks max) and how to arrange that time off.

"It really did help to provide folks something in writing they could review," says CEO Carol O'Kelley. "If you stood up and said, 'Does anyone have questions?' you'd hear crickets."

Measure performance.

Before offering unlimited vacation, you'd better have key indicators that tell you how well each employee is doing, Hanks warns. "If my vision is fuzzy, I can't really hold you accountable," he notes. "I'll say, 'You've been out of the office a lot. I feel like you haven't been working hard,' and you'll say, 'No, no--I've been up till midnight a lot of nights.'"

Call legal.

In some states, including California, these policies are challenging to establish for hourly employees, because vacation days are considered part of their pay. So some com­panies offer unlimited time off for salaried, "exempt" employees, and traditional policies for nonexempt workers. And offering unlimited time off means you need a policy that distinguishes vacation from maternity and medical leave.

The CEO must go too.

"Whether you see everyone around you, above you, and below you taking advantage of it is really what makes or breaks the program," says Heidi Kim, senior product manager at Zest­Finance, an underwriting tech­ company with about 100 employees. "A policy on paper is meaningless." Because ZestFinance's leaders take time off, lower-level employees do too; about four to five weeks per year.

Ban "working vacations."

If vacationing employees constantly check in with the office, time off can quickly dissolve into time at work. That's bad, because they--and you--lose all the brain, health, and productivity benefits of a real vacation. Make sure they unplug. "I know loads of companies where people on vacation are still producing documents and joining meetings," says ZestFinance chief people officer Sonya Boralv Merrill. "If our CEO sees someone answer an email, he replies: 'You're on vacation, dude! Your input is not welcome here.'" He copies this reply to everyone in the conversation. That gets the point across quickly.

 
The surprising advantages of an unlimited vacation policy.
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You'll cut costs.

Many companies carry unused employee vacation days on their balance sheets; departing employees then cash in on their way out. Introduce unlimited vacation with plenty of advance notice, giving your staff time to use up accrued days off before they "lose" them to the new policy. If use-it-or-lose-it is the policy already, you will still gain by recapturing time that's currently spent on tracking how many vacation days everyone is taking. Ask.com claims its unlimited policy saves 52 HR hours every year--hours now used for recruiting and retention.

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Hiring is simpler.

Many companies offer unlimited vacation so they won't lose talent to competitors that do. But it can also help when hiring someone from a company with traditional rules. "It was a challenge to take employees who had been at another company for five years and had worked their way up to five weeks' vacation and ask them to start over at two," says Carol O'Kelley, CEO of Salesfusion. "I'm frankly happy not to have to negotiate that anymore."

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You have an early-warning system.

Employees rarely abuse unlimited vacation. When they do, it's a signal that something's wrong. Sonya Boralv Merrill of Zest­Finance recalls a staffer who returned from a two-week trip and immediately requested another week off. So she asked the employee why he was taking two vacations in a row. "It turned out he was quitting," says Merrill. "He wound up just coming clean on it."

From the June 2016 issue of Inc. magazine
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