Vacations. We could all use more of them! Even if you’re planning a staycation, taking precious time to disconnect is important for the well being (and performance!) of you and your team. But if you’re new to creating a vacation policy, or you’re just looking to refresh one, the options can be daunting. Is it okay to offer the government minimum and call it a day? Should executives get more vacation time than new grads? Is unlimited vacation the best perk ever, or a fast track to inevitable burnout?
In this Bright + Early Guide, we’ve laid out a number of options to structure your vacation policy and the pros and cons of each. We’ve also included a handy sample policy to get you started. Here are the steps.
Note: We aren’t lawyers! Please have all policies double checked by your employment law firm and ensure they are compliant with your local laws and standards, wherever you are.
Step 1: Check your local standards
Every country, province and state will have its own labour laws. Here in Ontario, you have to offer full-time employees a minimum of 2 or 3 weeks depending on their tenure with the organization.
However, in industries with highly competitive hiring, like tech, there’s an expectation that you’ll go beyond the legislated requirements. For example, all of Bright + Early’s current clients offer a base minimum of at least 3 weeks of vacation for everyone, with 60% of them offering some form of unlimited time off. Research shows the same—according to Payscale’s 2022 Compensation Best Practices report, the benefits that have increased in popularity the most between 2021 and 2022 include unlimited or flexible time off.
You can even do a little sleuthing to see what the competition offers. Consult industry peer groups or check out your hiring competitors’ job postings or career pages to see how much vacation they’re offering. This isn’t about keeping up with the Joneses, but ensuring you’re at least playing the same game.
Step 2: Weigh the options
Option 1: Everyone gets the same amount of vacation
In this option, everyone across an organization would receive the same amount of vacation, no matter their tenure or seniority.
- Pros: Equitable, easy to communicate and administer.
- Cons: Allows for less flexibility. May make it harder to hire, especially at the senior or executive level if you’re not prepared to offer everyone at least 4 weeks.
Option 2: Unlimited vacation
In this option, team members are able to choose how much and how little vacation works for them, and when. The organization does not set a limit, and folks are empowered to take time off as they need to.
- Pros: Unlimited vacation policies look great on paper. Candidates like the idea of so much flexibility, and it can send the message that you give employees autonomy over their work and schedules.
- Cons: While many employers fear abuse or overuse of an unlimited vacation policy, they often lead to not enough vacation time being taken. In our experience, there is always an uncommunicated expectation of how much vacation is actually appropriate to take, and many employees, especially those at the junior level, will fear being viewed as abusing the trust. According to studies, typical unlimited vacation users will take only 13 days a year, and 42% say they are “always logging on” during time off. Thus, some savvy candidates may find your open vacation policy a turnoff. Additionally, many companies with unlimited time off policies fail to properly track days off, leading to expensive payouts of the minimum legislated vacation time when the employee departs. Our suggestions? If you must implement an unlimited vacation policy, ensure time off is tracked, and that senior leaders are modeling, supporting, and encouraging vacation time.
Option 3: Different vacation amounts based on merit or seniority
In this option, vacation allowances vary across the organization. Some folks may have negotiated additional days off, or the company may have a tiered system based on seniority level.
- Pros: This option can make sense when you have both new grads and executives on staff and need plans that work for both. It allows you to use vacation as a lever or negotiation point for hiring and promotions.
- Cons: This system is inequitable, as well as harder to manage and keep track of administratively. Better negotiators will get better deals, and those who are not comfortable advocating for themselves may end up with less. Additionally, when employees talk amongst themselves and discover they don’t have equal vacation allowances, especially in the same role or at the same level, it can lead to broken trust and lower engagement.
Option 4: Minimum vacation policies
In this option, the company sets a minimum amount of weeks an employee must take a vacation, with additional days off available either openly or with approval. This is the system we use at Bright + Early; team members must take a minimum of 4 weeks off per year, with more days available if requested. For us, 100% vacation usage is an annual company goal.
- Pros: Sets the expectation that people should and are encouraged to use their vacation time. Additional time off can be approved with less risk to the business.
- Cons: If you offer additional time off that requires approval, this introduces manager subjectivity to the process, and could lead to inequities.
Step 3: Iron out the details
Most organizations require that employees accrue vacation, meaning that they slowly “earn” their annual vacation over the year. For example, halfway through the year, someone with 20 vacation days will have accrued (or earned) 10 days off.
To avoid paying out large vacation pay sums in the case of a departure, it’s best to have employment contracts state that vacation is accrued, whatever it’s set at. However, accrual also leads to planning problems; we don’t want everyone taking their time off at the end of the year, and vacations and time off may be needed earlier on. For this reason, most companies allow employees to go into “vacation debt”, or a negative balance on their accrual. Though most contracts will reserve the right to claw back the day rate value of this “debt” should an employee depart, it’s not so common to actually do so.
To roll (or not roll) over
Without a policy saying otherwise, unused vacation days will not just expire (depending on your local legislation) at the end of a given year. To avoid people banking large vacations sums (and burning out while doing it), you may want to have a policy on how long vacation time can roll over into the next calendar year. Ideally, folks will have used their days fully throughout the year, but exceptions (and busy seasons) can happen. To avoid a scramble of December vacations and people losing out on earned vacation days, many organizations will choose to allow vacation days to “roll over”. Here are some common options:
- No rollover: The pros here are reduced liability, and that it encourages people to use up all of their days. The cons are that there will certainly be requests for exceptions, and some regional laws may prohibit this.
- 3 months rollover: This option gives some extra time to those who may have had a hectic year end, or to save up for a longer vacation.
- 1 year rollover: While generous, folks may bank too much time with this option.
No matter what your vacation policy is, it’s important to track how much people are using. Not only will it help you plan and give you important data (are certain teams or people better at taking time off than others?), but you’ll need this information if and when someone leaves the company, as you’ll have to pay out any accrued but unused vacation.
We recommend getting HR software (like HiBob, Bamboo or Humi) to help you keep track of time off and other important HR records. If your team is very small or you’re otherwise not ready to take the software plunge, we recommend having a time off request process where both the manager and admin person has visibility and is able to track the requests in whatever you are using (say, a google sheet).
Ensuring smooth sailing
To reap the benefits of a great vacation policy, you need to set your team up for success and ensure they can truly disconnect when they take time off. Some tips to make it run a bit smoother:
- Having senior leaders model taking time off (and avoiding slack and email when they do so)
- Having a great documentation process
- Create a pre-vacation process, template or checklist to ensure all tasks are handed off. At Bright + Early, we have a clear transition process and leverage Notion and Monday.com for our client notes and details. This helps to keep our vacation transitions smooth so that when team members take time off, they can log off knowing their client is in good hands
- Celebrating time off and vacations by giving kudos to team members who do so, or having them share highlights of trips or vacations when they return
- Have a stated (and measured) company goal of 100% vacation usage
- Measure how much time is being taken off, and investigate when certain people, teams, or times seem to have lower than expected vacation usage
Sample Vacation Policy
Here is a sample policy for you to borrow from. Remember to have it double checked by your employment lawyer!
"We care about everyone being able to have a full life outside of [COMPANY], including being able to recharge on a regular basis. We encourage all team members to take the time they need to rest and recharge when they need to in order to do their best work. Managers will also work purposefully to take breaks themselves and communicate how they live their own work-life balance. Managers are responsible for making sure all [COMPANY] employees take their minimum vacation entitlement under the local laws each year.
We don’t have an official cap on vacation time at [COMPANY]– instead, we require that all full-time [COMPANY] employees take a minimum of [fifteen (15)] days of vacation per calendar year.
All employees receive a set amount of vacation per year [specify the amount if it’s the same across the organization, or include a guide if it differs by tenure/level]
Vacation days accrue at a rate of [1.25 days per month], prorated for partial years of service. Our calendar year runs from [January 1 to December 31]. This accrual is purely for liability purposes; [COMPANY] employees are welcome to book a vacation before it is officially accrued.
Option 1: Vacation offered to employees that exceed legal minimums is on a use or lose basis, and does not roll over into the following year.
Option 2: Employees may roll over [X#] of vacation days into the following year, to be used by [DATE]
To book vacation, submit a request via our (software) for your manager’s approval. We aim to approve all vacation requests, however, sometimes there may be business reasons to decline a vacation request. In that case, your manager will work with you to determine a more convenient time. To avoid disappointment, please put your request in with as much notice as possible and wait until you have received approval to book any travel.
In circumstances where your employment ends (for any reason), vacation pay for any accrued and unused vacation time, not exceeding the legal minimums of your province of employment, will be included in your final pay. [COMPANY] reserves the right to deduct the equivalent dollar amount of any vacation time used but not yet accrued (negative balance) from a departing employee's final pay cheque.
You can find additional resources on how to successfully plan for time off, including handoff and coverage processes (if required), at [PLACE].
If you have any questions about this policy, please reach out to [CONTACT]. "