Unlimited Vacation Policy: Good or Bad for Your Business?

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Americans value time off, and it’s a popular employee benefit. But that doesn’t mean people use it. Project: Time Off, a research group sponsored by the U.S. Travel Association, found 42% of employees finish the year with unused vacation time.

That said, employers have an interest in getting employees to take their allotted time off. Vacations give employees a chance to refresh and come back to work with more energy and perhaps new ideas. If employees take vacation time instead of accruing it in order to receive a cash payout when they leave the company, that can help small businesses avoid a hit to their cash flow.

In order to encourage employees to take time off and reduce the liability created by unused vacation time, some employers offer unlimited time off. Most of those employers are in the Silicon Valley, but not all: General Electric and accounting firm Grant Thornton, for example, have unlimited vacation policies, too. The idea is simple: Employees can take as much time off as they want as long as their work gets done.

Unlimited vacation policies solve some problems but create others. Some workers interpret it as meaning “no vacation” and come to resent the policy. Also, most businesses don’t have the flexibility or support staff to cover people who are out of the office at unusual times.

If your competition is offering unlimited vacation, how do you counter? A small business has two options. One is to offer vacation time that people can actually take. Managers need to make it clear employees are expected to take vacation – no jokes about “part-timers” and no holding it against employees in their performance reviews. Discouraging people from taking vacation time may encourage them to interview for jobs elsewhere.

A second option is to offer other perks that help employees without causing headaches for managers.

For example, small businesses can offer flextime and telecommuting, two policies that show an employer trusts an employee to get his or her work done without creating a benefit that may be difficult to manage.

Another possible perk is paying for membership in a professional organization. That can get employees out of the office and expose them to new ideas they can bring back to work. Likewise, in-house training or company-wide social events can help give staffers a new perspective.

Small businesses don’t need to match big employers item for item on benefits. Instead, they need to find attractive benefits that fit their own culture and emphasize their own value as employers of choice.