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Don’t get carried away with unlimited vacation plans

June 10, 2015

By Kevin Marrs, courtesy of SBAM Approved Partner ASE

Imagine a scenario where you could take vacation any time you would like, as often as you would like and for as long as you would like. To most of us that sounds more like “retirement,” but it is close to reality in organizations with so-called “unlimited” vacation policies.  At these organizations employees do not bank or accrue hours; they simply take time off when and as often as they see fit. Their employers rationalize the approach by pointing out that in a 24/7 workplace where only results count, it is only logical to put the individual employee in charge of managing his or her own free time. It is compelling logic.

But before you rush to put that program in place for your organization (and then plan your trip around the world) you should understand that there are a few caveats that both employers and employees should be aware of.

First of all, do not assume that the absence of a traditional vacation policy would reduce legal compliance issues. A recent blog post by the law firm of Foley & Lardner LLP argues differently.  They explain that there are key areas of potential risk inherent with these programs: 

  • Interaction with state laws – Some states treat vacation pay as “wages” which may not be forfeited. So, at termination, employees are generally entitled to receive the amount of all accrued vacation in their final paycheck. With an “unlimited” vacation policy, the employer typically does not pay out any vacation at termination because there is no accrual of leave. It is unclear whether those states would view these programs as permissible or as a means to avoid leave benefits.
  • Discrimination Claims – While the language typically used in employee handbooks to describe these plans implies flexibility, employers still include policy language that may limit vacation based on business need or other factors.  These policies do increase the likelihood that application of the benefit may be inconsistent, which sets up the possibility of a discrimination claim.
  • Interaction with Leave of Absence – The authors of the blog post point out that employees may attempt to use these vacation policies as means to receive paid leave while using other leaves of absence (i.e., FMLA). They point out that most of the laws allow employees to use accrued vacation while on leave.

The authors of the blog post urge employers to carefully craft their “unlimited vacation” policies to limit exposure. This would include a well-documented vacation approval process in order to ensure requests are handled consistently and fairly. The policies should also clearly outline how vacation is addressed upon termination and during leaves of absence.

Of course, employers with these policies should closely monitor usage and application to ensure, to the extent possible, that managers and supervisors are consistently applying benefits. The nature of the plans is such that true, mathematical consistency will be a virtual impossibility.

For their part, employees who work at organizations with “unlimited” vacation plans should not expect a windfall of time off benefits.  Employers still expect the work to get accomplished and, as the authors of the blog fear, an informal policy may take shape where the expectation concerning the amount and frequency of vacation is set by each manager, either overtly by restricting the use of vacation time capriciously.  Managers also may set expectations by example, i.e., by not taking vacation themselves and therefore causing employees to become fearful of taking time off.

As with most HR policies, there is never a straightforward answer and all solutions generate new problems. Further, ASE’s 2015/2016 Michigan Policies and Benefits Survey does not track the frequency of the relatively new phenomenon of unlimited vacation plans. However it does point out that nearly three quarters of reporting firms accrue employee vacation allowances. The timely blog post reminds us that we must be careful when we craft policies and even more careful to see how they impact our staffs.

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