How to Create a Workplace Vacation Policy for Your Small Business

A Workforce Vacation Policy Can Be a Competitive Advantage

As small businesses grow, benefits packages become a large part of their competitive offering when attracting talent. For companies who may not be able to compete in the area of compensation, an enticing benefit package could sway an individual to join a company despite lower salary.

Many components go into creating a comprehensive workforce benefit package not the least of which is a vacation policy. In this article, we will discuss different workforce vacation policies and how to determine which is best for your small business.

The idea of a workforce vacation policy is to allow individuals time to recharge, with pay, outside of work. Vacation time can help with employees who are feeling burned out or just need a break. As in my own experience recently, a good break from work can really change one’s perspective and create that energized feeling we so often loose.

Vacation policies are not regulated by the federal or state governments. Companies are not required to offer vacation time (the same is not true for sick time which we will discuss in a different article). This means that the amount of vacation and the way it is earned is completely up to the company itself. The only thing that is regulated is the fact that earned vacation time, in most states, must be paid out upon termination.

The most common type of vacation policy is the accrual system. Based on a system unions implemented years and years ago, this policy allows individuals to begin accruing time at set intervals to “build up” their vacation bank. These policies typically allow for an accrual of two weeks the first year and then build from there.

In an accrual policy, there is usually a set amount of time an individual must be with the company before using any allotted vacation time. These policies also set rollover limits which restrict the amount of hours an individual can roll over each year in an effort to keep employees from accruing an inordinate amount of time off.

Another popular vacation policy being utilized in businesses these days is the unlimited vacation policy. Companies like Netflix embraced unlimited vacation a few years ago and have never looked back. In this scenario, companies trust employees to balance the work that needs to be done with time off. This is not considered an accrual system as time is always available and given as employees want to use it. Of course there can be rules placed around timing, notice period and how long you can be employed before taking advantage, but for the most part an unlimited vacation policy is just that, unlimited time off to use at an employee’s discretion.

A third option for vacation policies are the gifted vacation policies where an employee is given a set amount of time on a specific date to use before they are gifted another allotment at a future date. These policies alleviate the administrative need of monitoring accruals and typically give employees the opportunity to take vacation earlier in their tenure. The amount of time still follows the standard allotment of two weeks for the first few years, but the time is given up front or after a few short months and then gifted again at some point in the future.

Finally, some companies choose to set a paid time off policy which combines vacation, sick and other time off. The idea behind this policy is that when you need to be off, whether it be for personal or sick time, the pay comes from one large bucket rather than separate buckets based on reason. These policies are a little bit easier to administer, but because you have combined all the time, you are not allowed to separate it at termination and must pay it all out.

Determining which vacation policy is best for your business depends on your goals and ability to handle the administrative load. If you would rather not have to deal with tracking vacation and you trust your employees to use time appropriately, the unlimited vacation policy may be the best for you. These policies are often highly sought after by talent as well. If you are looking at cost savings and want to closely manage how much and when your employees take vacation, the accrual policy may work best.

As with all benefits it is important to create a policy that is going to both serve the needs of the employee while making financial sense for the business. Workforce vacation policies can be a competitive advantage in attracting talent so choose one that best serves your purpose and attracts the type of employees you want working for your company.

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