The Hidden Costs of Unlimited Vacation Policies

How unstructured, unlimited holiday policies can backfire, leaving companies with burned out employees and big bills instead of a well-rested workforce

Written by Catherine McIntyre

In an age when work-life balance is synonymous with healthy company culture, flexible vacation policies have become a standard for the enlightened workplace. Many employers are now offering unstructured, unlimited time off.

But the bliss of limitless vacations may be just as fantastical as it sounds. In reality, these programs can actually discourage employees from taking time off warns Stacy Glass, senior consultant with HR Options. “Unlimited vacation policies, for the most part, are just bad,” she says. “If you’re looking to avoid burnout, they’re aren’t very effective.”

With no clear guidelines on when to go on holiday and how long for, employees tend to take their cues from what their co-workers are doing. “There can be a stigma around taking too much time off,” explains Glass. While the assumed risk with these policies is that staff will never show up to work, the opposite tends to be true she says. Employees feel pressured to prove they’re dedicated to their work and not slacking off on a beach somewhere.

MORE PRESSURES: Why You Shouldn’t Force Employees to Take Time Off »

Meanwhile, the nature of companies that tend to offer these policies—many of which are fast-growth startups—simply isn’t conducive to taking lots of vacation. “In companies who implement unlimited vacation, the employees are generally overworked,” says Glass. “It looks like this awesome perk, but really, none of [the employees are] to take the length of vacation they want.”

And if employees aren’t taking their vacation, the company ends up paying for it. In Canada, vacation pay is legislated at about four to six percent of annual salary, depending on seniority and what province or territory you live in. Even with traditional policies, Canadians rarely take full advantage of the vacation they’re entitled to. According to a TD study only 43% of Canadian workers took all their vacation days in 2013. (That’s despite Canada being ranked third last among industrialized countries for the number of paid vacation days workers are allotted). “If employees are taking less than their two or three weeks, then you’re on the hook for that vacation time,” says Glass. “That can get messy.”

Ontario construction company EllisDon ran into this problem when an employee billed the company for four untaken holiday weeks upon his departure. “He was lying,” wrote president and CEO Geoff Smith, on the company’s blog. “He had taken plenty of time off, and everyone knew it. But because he hadn’t called Head Office and recorded [the vacations], the computer showed he hadn’t taken them.”

MORE PROBLEMS: How to Get Your Employees to Show Up »

To avoid administrative nightmares like the EllisDon example, Glass suggests carefully tracking vacation time within unlimited policies. “It needs to be clear to employees how they request vacation,” she says. “And you need to be monitoring to make sure people are taking at least the minimum allotted time, then reminding employees if they haven’t been taking enough.”

Even with careful tracking, unlimited vacation policies can be hard to roll out in a way that’s equitable. “There’s no way you can have a policy where you take vacation whenever you want, however long you want,” says Glass. “You’ll always have one guy who get two months off when another guy was denied the same two months off.” To make flexible holiday policies work, Glass says management teams should define at what point employees are entitled to take vacation—how much they can take after how much time worked.

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Miovision, a Kitchener tech startup whose software platform adjusts traffic light timing in real time, relies on employees to use its unlimited vacation policy responsibly. “If you trust your staff, you get a much better outcome—a better cultural dynamic, better retention, better engagement—than when you protect yourself from the few people taking too much vacation,” says CEO Kurtis McBride. “If I don’t trust you, you shouldn’t work for Miovision; if I do trust you, [and] if you think you need six or eight weeks vacation, who am I to tell you you don’t?”

But Mivision did face the opposite problem—before it implemented a more structured policy this year, some employees weren’t taking enough time off. “The subtext of our policy is a minimum vacation policy,” says McBride. Staff are now required to take at least three weeks off. The penalty for not following company policy? “HR has threatened to shut off your key fob access to the building if you haven’t taken enough vacation by the end of the year,” says McBride. So far, he’s the only employee to be locked out.


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