Vacations: What’s Your Policy?

First in an ongoing series about paid time off.

April 2012

According to an annual survey conducted by, 53% of American adults say they return from vacation feeling rested and rejuvenated. In the same survey, 34% report feeling better about their jobs and believe they are more productive after a vacation. So, if vacations are so beneficial, why do Americans use the fewest number of vacation days of workers surveyed in the U.S., Canada, Great Britain, Germany, France, Spain, Italy, Austria, Australia, New Zealand and Japan?

The average amount of vacation earned in the U.S. is 13 days, the fewest of all countries.

Employee vacations can cause ambivalent feelings in today’s business owner. Giving employees time off requires a balancing act between providing vacations that allow employees to re-energize and maintaining productivity while employees are away from the job.

When was the last time you reviewed your company’s time off policy? A vacation policy can set the tone for your benefits package and give your company a competitive edge when it comes to recruiting and retaining staff. So, if you are establishing your company’s vacation policy or if you haven’t looked at your policy in a while, you may want to consider these questions:

  • Are you legally required to offer vacation time? No. There are no legal requirements to offer workers vacation. But nearly all business owners understand the health, productivity, recruitment and retention benefits of allowing employees vacation time.
  • What do you want to accomplish? Will vacation be used as a reward for good performance (such as high sales) or tenure? In other words, will time off be based on years of service alone, or will days off also be used as part of your reward structure?
  • How will vacation time be integrated with other days off? Vacation can be a standalone benefit or it can be integrated with sick days, personal days and paid holidays for a total paid time off package, also known as PTO. The approach that works best for you may depend on your need to track time off by a specific category, such as vacation, sick leave, etc. Or, you may prefer the flexibility of a PTO program.
  • Will employees be able to carry over unused time? What will happen to unused vacation days? Is your policy “use it or lose it” or do you allow carryover days? A “use it or lose it” rule encourages employees to take all of their accrued vacation time, which can be better from a health perspective. However, circumstances sometimes prevent employees from taking all of their vacation time during the year in which it is earned. A compromise option is allowing the carryover of unused days, but setting a limit on the number of carryover days or the time frame in which an employee can use them. Ask an expert: When it comes to “use it or lose it” policies, check with your ADP Resource Representative – these policies are prohibited in some states.
  • Do you pay out unused vacation days? What happens if an employee quits or retires and has unused vacation time left? Will you pay them for this time or will it be forfeited? Depending on the amount of vacation time accumulated, this can be a significant future financial liability.
    Ask an expert:
    Some states strictly regulate pay-out of earned vacation time upon termination, so check with your ADP Resource Representative.
  • Do you even need a vacation policy? You may decide that having no formal vacation policy is the best policy for your business. It’s becoming more and more prevalent for companies to remove restrictions on vacations, other than having employees check with their supervisor before taking time off. This policy has been adopted with positive results by employers such as Morningstar, Netflix and Best Buy. While it might not be feasible for all organizations, proponents of this strategy say that employees typically don’t abuse the policy and like the feeling of being more in control and accountable for their days off. It also makes it easier to hire executives and midcareer workers who are reluctant to give up vacation time when they switch companies (since a vacation policy tied to years of service with the organization would be a disincentive).

Do you feel you have a vacation policy that enables employees to get the time off they need to be at their best, while meeting your needs for productivity and staff coverage? It can be an important part of the overall employment experience. However, since some states have strict policies governing vacation time (such as prohibitions on “use it or lose it” policies or required pay-out of earned vacation time when an employee is terminated), you should check with your ADP Resource Representative to help ensure before you establish or modify your vacation policy. That can give you peace of mind so you can enjoy your own days off!

HR. Payroll. Benefits.

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