Time for a Vacation Policy Makeover? 5 Flexible Employee Vacay Options for Small Businesses

Ever heard a colleague brag about how they never take time off? Received a collective groan from your team when you said you were taking a holiday? Or had extra pressure piled on the week before your vacation?

Yep. We hear you.

Thanks to nose-to-the-grindstone company cultures, vacation can be as stressful as it is relaxing — and when you add the extra pressures of the pandemic, it’s no surprise US workers are taking less vacation than ever before.

The outcome? Higher employee burnout rates, reduced productivity and crappy company cultures.

But for small businesses looking to improve their recruitment, hiring and retention strategies, the right vacation policy could be a game changer.

From ‘use it or lose it’ policies, to enforced vacay, there are plenty of opportunities for employers to encourage workers to actually take their Paid Time Off (PTO). 

But which policy changes make the most sense for your small business?

In this guide to the ultimate small business vacation policy makeover, we’ll explain why great vacation policies can boost your talent ROI and share some of the best policies out there.

Employee vacation policies: The lowdown

Back in 2018, a record 768 million vacay days went unused, while in 2020, 92% of US workers cancelled, postponed or didn’t book a vacation due to the pandemic.

With so many workers not taking time off, it’s clear something needs to shift.

Here’s why it pays to have a vacation policy your small business employees actually use:

  • Great vacation policies boost company culture by showing you care about your employees.
  • Candidates are attracted to companies that offer fair vacation policies, allowing small businesses to vie for talent they might otherwise miss out on.
  • Vacation increases productivity by giving employees time to reboot.
  • It can help develop great leaders by allowing less experienced workers to step into senior roles while senior employees are away.
  • Employees taking time off can help leaders spot potential trouble spots by shining a light on work areas they’re missing when they are around.
  • If your company allows PTO rollovers, you can end up with unbalanced books. Getting employees to take vacation helps avoid balance sheet liabilities.
  • Regular vacation days can help reduce physical and mental illnesses, and reduce your healthcare costs. In fact, one study found men who didn’t take vacation for several years were 30% more likely to have a heart attack.

💡 Top tip: Although it’s not a legal requirement to offer paid time off, it does boost your employer cred, both with new hires and existing employees.

5 employee vacation policy options for small businesses

Now that we know why paid vacation is so important, it’s time to dive into how to build an awesome vacation policy candidates and employees will love.

Here are a few of the main types of vacation policies to test.

Remember, the vacation type you choose is totally dependent on the unique niche and cadence of your business, so think about what you can afford, how it will help your employees, and which one makes most sense for your company.

1. Standard vacation policy for small businesses

Let’s start with the basics. The average paid vacation time for employees at small businesses typically works out like this:

  • Time in role: 1-5 years | Vacation days: 10 days per year
  • Time in role: 5-10 years | Vacation days: 15 days per year
  • Time in role: 10-20 years | Vacation days: 17 days per year
  • Time in role: 20+ years | Vacation days: 20 days per year

Note: This doesn’t include additional PTO like sick days, national holidays, etc., and the average vacation time can vary between industries. Always do your research to find out what the average is in your industry before settling on your policy.

2. Paid Time Off (PTO) banks

PTO banks give employees ultimate control over their paid leave. Basically, all time off (including sick pay, vacation days and personal leave) is piled into a vacation ‘bank’ which employees can use when they need to.

👍🏼 The benefits: More flexibility for employees, easier to administrate, helps to compete with other employers, lowers absenteeism and boosts employee empowerment.

👎🏼 The drawbacks: Higher volume of requests, often an uneven spread of time off over the year, employee resistance to using PTO as sick time.

3. Unlimited vacation policy

With unlimited vacation policies, employees are free to take off as much time as they want, as long as they finish their tasks on time. With unlimited vacation policies, the focus is on productivity and results rather than being chained to your desk.

👍🏻 The benefits: Boosted employee empowerment, reduced burnout, increased productivity, better recruitment and retention results.

👎🏻 The drawbacks: Fear of employees abusing the system, vacation overlap, increased chance of employee ‘martyr syndrome’ where workers don’t take enough time off.

4. The rollover policy

With the rollover policy, employees have a set amount of annual time off — but if they don’t use it, they can roll it over to the following year.

👍🏾 The benefits: Increased employee flexibility, opportunity for unofficial sabbaticals, avoids the end-of-year race to take time off.

👎🏾 The drawbacks: Employees could end up rolling over too much leave (some companies dodge this bullet by only allowing a certain amount of rollover hours per year), or they could avoid taking regular breaks in order to save up vacation time.

5. Use it or lose it vacation policy

No more cashing out on unused holiday or rolling it over to the following year — the use it or lose it policy does what it says on the tin: Use your annual vacation policy before the year’s end, or lose it.

👍🏼 The benefits: Employees are more likely to take time off, companies avoid balance sheet liabilities, no risk of employees using a ton of time off all at once.

👎🏼 The drawbacks: Employees may lose out on much-needed time off (especially if they don’t feel able to ask for it), use it or lose it isn’t a great pull for potential new hires, and there’s often an end-of-year race to take time off — meaning many employees out of office at once.

Note: Use it or lose it policies are banned in some states, so do your homework before enforcing this one and always consult with a legal professional when changing your HR policies. 

Drill into the details of your vacation policy

Whatever vacation policy you go for, you need to plan a few extra parameters to make sure the company doesn’t miss out when employees go on holiday.

When you’re setting your vacation policy, ask yourself these questions:

  • How will you manage vacation accumulation due to people not taking holidays during Covid (or other unexpected situations)? Do you pay it out? Enforce a drawdown period?
  • How do you account for your industry’s busy season to make sure not everyone is on vacation at the same time?
  • Which policy changes make the most sense for your company?

Once you’ve decided on the ins-and-outs of your policy changes, it’s time to figure out the rules your employees need to follow.

Here are a few examples of some rules to help you set the pace: 

  • Employees have to give a certain amount of days or weeks notice before taking PTO.
  • Employees can only take off a set amount of days at a time.
  • No more than X employees can take off the same day.
  • Employees can only roll over a set amount of days at the end of the year.

Great vacation policies = Great company culture 

These days, employees are taking less vacation than ever — and for small businesses looking to keep their books balanced and their workers productive, that’s a problem.

But with the right vacation policy in place, small business owners can ensure employees feel supported to take regular time off whenever they need it. 

The type of vacay policy you choose is up to you — as long as your employees know the deal and that they’re expected to take those holidays. 

The result? Happier employees and a healthier bottom line.

The ultimate company culture starts with an exceptional hiring process.

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