unlimited vacation time? yes, please…but here's the catch

November 10, 2015

Around the world, workers in every developed nation enjoy mandated paid time off — everywhere except the United States. Despite being the world’s largest economy, it is the sole exception by not guaranteeing workers paid vacations. Recently, however, many US-based employers are making headlines by offering unlimited time off for their employees, a trend bucking traditional American practices.

By now, you may have heard that companies such as LinkedIn, Netflix, and even GE, have introduced “discretionary” paid vacation policies, which allow workers to determine the right amount of time they can take off. Such a seemingly generous benefit is in stark contrast to what Americans — those who do get paid holidays — on average receive. According to the US Bureau of Labor Statistics, the average number of paid days full-time employees receive is 7.6; for those after 25 years of service, the number is 15.7.

To put this in context, compare this to other major economies around the world. According to a study by the Center for Economic and Policy Research, when it comes to paid vacations 16 out of the 18 most generous nations are in Europe. This is made possible in part by the EU’s 1993 directive that guaranteed workers at least 20 days of paid holidays, but some of its members go far beyond that. Spain provides an average of 34 days of paid leave, while Italy and France mandate 31, according to the Center for Economic and Policy Research.

In the Asia Pacific region, New Zealand provides workers with an average of 30 days while Australia offers as much as 33 days. In Canada, the US’s largest trading partner, the government mandates a minimum of 19 days, according to the center.

So do recent US company announcements signal a reversal in course for American employers? The answer today remains resoundingly no.

According to the Society for Human Resource Management (SHRM), only about 2% of US employers offer extended leave policies. While these policies have been most popular among online and start-up companies hoping to draw talent through generous benefits, few other businesses outside of Silicon Valley have joined their ranks. A recent exception is GE, which made some 30,000 employees eligible for discretionary time off.

The catch, of course, is that unlimited time off exists in theory but not in practice. The employers offering such a benefit still expect workers to perform their jobs, which makes extended time-off more a fantasy than a reality. Employees themselves also understand that abusing the policy can end up costing them their jobs.

A good reason for employers to switch to such a policy is simple: it lightens up their financial obligations. The Washington Post reported that US companies carry $65.6 billion in accrued paid time-off costs on their books. The average vacation liability for 114 public companies surveyed is nearly $2,000 per employee. By switching to an unlimited vacation policy, companies eliminate such liabilities in the future.

But another reason for the shift: today’s competitive labor market. To help enhance their employer brand, organizations want to differentiate with compelling, generous benefits, and what better way than to offer unlimited time off? LinkedIn, for example grew 37% last year, so attracting critical talent is key. Competing with the likes of Google and Apple for engineers and other high-skill talent, the company needs to set itself apart.

Some businesses say the intangible benefit of this policy is the impact on talent attraction. Consulting firm Grant Thornton this year shifted to an unlimited policy, which it said will be beneficial in the long term. The company told the Washington Post: “While the policy change does benefit the company financially, the real benefit is the long-term ability to attract and retain the best and the brightest talent.”

As you reflect on your employer brand, does an unlimited holiday policy make sense? Will adoption of such a policy help enhance your attractiveness as an organization for top talent? For businesses such as LinkedIn, Netflix, and Virgin Airlines, the answer so far is yes. However, not all companies have found it beneficial. Tribune Publishing in 2014 rescinded its unlimited policy shortly after announcing it, citing “confusion and concern within the Company,” as CEO Jack Griffin was quoted in a company memo. Perhaps the lesson here is that like every corporate initiative, success hinges on buy-in, clarity, and communication –foremost, what does it personally mean for your current employees not just your future talent.

So what is the future of the unlimited policy? Industry observers say most companies will likely keep their traditional policies, but for those in fierce competition for talent, it may be one more perk that helps them win the war for talent. Time will tell. 

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