HR Mavericks

Eddy’s HR Mavericks Encyclopedia

Paid Vacation

Encouraging employees to use paid vacation is a great way to build a healthy work-life balance culture. What is paid vacation and what are the benefits of it? How do you create a paid vacation policy? Continue reading to find the answers to these questions and more.

What Is Paid Vacation?

Paid vacation is a type of leave benefit that employers offer to employees to travel, rest and relax. Paid vacation also allows employees to take time to handle personal matters and return to work reenergized. This type of leave is usually planned in advance and can also be used to attract and retain talent.

Benefits of Offering Paid Vacation to Employees

There are several benefits of offering paid vacation to employees. These include having a healthy work-life balance, an increase in employee retention and improved attendance.
  • Healthy work-life balance. When vacation days are available to employees, they are able to create a healthy work-life balance. This contributes to greater performance at work. SHRM has said that “vacation improves an employee’s focus and alleviates burnout.” Encouraging employees to use their vacation can boost morale, lower stress levels and help contribute to an overall healthy work environment.
  • Employee retention. You can incorporate employees’ vacation hours into a wide-reaching retention strategy by linking the amount of vacation time to the seniority of your workforce. Depending on the culture of your company, this could be a known policy located in your employee handbook.
  • Improved attendance. Increased engagement and lowered turnover rates are the results that several companies have seen after implementing a paid vacation policy. Encouraging employees to take planned time off despite busy work schedules can benefit your company’s overall attendance in the long term.

Types of Paid Vacation Policies

A few types of paid vacation policies your company could create are accrual or lump-sum policies. You could also rely on an unlimited time off policy or even choose to allow floating holidays.

Accrual vs Lump-Sum Policies

An accrual policy is different from a lump-sum policy because an accrual policy allows employees to earn or accrue paid vacation over time. Employees earn the vacation hours by week, month or year. There is usually a limit to the number of vacation hours employees can accrue. A lump-sum policy distributes the entire amount of vacation to an employee at a particular time of the year (typically January 1st). It’s important to specify in your vacation policy that the use of accrued or lump-sum vacation is contingent upon first staying with your company for a certain length of time.

Unlimited Paid Time Off

The purpose of an unlimited paid time off policy is to provide flexibility and freedom to employees. It helps them to focus less on the attendance aspect of their jobs while placing a greater emphasis on productivity and results. Companies that successfully implement unlimited paid time off policies help employees realize it’s not about the number of hours worked at a job, but about what is accomplished and achieved while working at a job that counts.

Floating Holidays

A floating holiday policy can be a great way to offer employees flexibility to celebrate a personal day, cultural day or religious day. Companies who use a floating holiday policy usually offer one or two days for holidays. The purpose is to allow employees time off to celebrate days that are important to them which they otherwise wouldn’t have.

How to Create a Paid Vacation Policy That Works for Your Company

Now that you're ready to create a paid vacation policy, feel free to follow the steps below to ensure a smooth transition for your workforce.

Step 1: Set Accrual Rates and Maximum Accumulation

The first step is to calculate accrual rates along with the maximum amount of vacation that employees can accumulate. You will need to factor in employees’ years of service, how many hours they will accrue per pay period, and how many total days per year they will accrue. Feel free to use this sample of accrual rates to rely on for your company. You will also need to decide if your vacation policy will be a “use it or lose it” policy or if it can be rolled over into the following year.

Step 2: Establish Eligibility and Employee Classification

You will need to determine which employees are eligible to accrue paid vacation and how your company will classify them. Even though there is no state law requiring that employers provide employees with vacation time, a company may still offer it to part-time employees. If your company only decides to give vacation pay to full-time employees, you will need to determine how many hours must be worked to classify someone as full-time. For example, a company may classify a full-time employee as someone who works 30+ hours per week. It is also important to recognize when an employee may become eligible to use vacation pay. For example, a company may choose to only allow an employee to use their vacation after they have worked for the company for a certain period of time.

Step 3: Address Vacation Time Requests and Approval Procedures

The process of requesting vacation time can be accomplished through various methods. Depending on the size of your company, you may want to consider a software to help you automate and streamline the process of requesting and approving vacation.

Step 4: Communicate Your Policy to Employees

Once you get management on board, you must decide how to communicate this new change to your workforce. It’s important to provide sufficient time for everyone to prepare for the date when the policy goes live. Your employees should receive training, whether virtual or in person, on the ins and outs of your new vacation policy along with a demonstration on how to request it.

Best Practices for Implementing and Managing Paid Vacation Policies

The following best practices can help you successfully implement and manage paid vacation policies. Keep in mind that any new vacation policy or change to an existing policy should comply with applicable collective bargaining agreement provisions that your company may be subject to.

Set Up a Tracking System for Vacation Time

There are several systems to track vacation time. For example, a manager might choose to track it on a wall calendar, a white board, an excel spreadsheet, or even a time tracking module within a workforce management software.

Manage the Employee Vacation Requests and Approval Process

Whichever system your company chooses, it’s important to be consistent to help management make informed decisions for the long-term. Management will need a system that is organized and allows them to view information easily as they review and approve requests. For example, they will need to be mindful of the specific number of employees performing a particular job before they approve requests to prevent understaffing and work not getting done. You might even consider creating incentives for employees who are willing to work during times of the year when more requests for vacation time occur.

Address Issues or Disputes With Vacation Time

Even though your management is doing their best to avoid overlaps in vacation requests, they may still experience conflicts or disputes with employees. It’s important for your management to have a solid understanding on your vacation policy, the accrual rate (or lump-sum amounts), rollover policy, etc. This can help them resolve and address potential issues as they arise and also explore ideas to help improve the policy for the future.
James Barrett

James Barrett

James has worked in the HR field going on 5+ years and has held various positions of leadership. His areas of expertise are in benefits, recruiting, onboarding, HR analytics, engagement, employee relations, and workforce development. He has earned a masters degree in HR, along with a nationally recognized SHRM-SCP certification.
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Other Related Terms
Benefits Administration
Carryover (PTO)
Commuter Benefits
Company Car
Competitive Pay
Dental Insurance Benefit
Disability Insurance
Earned Wage Access (EWA)
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Employee Incentives
Employee Relocation
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Employee Stock Ownership Plan (ESOP)
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Equity Compensation
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Floating Holidays
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Group Incentive Plan
Health Reimbursement Account (HRA)
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Lump-Sum PTO Policy
Open Enrollment
PTO Accrual
PTO Accrual Cap
PTO Payout
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Restricted Stock Units (RSU)
Retirement Benefits
Roth 401k
Section 125 Cafeteria Plan
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Unlimited PTO
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