To encourage employees to take time off, many companies have implemented a “use it or lose it” time off requirement. The policy is simple: if employees don’t use their accrued time each year, they lose it. However, what are the benefits and drawbacks of such an approach? Are there alternatives that would make better sense for your organization?
Pros and Cons of Mandatory Leave
On one hand, a “use it or lose it” vacation policy encourages employees to use their time off during the calendar year. For many employees, the risk of forfeiting unused vacation time is sufficient motivation to take time off, ensuring that they don’t go too long without taking a break.
On the other hand, mandatory leave can be frustrating for employees who want to save their accrued time off for a big trip or event the following year, such as a honeymoon or family reunion. Moreover, policies that cause employees to lose unused vacation time are not legal in all states. For example, California, Montana, and Nebraska specifically prohibit such policies. Other states allow “use it or lose it” policies, but with some restrictions.
Mandatory Leave Alternatives
If you want to encourage employee time off or even require it in certain circumstances, there are alternatives to a “use it or lose it” policy. Here are some of the other ways you can manage leave so that employees take a reasonable amount of time off:
Carry-Over Rules and Occasional Exceptions
Allowing employees to carry over a specific amount of unused vacation time into the following year provides additional flexibility. For example, as a kind of modified “use it or lose it” policy, you can allow employees to carry over unused vacation into the first quarter of the following year, or allow a specific number of unused days to carry over.
You can also leave room for rare exceptions, so that employees planning a big trip have the option of getting special managerial approval to save up days instead of having them expire at year end.
Employee Payouts for Unused Vacation
In some states, employers must pay employees for any accrued, unused vacation time at termination. Even when it is not required by law, you may choose to pay employees for unused vacation voluntarily, so they can benefit from your vacation policy without taking time off. However, it is important to note that this practice may encourage employees to cash in on unused vacation time rather than use it, which can be counterproductive to a healthy work-life balance.
Vacation Time Donations
In an International Foundation of Employee Benefit Plans (IFEBP) survey, nearly one-third of companies said they allow employees to donate their unused vacation time. A leave donation program enables employees to donate their vacation to various allowable beneficiaries, such as a coworker in need, a charitable organization or a company pool from which time is reallocated to the workforce.
Keep in mind that although a donation program empowers employees to use their vacation time in creative ways, it may also have costly tax implications.
Set Additional Company Holidays and “Floaters”
Companies that seek different ways to offer employees more leave may consider alternatives like "Summer Fridays" or complete office closures during the last week of the year. This saves employees from having to use leave for times when business is often slow anyways. In some cases, it may cost less to keep your offices closed in the week leading up to New Year's Day.
To give employees more flexibility, you can also offer “floater” holidays, which allow employees to choose additional days to apply their vacation time. For example, floaters allow employees to lengthen a holiday weekend or take additional time off for religious observances.
Unlimited Vacation Time
Though still an emerging practice, some companies have transitioned to an unlimited vacation policy, in which employees neither accrue time off nor have any to “lose.” Instead, employees take vacation time when desired, usually in accordance with broad company guidelines detailing how much time off employees can expect to take each year.
Although unlimited vacation time is not a fit for all organizations and cultures, companies who use it rarely report abuse to the system. In fact, some companies have found that employees take the same or less vacation each year.
Select a Leave Management Policy That Suits Your Organization
There are many paths to support work-life balance and encourage employees to take time off. Whether you use a mandatory leave program or one of the many alternatives, you can establish a leave management policy that both supports employees and helps you maintain smooth business operations.
Whether you mandate employee leave or not, one thing is for certain: you’ll need a reliable leave management system to help you achieve compliant and efficient employee leave tracking. To learn more, read the final blog post in our Leave Management Series.
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