Should You Provide Unlimited Vacation to Your Employees?

Small Business
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Active and happy senior man living to the fullest, surfing on a surfboard during his summer vacation

Few nations vacation less than the United States. Among developed countries, only Japanese and South Koreans earn less time off from work than Americans, according to a 2012 Expedia study.

Two moves have thrust the vacation question into the spotlight. Virgin Group founder Richard Branson announced the company would be experimenting with unlimited vacation for its employees. And Carlos Slim, a Mexican business magnate and the world’s second-richest man, called for a “radical overhaul” in our work mentality, suggesting a three-day work week offset by longer hours and delayed retirement.

Branson’s parent company would follow the lead of Netflix, Groupon and Best Buy by offering unlimited vacation to its 200 employees. If the experiment is successful, Branson says he is encouraging a similar policy for Virgin Group’s subsidiaries, which have more 50,000 employees globally.

Critics question whether the policy can scale. But for a growing number of small and medium-sized businesses, unlimited vacation policies are gaining traction as a low-cost (or no-cost) way to woo employees and increase productivity.

Unlimited vacation “enables companies to provide an additional job ‘perk’ with little to no added cost. The idea is that even if employees are taking more vacation time than they used to, they are more productive during the time they are at work,” Christina Gomez, a partner with the law firm Holland & Hart, told Fox Business. “It can [also] improve efficiency and productivity by incentivizing employees to get their work done more efficiently so they can take time off.”

Many observers scoff at Branson’s plan. Business psychologists Peter Coleman and Robert Ferguson claim that “ ‘endless summers’ do little but incentivize workaholics to work more, while everyone else suffers negative consequences for time off.” In an op-ed for Time Magazine titled “Richard Branson’s Unlimited Vacation Is a Trick,” they suggest the policy’s true benefit is to the bottom line, as it means companies won’t have to pay overtime or pay back unused vacation time for departing employees.

Moreover, the important caveat of unlimited vacation policies—that they can be enjoyed so long as “your work gets done”—means that employees will feel pressure not to shuffle work onto colleagues on breaks, or will be more likely to work remotely when “on vacation,” the authors note.

Their comments mirror much of the commentary following Branson’s announcement. “Beware the implications of unlimited vacation,” Venessa Wong writes for BusinessWeek. “The glow of trust and togetherness that such policies provide could actually make employees less likely to take time off.”

As Branson himself put it on his blog: “It is left to the employee alone to decide if and when he or she feels like taking a few hours, a day, a week or a month off, the assumption being that they are only going to do it when they feel 100% comfortable that they and their team are up to date on every project and that their absence will not in any way damage the business—or, for that matter, their careers!”

About 1% of U.S. companies have unlimited vacation policies, although another 2% are considering it, the Society for Human Resource Management (SHRM) tells Business Insider. “There really isn’t a lot of abuse in these plans,” says Bruce Elliott, manager of compensation and benefits at the SHRM. “They work really well in high-performance organizations.”

(Full disclosure: NerdWallet is among the companies with an unlimited vacation policy. Fuller disclosure: This writer has taken five weeks of vacation days since starting with the company last December. Fullest disclosure: Yes, it’s awesome.)

There’s no way to know how much time off employees take at firms with unlimited vacation policies, since the companies themselves don’t track the stats. A 2012 survey by training firm Fierce Inc. asked: “If you had unlimited vacation time, how much would you actually take?” The largest group or respondents—42%—said between four and six weeks.

Proponents of more time off say the benefits far outweigh any risks of abuse. Slim, the Mexican billionaire, believes decreasing the average work week “would generate a healthier and more productive labor force, while tackling financial challenges linked to longevity,” the Financial Times reported.

One economist tells NerdWallet that “the glow of trust and togetherness,” as BusinessWeek characterized it, should not be undervalued. Research by John Helliwell, a noted expert on the economics of well-being, found that when a workplace increases trust in management by one point on a 10-point scale, “it has the equivalent impact on worker satisfaction as a 40% increase in income.

“Trust has a huge impact, but it’s seldom measured and [companies] often neglect it,” Helliwell says.


Employee on vacation image via Shutterstock.