How to set up a vacation policy for your company.

How to Set Up a Vacation Policy

Posted May 6, 2015 by Jacob Donelly in Benefits and Perks
What is your vacation policy? Read here about how to set up a policy that makes sense for your employees and complies with the law.

Whether your policy is to provide unlimited vacation days or to have a structured format, it is important to have that written down and clearly defined for your employees. It’s unfair and logistically difficult to leave ambiguity in your vacation policy.

However, figuring out what your vacation policy is and then setting it up can sometimes be a little confusing. You have to ask yourself what kind of policy you want to have. Do you run a looser shop where people can take time off when they need it? Do you mandate strict adherence to a certain number of days? Do your days accrue over time? Do they roll over?

These are all questions you have to ask yourself when trying to set up your vacation policy. However, first thing’s first.

What are the Laws Around Vacation Policy?

Believe it or not, there is no federal law that mandates you provide vacation time to your employees. That being said if you offer a vacation policy, there are laws that you do have to follow.

Primarily, you cannot discriminate when giving people vacation. For example, you cannot give your female employee two weeks vacation while giving your male employee three weeks. It’s common sense, but good to reiterate.

What isn’t discrimination, though, is giving more time off to different departments. For example, it would be okay to let each department set it's own vacation policy, where the engineering team gets three weeks of vacation, whereas your marketing team only gets two. While this is legal, we wouldn't recommend it, since it could send the message that one department is more worthy than others.

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The one thing that you do have to offer is up to 12 weeks of unpaid, job-secure Family Medical Leave Act (FMLA) time. This could be for people who have to take care of someone who is sick, is sick themselves, or is taking care of a newborn baby.

Although the federal government does not regulate time off, there are several state laws pertaining to vacation. In NYC, for example, a paid sick leave law was recently approved requiring employers of a certain size and standing to pay employees when they take sick days off.

At the state level, your best bet here is to do some searching to find out what those laws are. For example: some states view vacation time as compensation. Therefore, if you offer vacation time, when that employee leaves or is fired, you have to pay them for that vacation. Make sure you know the laws before getting started. 

If you use Justworks, don't hesitate to reach out to us to ask any questions about your specific state. Our HR Concierge service can help you understand the regulations and formulate your policy accordingly.

What Should Your Policy Include?

As I’ve mentioned a couple of times, if you’re going to offer unlimited vacation, make that perfectly clear. Write up what your rules are for it—can’t go while projects are going on, need to check in periodically, etc.—and then distribute. That's pretty straight forward.

But if your policy has actual days assigned to it, you’ll need to ask yourself the following questions:

  • Does every employee get the same number of days?
  • Are there brackets for time at work? For example, 1-3 years gets 15 days, 4-8 years gets 20 days, and 9+ years get 25 days.
  • At the beginning of the year, do employees get all of their days or do they accrue over the year?
  • Is there vacation day rollover?
  • How many days roll over?
  • Do days ever expire?
  • Is there a maximum number of days an employee can take off per vacation?
  • Do employees get paid out when they leave? What is the structure of that? Look at state laws.
  • Do part-time employees get vacation?
  • Do you mandate that employees take vacation? Or staycation?

As you can see, there are a lot of questions you have to ask yourself when setting up that policy. And really, a lot of it is contingent on your workforce. Which brings me to my next point …

What Do Your Employees Want?

By the time you consider setting up a vacation policy, you probably have a team of people working with you. You might even have an office. This creates an environment where you can ask for input. So ask.

What asking your employees does is three things:

  • It shows that you value their opinions and, by default, you value them.
  • They tell you what they think is fair.
  • You’ll get creative ideas from people. For example, maybe you hold a yearly competition for best new ideas and the team that creates the best one gets another week of vacation.

The way to do this would be to open up a “submit your ideas” email thread or create a form on Google. Once you’ve got all the ideas, collect the ones that you believe are the best and then create a poll. Distribute that to your employees asking them to vote on what matters most to them and the information will help you with your decision.

Vacation is a Benefit and a Need

One thing to remember … Humans are not robots. They need time to recharge, especially after getting a lot of work done. There’s an old school mentality that if people are at their desks, they’re working. But the unfortunate reality is that if someone is burned out, they’re not. Give them time off and they’ll come back refreshed, hungry, and ready to go. And they’ll likely have creative ideas.

But it’s not just about your current employees. Talent is hard to find. The better your policy, the more likely people are going to work with you. That’s one of the reasons the company I work with for my full-time job is so good for families. They have a loose policy that if someone needs to take time off for their kids, they can. There’s that level of respect.

Distributing Policy and Enforcing

Once you have your policy, make sure you write it down, put it into that employee handbook that I’ve mentioned a couple of times, and then distribute it. It’s important that everyone knows exactly what their benefits are when they get started and are reminded yearly.

Vacation time matters. People who don't take an annual vacation have a 21% higher risk of death from all causes.

But what happens if someone is either not taking vacation or abusing it? For example, if someone only gets 20 days, but is out for 30, what happens? Have that in the guidelines as well. Do employees have to pay you back? Are they fired? On the other hand, what if employees don’t take a vacation? Do you force them to? Can you force someone not to come in?

A lot of enforcement has to do with culture. If you create an environment where people feel safe taking off from work, they’ll take off. And if you create an environment of honest employees, people won’t cheat the system.

Throw it All Out

But maybe you should just throw the entire policy out and, instead, give people time off when they need it. We’re pretty good, as a species, at knowing what’s wrong with us. We can figure out when we’re burned out and need some time to recover.

Rather than making people stress about keeping their days, create an environment where people are in charge of themselves.

The way to do this is to explain that vacation is not a reward for working hard, but is available because it’s healthy. People work hard because they need to work hard; they take vacation because they need to recover from working hard.

I am a proponent of this policy. We’re all adults. Once employees think of vacation as another part of healthcare and less about a material reward for productivity, the culture will change.

What Do You Think?

Vacation policies are so controversial because there are so many different opinions. I’d love to hear your opinion on what a good vacation policy is. Leave a comment below and I’ll be sure to check back and see what everyone said.

If you use Justworks, you can set your vacation policy in your dashboard and your employees will be able to request time off from there. This will help you track how many days each employee has taken and will add their days off to the company calendar, so that other employees can know who will be out of the office. If you have questions about setting up your vacation policy, don't hesitate to reach out to us. Our HR concierge service can help you comply with the different local laws pertaining to vacation policy.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.