For many of us, we are smack in the middle of the worst time of the year. The dreaded slog between our last Federal Holiday in February, and the light at the end of the tunnel that is Memorial Day. 105 days. Almost 30 percent of the year without a break. And that’s if you are lucky. In the private sector, your employer does not legally have to give you "federal holidays" off. As a matter of fact, in the private sector in Nebraska, your employer is not required to give you any paid holidays or vacation.
Wouldn’t it be great to slack off, and take some vacation time right about now? Wouldn’t it be great to take vacation whenever you wanted? Does unlimited vacation really exist?
A Vacation-less World
It is often said that the United States is the only country in the modern industrial world without a minimum paid vacation requirement. As you can see from the chart below from the Center for Economic Policy and Research[i], the United States is the only country of the so called “rich” countries not to maintain a requirement for paid holidays or paid vacation.
That being said, many employers do offer vacation to their employees, and many employers allow their employees to take federal holidays off. But, as the table below demonstrates[ii], our most vulnerable populations (low wage earners, small businesses, and part time employees) generally do not benefit from these policies.
Vacation and the Good Life
As stated above, in the private sector in Nebraska, there is no law that requires an employer to provide vacation to his or her employees. However, if an employer chooses to provide vacation, he or she must provide what he or she promised to the employee.[iii] Where an employee has “earned” vacation according to the employer’s vacation policy, the employer must pay out that amount of vacation at termination.[iv] Some employer’s vacation policies allow employees to earn vacation all at once, at a specified time, while others allow employees to accrue a certain amount every day, week, month, or pay period.
Where an employee does not take vacation, and is subsequently terminated, an employer can face a cash flow problem. Vacation is paid out at the employee’s normal salary or rate of pay, and three weeks of vacation could amount to a large amount of cash out unexpectedly. Even at minimum wage in Nebraska, three weeks of vacation amounts to $1,080. When the employee’s regular 2 weeks minimum wage paycheck is included, an employer faces a potential final paycheck of at least $1,800. That amount of cash could present a problem to companies or nonprofit organizations that haven’t budgeted for it. This issue is compounded when an employer allows vacation carryover, and a longtime employee doesn’t take vacation for many years. U.S. companies carried forward $65.6 billion in accrued paid time off costs last year.[v]
There are measures an employer can put in place to prevent a large payout all at once. The most common measure is to implement a policy that caps the amount of vacation accrual at a certain amount. In this scenario, an employee accrues vacation up to a certain amount, and then does not accrue any more until he or she uses some of the accrued vacation. “Use it or lose it” vacation policies also prevent huge payouts at separation, but are slightly risky as they have never been addressed by Nebraska Courts, while some other states have found these kind of policies unlawful. Other policies require employees to take vacation, or face discipline.
On the extreme end of vacation policies lies the unlimited vacation policy. According to Time Money, only about 1-2% of employers have implemented this kind of policy.[vi] Silicon Valley employers such as Netflix, Kickstarter, LinkedIn, and Virgin have turned to unlimited vacation policies as both a cash flow solution and a valuable recruiting tool. The trend is starting to spread to the rest of the country. In 2015, “about 30,000 of General Electric's more senior U.S. salaried employees became eligible for its ‘permissive time off’ policy, which doesn't set a limit on the number of days they can take off.”[vii]
The moniker “unlimited vacation” is misleading. No company in the world would hire an employee so that they could be on permanent vacation. When drafting an unlimited vacation policy, the employer should of course require an employee to obtain approval by management, and give management discretion to deny vacation for business purposes.
The unlimited vacation policy can solve an employer's cash flow problem by preventing any employee from acccruing any vacation. If the employee is allowed to have an unlimited amount of vacation, they never accrue any vacation, which means they have never earned any vacation, which means they are entitled to nothing at separation except their regular paycheck. Of course, caution must be exercised when implementing an unlimited vacation policy. The benefit must be in fact and practice, unlimited, subject to the conditions built in to the policy. A company cannot benefit from the cash flow solution of no payout at termination while also placing limits on the vacation an employee can take. Otherwise, the policy looks like the company has a limit to the amount of vacation an employee could earm, which could give rise to court challenges.
Unlimited vacation policies are probably best suited for a workplace that already provides employees with flexible hours and autonomy. If the employer’s culture values flexibility and work-life balance and does not necessarily require face-to-face interactions, an unlimited vacation policy may provide an employer with an added recruiting tool.
There has been both praise and criticism by the companies that have “gone unlimited.” Companies that have found success with unlimited policies find that it creates “a results-driven culture of trust,”[viii] that employees appreciate the flexibility it provides[ix], and that employees feel treated as individuals.[x] On the other hand, companies that have found failure find that employees take less time off and that supervisors have a hard time determining the cause of productivity problems.[xi] One employee noted that these kind of policies can only be successful at places where individuals are less likely to take vacation, as “they’re staffed with workaholics who probably don’t take much of their vacation anyway.”[xii]
Not every policy is right for every group of employees or for every company. However, there are multiple tools available to craft a policy to fit your company’s needs. If your employees need help getting past the slog, and your company is ready to try something different, an unlimited vacation policy may be right for you.
[iii] The Nebraska Wage Payment Collection Act states, “[w]ages means compensation for labor or services rendered by an employee, including fringe benefits, when previously agreed to and conditions stipulated have been met by the employee, whether the amount is determined on a time, task, fee, commission, or other basis.” Neb. Rev Stat § 48-1229(6). “Fringe benefits includes sick and vacation leave plans . . . and any other employee benefit plans or benefit programs regardless of whether the employee participates in such plans or programs[.]” Neb. Rev Stat § 48-1229(4). Nebraska Courts have determined that a handbook provision or any other agreement can provide the conditions an employee must comply with to earn vacation. See Roseland v. Strategic Staff Management, Inc., 722 N.W.2d 499 (Neb. 2006).
[iv] See Roseland, supra (Vacation) and Fisher v. PayFlex Systems USA, Inc., 829 N.W.2d 703, (Neb. 2013) (PTO).