On the Clock

The Unlimited Vacation Conundrum

While the practice is gaining limited traction, it can create a minefield of issues for workers and firms alike.

4 min read

Netflix offers it, as does General Electric, LinkedIn, Virgin Group, Grant Thorton, and others. As a perk, the unlimited paid-vacation-time policy has become de rigueur anywhere from trendy, youth-focused digital media companies to buttoned-up accounting firms. But if the practice seems tempting to many, take note: It’s still an experiment.

For now, the actual percentage of employers that offer unlimited paid vacation time is minuscule compared to the outsized press the policy garners. Only 2% of employers offer it, according to the Society of Human Resource Managers’ 2017 Employee Benefits Survey, which polled more than 3,200 HR professionals and analyzed responses across roughly 300 benefit offerings.

Netflix is often credited with pioneering the practice, but California labor laws deserve a strong assist. Unlike most states, it is illegal for companies to enforce “use it or lose it” vacation policies, meaning they have to pay out for unused days rather than require employees to forfeit them. Under an unlimited paid-vacation-time policy, there are no specified days so there are no annual make-good payments. “Most organizations, particularly in tech, don’t have 9-to-5 work environments anymore, so it makes sense to rethink the 9-to-5 vacation schedule,” says Katie Denis, vice president and lead researcher at Project: Time Off, a coalition of organizations whose goal is to change institutional and individual thinking about vacation time.

What began as a practical way for organizations to save money, however, has morphed into a strategic cultural tool to attract and retain talent. Facing fierce competition on all fronts—with historically low unemployment rates and more job openings than people to fill them—organizations are in a pitched battle for talent. Denis says employees consistently rate vacation time the second most important benefit after healthcare, and with younger workers often valuing culture and work/life balance over compensation, having an unlimited-paid-vacation policy signals a culture of responsible autonomy.

While unlimited paid vacation time sounds great in theory, in practice it is hard to execute, and both organizations and employees need to carefully consider how such a policy impacts the working relationship. “When these policies started coming out, the question was always framed in terms of whether it was wise to give people unlimited vacation, whether employees could be trusted not to overindulge in an honor system,” writes Johnathan Nightingale, a partner at the Toronto-based management and leadership training firm Raw Signal Group. At some firms, for instance, the unlimited policy is a bit of a misnomer because it is limited to senior employees. Or consider that research shows the biggest factor influencing make the organization more attractive and the workforce more engaged and productive. The reason the policy works at Netflix, for example, is because it has complete buy-in from CEO Reed Hastings, who has said publicly that he takes six weeks of vacation annually.

Changes in business models, work cultures, and talent values are leading to more experimentation in vacation policies. One new trend is mandatory minimums, which melds the idea of traditional and unlimited vacation time into a hybrid that gives everyone the same baseline number of days they are required to take annually. “There is a lot of new, revolutionary thinking around vacation time,” says Denis. “It is important to not be pressured into following the trends. Every company has to do what’s best for [its own] situation.”

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