How to Set a Workplace Vacation Policy

Building Your Business Success with a Great Vacation Policy

One of the most important aspects of employee health and satisfaction is the balance of work and home life. An important step in becoming a successful business owner is to help your employees achieve this balance through a clear vacation policy as part of your benefits package. Regardless of if you are looking to create a set guideline of time off or a system of time for merit rewards this guide will help you in creating a new or improving your existing vacation policy.


Set the Priorities

Set the Priorities

As with any plan, the first step to crafting a good vacation or paid time off policy is to determine what you hope to achieve with it as part of your benefits package. Is your goal to achieve higher productivity through a reward system of additional days off for merit or are you looking for a policy to reward longevity and loyalty in your employees with a progressive policy based on time in service? Is your vacation policy as part of your overall benefits package competitive with what is being offered by your competitors to achieve hiring goals? Determining these priorities will give you the foundation of your vacation policy.

Meet Hiring Goals with a Competitive Policy

As with salaries and other benefits, if you wish to attract high quality employees, making sure your vacation policy is competitive with others in your industry is important. When looking at your competitors time off policies there are certain key features to compare:

  1. Do others in your industry offer additional paid time off such as personal days, sick days, and national holidays, like New Year’s Day, Labor Day, and Christmas Day? If so, are they offering these additional days as separate policies or roll all policies into one paid time off policy?
  2. Is unused time off allowed to continue accruing and be rolled over to the next year or is it use or lose it? If allowed to rollover is there a cap on the amount that can be accumulated? For unused time is the employee allowed to sell the time back to the company and take a cash payment rather than simply losing it?
  3. Do competitor businesses extend vacation and paid time off to part -time or contract employees, or is it limited to only full-time workers?


Reward Employee Loyalty

Reward Employee Loyalty

Traditional vacation policies reward for longevity of service by having a progressive vacation time off based on number of years the employee has worked for the company. Such policies normally begin with shortest amount of time, one week the first year. This is usually available for use after the first 6 months. Progressing upwards an employee may earn two week in employment years two through five, then three weeks years five through ten, and so forth until a cap of annual vacation days is reach.

Reward Productivity

Many employers want to performances such as meeting or exceeding productivity goals or minimizing absences/maximizing attendance. Vacation policies can often be used to encourage such goals. Many companies offer a minimum one week vacation and have other days earned through meeting or exceeding set goals monthly or quarterly. Examples would be meeting productivity goals each quarter may earn an employee and additional half day off a quarter or a full day for exceeding goals.

Consistent attendance can be rewarded with an accrual system of a certain number of time off hours earned per X amount of hours worked, such as 4 vacation hours earned for every 100 hours worked for a total of 80 hours a year. This system not only encourages attendance, but also can reward longevity as the amount of hour accrued can be raised as the employee’s time with the company increases.

Make Sure You Are Following the Law

Although American employers have no legal obligation to provide vacation or paid time off to their employees, there are laws regarding when an employer must offer at least unpaid leave. Under the Family Medical Leave Act (FMLA) of 1993 employers are obligated to provide employees in certain situations up to 12 weeks of unpaid, job-protected leave each year. It is important to include the FMLA in your overall time off policy, and if employees will be required to use paid leave before FMLA leave starts.


Listen To Your Employees

Listen To Your Employees

Although it is important to look at what competitive businesses are doing when creating vacation policies, it would be a big mistake to create your policies based on just what competitors are doing. Always seek your employee’s input because vacation policies can be difficult to change once implemented. Present them with one or two options in overall packages and take into account their opinions of its strengths and weak points before implementing a final policy. Remember the ultimate goal is to help creating a healthy work/home balance to increase employee satisfaction, so morale and productivity will increase. No one knows better than your employees what will meet their needs.



Article provided by Neches FCU, an Equal Employment Opportunity Employer.
Neches FCU is a trusted Texas credit union and has a superior team of staff ready to provide services to members. When its doors open at any of their 9 locations, the goal of “Ultimate Member Satisfaction” becomes the imperative for every representative.