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Summer is Here and the Sun is Shining: Should Your Small Business Have a Vacation Policy?

Although there is no legal requirement for businesses to offer paid or unpaid vacation time to employees, it is common knowledge and good practice for employees to occasionally take time off in order to return to work more productive and engaged. If you decide to offer vacation time to your employees, a well written vacation policy will help to ensure that it works well for both your small business and your employees. Here are some important tips that I think you should consider.

  • Consider offering paid vacation time. Although offering paid vacation time will be an added expense for your business, it is likely to be quite the benefit over the long term. It is a benefit that will help your business attract and retain stellar employees. Who doesn’t want that? According to the Bureau of Labor Statistics, three-quarters of workers had access to paid vacations in 2018, therefore offering this benefit will help your business compete with others seeking the same stellar employees.

Side Note: There is no legal requirement for employers to offer paid or unpaid vacation (though some states require paid family, parental, or sick leave for certain employees), but when paid vacation is offered, some states have certain statutes regulating it; for example, whether an employer can establish a “use-it-or-lose-it” policy, or whether an employer must provide compensation for unused vacation time upon end of employment. As always, check with a well-qualified business law attorney, to make sure your policy complies with these legal requirements.

  • Make sure your policy is crystal clear. If you decide to offer paid vacation time or any sort of paid time off, make sure your employees understand exactly how it works. Some businesses offer a fixed number of vacation days a year that roll over if they are unused, and others provide a specific number of days that are forfeited if the employee chooses not to use them (although, as mentioned above, a few states may prohibit this policy). Additionally, there are a number of states that require employers to pay employees for unused paid vacation time. It is so important to have a clear explanation of your vacation policy in your employee handbook and have your employees sign a statement that they have read the policy. This will help prevent unnecessary disputes that could lead to litigation.

Side Note: A company may choose to offer unlimited paid time off. This simply means that the company does not put a cap on how many days a year their employees can take off. The key is to state that it must not interfere with their quality of work. This is a more flexible option to offer your employees, and is a nice benefit that can often improve the overall work environment. 

  • Require a notice in advance. Small businesses often have a limited number of employees, this can make popular vacation times difficult. Many employees want to take a vacation in the summertime, and for small businesses with only a few employees, this can create a problem if several of them request time off during the same period. While you can still try and be flexible about when your employees choose to take their vacation, requiring notice gives you, the employer, the opportunity to plan for those absences by arranging for and training other employees to cover when needed.
  • Is a “rota” system right for you? Karen Dillon, in an article for the Harvard Business Review, suggests creating a rotating list of employees, or a “rota” system, and allowing the employees at the top of the list to choose their vacation days first. The next year, those employees move to the bottom of the list, and other employees move to the top so that all employees eventually have their first choice of vacation days. This is especially helpful for small businesses that are unable to function when multiple employees are away at the same time or those that have difficulty finding temporary employees to fill in.

Give Us a Call

If you are considering offering vacation time to your employees, we can help you draft a clear vacation policy that will accomplish your goals and comply with the law, as well as provide answers to any other benefit-related questions you may have. Please call us today to set up a meeting. I look forward to hearing from you!

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