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Is it time to stop tracking employees’ vacation time?

by on
in FMLA Guidelines,HR Management,Human Resources,Office Management,Payroll Management

used in HR Weekly -- oct. 9, 2007

It’s tough to measure the true scope of the trend, but more and more businesses are experimenting with unconventional time-off rules and benefits, including taking a much more flexible approach to monitoring employees’ vacation and personal leave.

Among the latest examples:

  • At technology giant IBM, each of its 355,000 workers is entitled to three or more weeks of vacation, but the company says it doesn’t officially keep track of the time off. The amount of vacation days isn’t ruled by seniority, and the time-off doesn’t carry over from year to year if unused.
  • At electronics retailer Best Buy, a flexible-work program called “Results Oriented Work Environment” gives its 4,000 corporate employees the freedom to do their jobs without regard to the hours they put in daily—opening up the ability to take personal time off without a lot of prior approvals and scheduling rules.
  • Online DVD distributor Netflix doesn't allocate a specific number of vacation days to its 400 salaried employees.

What’s happening? In essence, employers are rethinking their traditional time-off policies in an effort to meet valued employees’ needs for flexibility—and boosting productivity and retention at the same time.

Even more flexible than PTO

Plenty of companies have recently instituted paid time off (PTO) banks in lieu of rigid leave plans that designate a specific number of days for vacation, sick leave and personal time off. PTO banks set a total number of days off that employees can use for any reason.

But newer leave plans go even further, doing away with the concept of tracking leave time altogether.

Instead, employees make informal personal time and vacation arrangements with their managers when it suits them, guided mainly by their ability to perform their jobs successfully.

As with any new trend, the strategies have prompted some pros and cons.

The upside? Reduced HR and supervisor record-keeping and administrative burden; better employee morale; and increased productivity and efficiency.

The downside? Pressure on employees to always be on call, blurry boundaries between work time and time off and a greater temptation for employees to exploit the system.

Legal risks for employers

But is the hands-off, unlimited approach to personal time off a wise move for every employer? Some employment-law attorneys warn that such informal attitudes could put employers at risk in certain situations.

For starters, such a plan typically can’t apply to hourly, nonexempt workers—which could spark employee resentment over unequal perks if your work force includes both salaried and hourly staff.

Unlimited leave plans could also become a problem if a group of workers challenged its nonexempt status—your record-keeping and pay and benefits practices would surely be scrutinized. And, unintentionally limiting your time-off perk to certain classes of employees—like administrative or salespeople—could result in a discrimination claim.

Secondly, unlimited, untracked leave could make it difficult to monitor the true reasons behind employees’ absences—reasons that could trigger your responsibilities under the ADA, FMLA, workers’ compensation or other disability benefits. At what point could time off become an accommodation, for example, if you’re completely unaware of an employee’s undesignated leave?

Bottom line: Vacation pay is a heavily litigated issue. As an “accrued” benefit, employees are entitled to a proportionate share of vacation pay for every day worked, unless your company clearly specifies otherwise. In other words, vacation time is “earned” time; it belongs to the employee.

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