Is it time to stop tracking employees’ vacation time?

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.

FMLA Compliance D

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.

Unlimited leave: Issues to consider

In forming and following a modern time-off policy, keep in mind these considerations:

Look at your work force. If it’s primarily comprised of salaried professionals, a more flexible time-off policy may be a cultural plus that helps retain good employees. Determine who’s eligible and instill at least a minimum level of accountability between employees and their supervisors to keep a handle on the leave employees take.

Plus, realize that employees today are generally less likely to eat up everything you serve them. Although many workers say their employers are generally flexible when they need to take time off, 56% of recently polled employees said they don’t take advantage of all their vacation days. Thirty percent told the Hudson Highland Group, a New York-based staffing consulting firm, that they use less than half of their allotted personal time.

Set some standards. No law requires an employer to provide vacation, but it’s an expected, competitive benefit—77% of employees in private industry have paid vacation time, according to the latest annual National Compensation Survey conducted by the Bureau of Labor Statistics.

You can promote flexibility, but also set reasonable expectations and limit how much time off employees can earn. For instance, a policy limiting vacation use to a maximum of two or three workweeks at a time, or restricting the use of vacation time when the workload is high, is legal and enforceable.

Want more guidance? Here’s a sample PTO policy.