Debating the open vacation policy

“Unlimited” paid time off (PTO) is increasingly popular among smaller businesses and startups, but is also now used by big corporations looking to gain an edge in recruiting. The message: take as much time off as needed to relax and recharge, no questions asked. Far from creating an Office Space-y, “take this job and shove it” mindset, studies suggest that workers with unlimited vacation options actually wind up taking fewer vacations than peers with a fixed allotment.

“The average American employee reports using only half (51 percent) of his or her eligible time off in the past 12 months,” reported a 2014 Glassdoor survey. And when workers are out of office, they still find a way to clock in extra hours. “Three in five (61 percent) employees who have taken vacation/paid time off admit working at least some while on vacation.”

To some extent, this is what Swiss Life author Chantal Panozzo describes as “American Reality.” “Before I moved to Switzerland for almost a decade, American Reality was all I knew,” she wrote for Vox. “I was living in a two-bedroom apartment making $30,000 a year in a job where I worked almost seven days a week with no overtime pay and received 10 days of paid time off a year. In other words, for the hours worked, I was making minimum wage, if that. The glamour of this job was supposed to make up for the hours, but in reality, working every weekend is a ticket to burnout—not success.”

While the American mindset insists longer hours worked leads to greater earnings, the numbers suggest otherwise. “According to data from the Organisation for Economic Co-operation and Development, the average Swiss worker earned the equivalent of $91,574 a year in 2013, while the average American worker earned only $55,708,” adds Panozzo. “But the real story is that the average American had to work 219 hours more per year for this lesser salary.”

Believing that there is a better way to do business, entrepreneurs everywhere, particularly within the tech industry, have adopted flexible vacation policies with the goal of empowering their employees to live happier and more productive lives. Below, we discuss the impact unlimited paid time off has had for several startups and explore the pros and cons of the policy.

Open vacation policies in action

Throughout its three-year history, Tilt has maintained unlimited vacation days as a perk for employees. But in April 2015, the company established a 15-day mandatory vacation policy. Spokesperson Natassia Costa explained, “We realized that with a young team…is that often, even with an ‘unlimited’ vacation policy, people don’t know what amount of time off is appropriate so we removed the ambiguity around what ‘unlimited’ means and implemented a 15-day mandatory vacation policy.” Because one of the biggest criticisms of the open vacation policy is that workers actually enjoy fewer benefits, this makes sense. And so far, it has been a success among the company’s 85 employees.

For the team of 600 at Spredfast, flexible time off reinforces one of the company’s core values called “Freesponsibility.” According to Sam Baber, Spredfast’s director of talent and acquisition, “Freesponsibility means that we have confidence in our employees that they will do what they say. This policy is based on the ‘Pygmalion Effect’ which states that the more trust you put in someone, the more they will fulfill that trust. In weighing the pros and cons, we believed that giving everyone the opportunity to think outside their role outweighed the overbearing task of watching the clock and logging vacation days.”

Of course, this freedom does come with some stipulations. “Our culture of respect and teamwork helps ensure others step up when people take time off, and employees coordinate their own leave to maintain staffing levels,” says Baber. “For example, we have an active presence at SXSWi so you can expect that we won’t be taking a long vacation in the weeks leading up to that event.” Outside of busy seasons, though, workers are in charge of their own schedule. As a result, Baber says, Spredfast has been named one of the top places to work in Austin.

“Many employees have come from companies where they had stringent vacation policies and recognized that their health and happiness were suffering,” he says. “Here we have implemented a policy that breeds imagination and innovation and it shows in the work we’re producing and the feedback that we receive anonymously on Workify.”

Although many businesses dismiss the thought of an open vacation policy due to the concern that employees would work more and take less time off, others worry that the policy might be abused. At Prezi, the decision to employ flexible vacations was a cultural one. “We work hard to have a culture where people treat each other as adults and manage expectations and feedback directly. Vacation time is just one of many little areas where employees face a choice to be honest and open or to ‘navigate the system’ and take ‘sick time’ or something when they really just need a couple of days of vacation. We want people to feel more able to just be open and talk about what they need,” said Tobey Fitch, head of people and talent. When asked about how employees have used the policy, Fitch responses, “Responsibly. From our sampling across different functions and teams it looks like people take 3-6 weeks of vacation a year on average.”

Similarly, at FullContact, the startup’s primary motivation was, “We wanted to give our employees everything that they could possibly need or want for, so that when they actually are at work, they can truly focus on the task at hand. We don’t want them to start counting vacation days and worrying about whether they can see their family or whether they can stay at home when their child is sick; instead, we let them take whatever they need so that when they are at work they will be their best,” says Eden Elder, Chief People Officer.

Of course, taking a vacation can be a costly endeavor. To alleviate that financial burden, FullContact offers employees a $7,500 gift every year to use towards a special holiday. But it comes with three conditions:

1. “You have to go on vacation, or you don’t get the money.”
2. “You must disconnect.”
3. “You can’t work while on vacation.”

Fortunately, FullContact’s generous policies have been good for business. “It’s wonderful as both a recruiting and retention tool,” shares Elder. “When we have launches, people work around the clock and no one complains about it, so when people take time off we are all very excited about it.” And it can also be a tool to combat underperformance. “As a matter of fact, one of our guys took time off after having a poor quarter and our CEO and myself decided to surprise him with a spa day on his vacation, because again, the trick is that we truly care about our employees and their well-being and we want to make sure that they take time off and relax and then when they come back there are no lingering thoughts. They are truly refreshed and ready to start again.”

Of course, just one employee’s absence can be disruptive. While colleagues are away with family or are snorkeling around the Great Barrier Reef, the staff that stay behind need to pick up the slack. To limit the impact extended vacations can have on teams, Emma Leeds, Sailthru’s people team manager, says the company’s vacation policy states, “Any vacation lasting longer than 10 consecutive business days is only paid for the first 10 days, and is unpaid the 11th day and beyond. We grant exceptions for ‘life events’ like honeymoons and allow people to take longer than 10 days paid. We ask that employees provide reasonable notice (each employee and manager decides what is reasonable for them and for their work load), and that they make sure their team is equipped to cover for them during their absence.”

When Shearwater International made its first hire approximately six months ago, co-founders James Lu Morrissey and Jackson Boyar had to carefully consider what fringe benefits they’d offer. “Our company culture values productivity and results over number of hours worked and face time, and we wanted our vacation policy to both reflect and reinforce that,” recalls Morrissey. “We also spoke with our employees as well as other companies who have implemented such a policy, which allowed us to effectively weigh the decision.” After getting buy-in from their first employee and subsequent hires, they’ve been able to reinforce that decision. And with seven full-time team members, Shearwater has developed a results-oriented culture.

“As long as employees have been hitting their weekly KPI goals and can demonstrate they are on track to hit their quarterly KPI goals, they can request vacation. Our partnerships team knows not to take time off during certain key phases and seasons, but otherwise we are flexible as long as we feel they will be able to hit their KPI goals that quarter.”

When unlimited PTO backfires

While many companies insist their flexible vacation policies benefit the business and its employees, there are a few cautionary tales.

“A week and a day after announcing it would switch to a ‘discretionary time off’ policy that would remove any limits on how many paid days off salaried employees could take, Tribune Publishing has rescinded the program,” reported Jeanne Sahadi for CNN Money. The company, which owns the Chicago Tribune and Los Angeles Times, noted that its employees encouraged them to reverse the decision. Without early buy-in, the program was doomed to fail.

BuzzFeed’s Caroline O’Donovan reported that Kickstarter backpedaled on its unlimited vacation policy, too. With workers unsure of how much, how often and when they could take a holiday, confusion led to chaos and reluctance to take time off. To create a bit more structure to its vacation program, Kickstarter allows managers to approve up to 25 days of paid leave annually.

Nearly a year after Triggertrap implemented its unlimited holiday allowance, company founder Haje Jan Kamps noticed his staff took fewer vacations than they deserved. On average, each team member enjoyed less than 15 days of paid leave, which was well below the statutory 28 days holiday entitlement in the U.K. So, Triggertrap updated its policy to create incentives that would motivate workers to take their hard-earned paid days off. In 2015, the business offered employees the option to earn a £300 bonus if they vacationed for a minimum of 10 days in the first six months of the year. With that simple change, every Triggertrap worker took at least 10 holidays over the first and second quarter.

When Buffer also found that its team members weren’t taking enough time for themselves, leadership sought solutions to ensure everyone enjoyed a healthy work-life balance. What they realized was their unlimited vacation policy was most effective when they were explicit about minimum time off, offered employees a $1,000 vacation bonus, created opportunities and excuses for team members to take a holiday, and had leadership set the tone by taking vacation seriously—and often.

Sailthru’s Leeds says, “Other business owners should know that this policy works best when everyone abides. If there is one superhero at the organization who ‘takes one for the team’ and never takes a break, others will see that, think that is what they are supposed to do, and model themselves after that. This is how you can burn out an entire organization with a few poor role models, and a policy that is too open.”

“You have to hire the right people,” says Umbel’s director of people operations Dillan Bryant. “Most A-players will not abuse the policy and can recognize productivity. Companies with a poor culture and subpar performance should avoid this policy.”

Closing thoughts

Whether businesses decide to implement an unlimited vacation policy or maintain a fixed holiday allowance, what’s important in shaping the future of work is ensuring teams are properly staffed and have easy-to-employ contingency plans for when one or two people are out. That way, employees don’t have to feel shame or guilt when they are absent from work and can truly disconnect— and return to the office refreshed and ready to accomplish more of their goals.