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Should I Update My Company's Vacation Policy Now?

Summary: Is now a good time to update my company’s vacation policies to try and be more competitive with other similar companies? Find out in this article.

Question: We are a small for-profit software company that is a spin-off of a large not-for-profit institution for higher education. With regards to vacation, our employees accrue a set number of days per month, and we have a year-to-year carry-over cap of 15 days. Our current policies and procedures were taken from our "parent" when we spun-off; however, we'd like to revamp them to make us more competitive with other technology companies. Is it standard practice in the high-tech world to pay employees for all accrued vacation time upon termination? What are your thoughts on vacation policies?
Is it time to wash away your old vacation policy and write a new one?
Answer: It is standard practice to pay for vacation days earned but not yet used when an employee leaves the company or is terminated. The accrual schedule for vacation days is customarily monthly, so if you have an employee with 12 vacation days a year and you terminated him on June 1st, you'd pay him for the five days accrued from January to May (assuming he did not take any of those days). Many companies also cap the number of days that can be rolled over from one year to the next.

One scheme that companies sometimes use to get around paying out vacation days is to have vacation days accrue at the end of the year, and not to allow any "leftover" days to roll over to the next year. (i.e. an employee has 12 days for 2000, but these days aren't actually accrued until December 31, 2000 - until then, the employee is simply borrowing against his allowance). The only exception to this is in the case of state/local legislation mandating the accrual and/or payout of vacation days. But even states that do have such legislation such as California and Massachusetts deal exclusively with vacation days actually accrued. For the record, I consider this "accrual only" vacation day policy to be a bad idea!

Time off is a benefit that employees are generally very sensitive about. You want to come up with a plan that is fair and affordable, but also one that is appreciated by the employees - otherwise it isn't a benefit. Don't be cheap by skimping on a few days. You aren't fooling anyone - your employees will notice and hate you for it. If you are concerned with paying out too many vacation days, provide fewer vacation days and don't allow more than a few days to roll over to the next year. Instead, you can provide your employees with more personal days that are "use 'em or lose 'em" and that are never paid upon separation.

Vacation and time off in general is a powerful tool that, if used properly, can do wonders for both recruitment and retention. Think about what your company can truly afford, plan carefully, and go for it!

See the following articles for more information:  
What does your company’s vacation policy look like? Do you think it works well for your company? Share your thoughts and experience in the comments below the article.