Unlimited holiday – as good as it sounds?
Annual holiday entitlement has been a much talked about topic over the past year or so (think holiday and furlough interaction, the extension of the right to carry-over, as well as the ever-changing international travel bans/quarantining etc). In addition, the pandemic has brought a sharper focus to mental health in the workplace and employee well-being.
With the above in mind, plus the general shift to more agile working arrangements, is now the time to ditch the traditional "20 days plus bank holidays" approach to holidays, and move towards a more flexible "unlimited holidays" style offering?
What is "unlimited" holiday?
Unlimited holiday has traditionally been popular in the US (where statutory holiday entitlement is much less generous than in the UK), as well as in technology/start-up companies. It's a policy where employees are given no set number of holiday days per year, meaning employees can – at least theoretically – take as much or as little holiday as they like.
Several global companies have successfully implemented this policy for a long time. Ranked by Forbes as one of the best employers globally, Netflix was one of the first to offer unlimited holiday to its staff – the focus being on the quantity and quality of the work output, rather than the number of hours or days worked. LinkedIn and Virgin have reportedly adopted such policies, too.
Take-up of such a policy in the UK seems to be relatively low, though job site Indeed.co.uk reported that since 2017, the number of job posts on its site mentioning unlimited holiday have increased by 148%. But, despite this dramatic rise, unlimited holiday policies remain rare, with only 1% of jobs on the site offering it.
Holiday entitlement in the UK
Regulations on working time, particularly regarding holiday, are in place to safeguard employee health and safety.
Employers must meet their statutory minimum obligations with regards to holiday. Under the Working Time Regulations 1998, workers are entitled to 5.6 weeks' holiday each year and payment in lieu of accrued but untaken holiday on termination. Employers can offer more generous holiday entitlements, and many do.
Employers also have a responsibility to try and ensure that workers take their statutory minimum entitlement. This requires businesses to show that they enable their workers, through the provision of sufficient information, to take their annual leave.
Unlimited Leave policy - Is it really "unlimited" and how does it work in practice?
It will depend on the terms of any policy and the approach adopted by each company.
Whilst the idea of truly unlimited holiday sounds great, as a concept it's not really workable in practice, given that the business still needs to operate throughout the year, which involves sufficient numbers of people being present and working at any one time. As such, this necessitates there being some form of process/procedure to help manage the entitlement.
If you're considering introducing unlimited holiday, getting the policy right is key.
You'll need to make sure your policies are operationally sound. You should consider practical issues like:
- Setting out procedures for requesting leave.
- The rights of your business to reject leave requests.
- How you'll deal with competing requests.
- Consider how you'll deal with "carry over".
- Setting a maximum number of days which can be taken in a block at any one time.
- Introducing minimum performance targets as a pre-requisite to being entitled to extra leave – e.g. making it a condition that an employee needs to be hitting their targets/KPIs to be eligible. It’s likely that this type of policy will be better suited to roles where output is easily measurable.
- How you'll manage under-performance if this is linked to an employee taking too much holiday.
You'll also need to be mindful of complying with your legal obligations. Relevant considerations will be:
- Ensuring your workers are getting to enjoy their statutory minimum holiday. As outlined above, you should be able to show that you enable your employees to take annual leave – for example, by transparently giving them the opportunity to take leave, encouraging them to take leave, and informing them in good time that, if they don't take their leave by the end of the leave year, they will lose it. Arguably, this becomes harder when holiday is "unlimited", as workers will be given increased flexibility to take leave as and when it suits them. In practice, not keeping track of how many days holiday a worker has taken risks falling foul of your obligations if workers then fail to take the statutory minimum. Although you might think that giving unlimited holiday would encourage staff to take more than the statutory minimum, the reality can be quite different (discussed in further detail below).
- Ensuring your contracts are compliant. You may wish to consider including a minimum amount of holiday in your employment contracts (e.g. the statutory minimum annual leave entitlement) and then add some wording to deal with any additional discretionary leave under your "unlimited holiday" policy. Simply referring to holiday entitlement as "unlimited" in your contracts risks falling foul of employment legislation.
- Ensuring that workers are paid properly for the leave they take. The rules on holiday pay calculations are complex but, essentially, workers should be paid the same during statutory holiday as they would if they were working, so as not to deter them from taking leave.
- Considering the interaction with carry-over and periods of maternity leave, sick leave etc. and how this might impact your business and staff.
- Discrimination risk – if it's going to be up to line managers to make "judgment calls" on holiday requests, there may be a discrimination risk depending on how decisions are made. Providing training and ensuring you have a clear policy and criteria in place is likely to mitigate this risk.
In light of the above, if you are looking to introduce unlimited holiday, a sensible approach might be to agree a baseline holiday entitlement with staff, that's in line with the WTR, and then offer discretionary unlimited holiday on top of this.
What are some of the advantages of unlimited holiday?
- Wellbeing – providing employees with the ability to take more time off could help improve work/life balance. If staff don't have to worry about their remaining holiday entitlement when emergencies arise, or how to balance their work with other personal commitments, they may feel empowered to manage their own workload, which makes them feel trusted, valued, and respected. Some companies who have successfully implemented a policy like this have reported that staff are happier and more productive.
- Recruitment and retention – having unlimited holiday is a perk that could help attract more talent to the business. Equally, it could also help retain existing employees if they are given freedom and flexibility and trusted to manage their own workload.
- Improves productivity – Overwork can lead to stress, anxiety, illness and absence which can impact on productivity and also have tangible financial impacts on a business. Awarding staff with as much time off as they need, should help prevent this.
What are some of the disadvantages of unlimited holiday?
- The reality of fewer holidays – Research has found that unlimited holiday policies can actually result in fewer holidays being taken, as staff can experience anxiety around not knowing the boundaries of what is "appropriate" to take and not having a fixed number of days. Also, many employees are at the mercy of their workloads: some might feel too busy to take leave, whilst others will be deterred in the knowledge that they'll have a mountain of work to return to. There will need to be management buy-in to ensure that employees truly feel empowered to take leave and that the overall effect is not to discourage employees from having a break from work.
- Added strain on fellow employees – If employees do make the most of the policy and book a large amount of time off, without careful scheduling, this could put an increased strain on those employees left behind who will have to take on extra work.
- Could lead to unfairness – While some employees will have no qualms about taking extra days off and making the most of the policy, others will be less inclined. This disparity between staff will leave some picking up the slack and having to work harder than others.
- Extra holiday no longer a reward – Another consequence of offering unlimited holiday is that you then can't use extra days off as an incentive or reward. Providing an extra day's paid leave is a common way to reward hard work, so companies will need to come up with equally as desirable methods of rewarding success.
Food for thought
It goes without saying that this type of policy won't work for every company.
In the current market, where recruits are very much in the driving seat, offering unlimited holiday might be a great perk to entice new starters to join your company. That being said, in reality, it’s potentially quite a tricky area to manage and it doesn't always have the positive impact on employee-wellbeing that you might hope. As such, it will be worth engaging with your staff and key stakeholders to get a better idea of the appetite for such a policy before committing to its implementation.
If you have any questions or would like to discuss the issues raised in this article further, please contact Jo Cowen.