The national unemployment rate is low — 5.4 per cent as of June — and it doesn’t show signs of increasing anytime soon.  When unemployment is this low, it’s a job-seeker’s market, and businesses of all sizes look for ways to attract and keep top talent. One way you can do both is to choose the right vacation policy.

Paid vacations can cost an organization anywhere from three to six per cent of an employee’s wages, plus the employee power needed to cover for the employee while they’re gone. With the national average of compensation per hour rising around three per cent annually, documented vacation policies are important both for employee satisfaction and for your company’s bottom line.

Meeting the needs of workers, company culture, and your budget is a balancing act, but savvy employers make it work by carefully crafting a vacation policy that fits their organization. Here are the most important things to consider when establishing a vacation policy.


Legal Requirements

The Canadian government requires employers to provide workers with paid vacation time: a minimum of two weeks (10 days) annually for new employees. After a worker reaches their sixth year working for the same company, that minimum increases to three weeks (15 days). 

The government also stipulates that employees must take their vacation time within 10 months after the year in which they earned it. If a staff member leaves your company before using all their vacation time, the company must pay it out.

Beyond these government mandates, company leaders have a lot of flexibility when shaping their vacation policy. There are three main forms your policy can take, and each comes with its own considerations and cultural implications.

Limited Time Off

Limiting time off is the traditional way companies handle paid leave. Workers have a specified number of days or hours they can take off, and once that time is used, they can’t take any more paid time off. Although the government stipulates at least two or three weeks of paid vacation, depending on tenure, many companies offer more than the minimum to attract top talent.

A limited time-off policy encourages fairness for employees. Each worker knows up front they’ll receive a certain amount of paid time off (PTO), and there’s no favoritism. This system requires solid ground rules, or leaders risk undermining the fairness they seek with a limited time off policy.

Tracking Time

Tracking vacation time is critical with this type of policy. Each employee needs an individual time bank that grows when time is accrued and depletes when they take paid time off. Workers and their managers should be able to quickly and easily find out exactly how much time is in the employee’s bank.

Accumulating Time

How employees receive vacation time varies between companies. Some employers add the hours into each worker’s vacation account at the beginning of the year to encourage staff to use their time off when it makes sense for them. Other companies require staff to accrue PTO based on the number of hours worked, which can encourage a “work first, play second” culture.

Distributing Time

If you choose to give employees more than the legal minimum amount of time off, you may want to distribute it differently to your employees. There are a few ways to give people extra time off, and how you do so could send your staff different messages.

  • Distributing time equally encourages a mindset of equality among all workers. No one is more important than anyone else in regard to PTO.
  • Distributing time by tenure rewards loyalty to the company and gives new hires more incentive to stick around.
  • Distributing by job performance tells employees that their hard work will earn rewards.
  • Distributing by position says that hierarchy is important to your company’s structure.

No matter how you choose to distribute vacation time, ensure it aligns with your company values and culture, or you could face issues with employee satisfaction or end up with higher churn than you’d prefer.


Taking Time

Deciding how to distribute time is a key part of any vacation policy, but don’t forget to consider the process you want workers to follow when using their vacation time.

Some companies leave vacation approvals up to managers; the assumption is that direct bosses know what works best for their teams. This process may consist of a quick email to the manager asking for time off, and a team calendar that shows who’s off when.

Other policies are more rigid or are documented differently, but they generally all require staff to use the same procedure when requesting time off. Enterprise-level companies may accomplish this using an employee portal that tracks time and alerts leadership when a request is made.

Unlimited Time Off

While limiting time off is the road many companies take, demand for more flexibility in the workplace has led some employers to offer unlimited time off. In the Greater Toronto Area, for instance, some employers offer unlimited or other flexible vacation policies.

Companies that choose not to limit time off can encourage a culture of self-care and responsibility. It’s up to the employee to decide when they need to use vacation time. This policy can allow parents to make it to school events and those with health issues to be more flexible when scheduling doctor appointments. And it often helps employees avoid burnout by empowering them to take responsibility for their mental health. 

Many companies that choose this type of policy use a consolidated time-off system instead of differentiating between vacation, sick, and personal time. It doesn’t matter what a worker needs the time for — they can take it as long as it doesn’t interfere with their work or cause the team to miss key deadlines.

Unlimited time off often allows leaders to skip some of the weighty decisions of a limited time-off policy. They don’t have to decide how to distribute vacation time or calculate how employees should accumulate it.

The key to making this type of policy work for your company is to carefully track how much time each employee takes off. You still want some fairness, after all. It’s also important to enforce consistent procedures for requesting time off to ensure the policy is respected by employees.


Mandatory Time Off

Mandatory vacations may seem pointless: Who doesn’t want time off every now and then? But employees who have unlimited vacation time actually tend to take less time off than those with limited time off because employees feel guilty or are afraid they’ll seem less dedicated to their work if they take a vacation.  

That’s why some companies insist their staff take a certain amount of vacation time. Some leaders do this by shutting down the office at specific times during the year to ensure everyone has the same time off. If you take this route, you must legally give employees at least 14 days’ notice of when their vacation time should begin.

Other leaders simply require workers to meet an annual or quarterly quota of PTO. Like the leaders who choose a limited time-off policy, you’ll need to consider who must take time off, how much to take, and how to track and request it.

Put Your Vacation Policy in Writing

However you craft your paid vacation and holiday policy, describe it in detail in your employee handbook. Doing so will help new hires better understand company culture and what’s expected of them.

A thoroughly documented policy is also critical for minimizing your liability as an employer. Certain details, such as when vacation pay lands in a worker’s paycheck, aren’t explicitly governed by law. You get to decide when you pay out vacation, too, provided the policy is consistently applied to all employees. If disputes arise, your established company policy will determine whether you’ve treated your staff fairly. 

The Bottom Line

Your vacation policy says a lot about your company culture. With it, you show employees what you consider fair and how you value their time and well-being. 

There’s a lot to consider when it comes to designing a policy for your organization. But companies that carefully consider their options and craft a vacation policy that communicates their values and culture will find it easier to attract and keep the talent they need.


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