How to Develop a Vacation Policy that Works for Your Small Business

Date: June 01, 2019

When it comes to offering time off, there’s no such thing as a one-size-fits-all vacation policy.

Small business owners offer various forms of leave, both paid and unpaid, to attract and retain employees. Providing vacation time off is a great perk to consider when seeking qualified workers for your company.

Time away from work isn’t only a useful tool for recruitment and retention—it can also make for better workers on the job, says Beth Milito, Senior Executive Counsel at NFIB’s Legal Center. “Employees come back rejuvenated and with better productivity,” she says. “And having a strong vacation policy in place can really set businesses apart from competitors.”

RELATED: What to Consider When Creating a Small Business PTO Policy

Know the Parameters

An appealing vacation policy should be crafted with care. The first thing business owners should do is to research the requirements for the state or city where the business is located as laws can drastically differ. It’s especially important to look at the fine print about what happens to an employee’s accrued time off when they’re no longer working for the company.

“It’s definitely a legal land mine,” says Milito. “We recently had a business owner get a labor law complaint because an employee quit and demanded payment for unused accrued vacation. The company’s policy was if the employee doesn’t give two weeks’ notice, they forfeit that payment. But the state law actually superseded that and the employee was entitled to receive payment for those accrued days.”

Make sure that any vacation policy you draft aligns with your state and city labor laws. And if you have any questions or concerns, consider consulting with an attorney for clarification.

Survey the Landscape

Do you know what makes for a generous vacation policy in your area or industry? To learn how you stack up against the competition, do a bit of research to find out. Glassdoor and Payscale are two free and transparent tools that offer quick snapshots of compensation packages for particular positions.

However, be mindful that your urge to best the competition doesn’t threaten the financial health of your business, says Milito. “Make sure if you’re offering two or three weeks off you’re really thinking about what that means for your finances: Are you going to have to pay other people overtime or have an extra manager come in?” she says.

Iron Out the Details

A vacation policy is more than simply allocating a certain number of days off. You also need to think through—and spell out—any timing restrictions. For service sectors like restaurants and retail, what holidays can a business afford and allow employees to take off? Are there certain weekends that are non-negotiable?

To avoid sticky situations, Milio recommends making any blackout dates clear upfront before a candidate has accepted the job.

In addition to timing, consider coverage. “You might be up a creek without a paddle if both of your managers are out at the same time, for example,” says Milito.

To avoid any timing or coverage issues, establish certain parameters around how many people can be off at once or whether certain departments must always have someone available to schedule.

RELATED: How Small Business Owners Plan for Vacation

Put Pen to Paper

The most important tip for creating a paid vacation policy that actually works is simple: Write it down. “It keeps everyone honest and on the same page,” says Milito.

It’s easy to find templates for vacation policies online, and, with a little editing. they can be perfectly tailored to fit your business’s needs. Specify the amount of time that the company provides, whether the days accumulate or accrue, whether an employee can borrow time early if those days roll over, and the procedure for requesting days off. “Having written vacation policies helps business owners grant requests in a fair way, and it helps employees know what the ground rules are,” she says.

For both business owners and employees, that’s a win-win.

Related Content: News | Economy | Labor | Legal | Minnesota | National | Paid Leave

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