When an employer drafts a time off policy, they have several choices to make: How much time off to give each year, which accrual rate to use, whether to implement a probationary period, and whether to use an accruals cap. When deciding on an accruals cap, some employers choose to clear all of their employee’s time off at the end of the year, rather than just putting a limit on the amount of time employees can earn. Employers don’t always realize it but this type of policy can cause conflicts in work flow and employee engagement.
What Is a Use-It-Or-Lose-It Policy?
Some employers to want to put a cap on how much time off employees can earn. They don’t want their employees earning unlimited amounts of time off so they put a limit on it. The way in which that limit is set varies. One such way is to prohibit roll-over at all. This type of policy effectively zeros out the employee’s time off balance at the end of the year (be it calendar year or anniversary year). This is called a use-it-or-lose-it policy. Employees have to either use their accrued time off or they lose it.
This policy can be alright with the right company culture but, most often, it turns out to be a loss of benefits for employees.
In a perfect world the no-roll over policy can work
In a company culture where time off is encouraged, where periodic disconnecting is mandatory, and where no one is ever made to feel guilty for taking time off, this policy can work. When employees know they will lose their time off by a certain date, they might make a stronger effort to schedule vacations each year. Conversely, if time is allowed to roll over, employees might be more inclined to postpone vacations.
- Employees might be encouraged to take all of their time off since it cannot accumulate beyond a year.
- Knowing they will lose it, employees might make a point to take their vacations, forcing them to unwind and renew even when they might not otherwise.
- Employers don’t have to pay out unused vacation time at the employee’s termination. (negative benefit for employee)
- Employers don’t have to worry about employees taking very long periods of time off since time cannot be accumulated.
The problem with a no-roll over policy
The above scenario happens in a perfect work world but most of us don’t have jobs there. The truth is, taking vacations is looked down upon in many of the places people actually work. People who never take a day off are applauded for being the hardest workers. Finding time to get away from the work load is extremely difficult for most workers. It is because of this that some states like California, Nebraska, and Montana do not allow employers to implement a use-it-or-lose-it policy at all. Some states have guidelines governing its use such as being offered a reasonable opportunity to take their time off.
- Some years are busier than others. Employees should not be penalized for working hard on the years when they are needed most.
- Employees could end up scrambling to take unused vacation time at the last minute when the time is not right. The company could end up understaffed as a result of the fact that the employee had to use up the time off balance.
- If all of the staff renew on the same date, say December 31st, everyone could be trying to use up their vacation time at the end of the year around the holidays.
- Use-it-or-lose-it policies can give employees a bad impression about the company’s culture.
- Taking benefits away from employees is not good practice.
- Some states don’t allow it.
- Some states only allow it when employees are given a reasonable opportunity to use their time off. This opportunity is arguable and could set up an employer for a possible suit.
A Better Time Off Policy
A better policy, if you don’t want employees accumulating unlimited amounts of time off, is to simply put a limit on what they can earn. An accruals cap stops employees from accumulating time off over a certain threshold. This threshold can be the same as the number of hours the employee earns per year, or it can be slightly greater than that.
For example, if the employee earns two weeks (80 hours) per year, with the cap set at 80 hours, they would never be able to earn more than 80 hours. Employees are still encouraged to take their time off before the year’s end because if they don’t, they stop accruing, but they never lose the time they already earned.
If an employer wants an employee to be able to roll over some of the time they didn’t use but not exceed a certain number, they can set the cap at that value. So, for example, if employees can roll over one year of unused time but no more then, using the above example, the cap would be set at 160 hours. Since 80+80=160. When they’ve accumulated 160 hours, they stop accumulating more. Again, this will encourage employees to use their time off, rather than never take vacations at all. But in this case, employees can take longer vacations when the previous year didn’t provide the opportunity to take a vacation.
Caps can help encourage employees to take their time off like use-it-or-lose-it policies can but they are more employee-friendly and so are a better choice.