Unlimited holiday allowance: We think it's a bad idea

Unlimited holiday allowance – defined as employees being able to take as much holiday as they choose to during the year – has seen an increased take-up from companies in the UK ever since giants like Netflix and LinkedIn announced it as their new official policy. While this approach was designed to focus on the mental health of employees as well as on valuing productivity over time spent in an office, it has been proven to have adverse effects on all these counts.

Below we look at the most relevant criticisms of unlimited holiday allowance, when times are good and when they’re not.

1. Employees actually take less holiday.

In normal times:

Under the standard limited holiday allowance, all employees receive a set number of days of holiday (for example the statutory minimum of 28 days) and they know they have to take this holiday by the end of the year or risk losing part if not all of it.

They also know that everyone else in their department has a set number of days for holiday, so the playing field is equal regarding how much time everyone spends on work/holiday per year. Once you introduce an unlimited holiday allowance, the dynamic moves to become one of competition. Given employees don’t know the average number of holiday days taken in the company, they would not like to be seen as taking excessive time off compared to their colleagues. So even if a numerical limit does not exist, employees feel that their holidays are actually monitored by their supervisors and that proving contribution and diligence to the company requires taking less holiday than your peers, leading to a race to the bottom ensuing between all employees.

This has led to employees taking statistically less leave in the companies that have the policy and has had the exact opposite effect of what was envisaged in terms of healthy work-life balance. By comparison, a standard limited holiday allowance sets common “acceptable behaviour” guidelines and avoids this peer rivalry and perception of being judged for taking holiday.

When times aren’t good:

For employees fearing that the company may downsize due to adverse economic conditions, they may be tempted to not take holidays lest they make themselves appear expendable. For those on unlimited holiday allowance, this temptation is even stronger because an unlimited holiday which can be taken anytime triggers a paradoxical response of putting it off knowing it will always be available to you.

On the other hand, when you know you have a limited number of days which you will lose (some or all) at the end of the year, that becomes a greater incentive to take holidays regularly. Companies have an interest in ensuring that the latter happens so that their employees take regular breaks to prioritise their mental health and retain their productivity.

2. It’s impractical for businesses with a fluctuating amount of work.

In normal times:

The majority of companies don’t have perfectly uniform rates of operation throughout the year, but rather have busier and more relaxed periods depending on fluctuating demand from their customers or on times when the firm comes to the end of a larger project or conversely embarks on a new expansion which necessitates all hands on deck. In these instances, the ability to control how much holiday your employees can take is critical in ensuring the company does not have half its employees off on a holiday precisely when their contribution is needed most.

Further to this, in busy periods the employees who take unlimited leave often leave those who do not under a large amount of pressure to meet deadlines and complete projects while understaffed, so while some workers are taking excessive holidays others have to do excessive work. Again, the opposite of the lifestyle balance it was aimed at achieving.

When things are picking up:

If the business has gone through a particularly busy period where it needed all hands on deck, once that’s ended there can be a surge in employees heading off to a tropical holiday to unwind and make up the lost time. This poses difficulties even for companies which have limited holiday allowances, but will hit companies with unlimited allowances hardest because employees will take a large amount of holiday to compensate for the previous months, thus leaving the company understaffed for long at a time where the company was planning to accelerate activity to retain market share as economies wake up again.

3. Payment at termination for holidays not taken is impossible to quantify.

In normal times:

Under a limited holiday allowance, when an employee leaves the company voluntarily or is dismissed, they have to be paid for their untaken holiday days. This payment is impossible to quantify if there was no stated number of holiday days to reference against and compare with the number of days taken off. As such, workers are at a loss and cannot be paid for unused holidays, even if they sacrificed those holidays specifically to be more productive within the company and so deserve compensation.

During bad times:

Workers will have to be dismissed in even greater numbers.

Many companies during this period will unfortunately have to let employees go. As such under an unlimited holiday allowance the problem identified above concerning not being able to quantify untaken employee holiday and pay compensation for it at termination becomes even more drastic when it will affect a large number of employees due to diminished economic activity.

In Conclusion

The larger cultural change oriented towards telling employees that they are trusted to perform their job in the way they see fit and that they are valued based on their outputs rather than their physical presence is a very welcome trend, but it should not be brought in by means of counterproductive solutions such as contractual unlimited holiday allowance. The nice halfway house is to adopt the statutory minimum in the employment contract and then let your team know that if they need more paid time away you’ll consider this on a case by case basis.