• Gifford Collins

Should Your Small Business Have a Vacation Policy?

Updated: Sep 17, 2019

There is no legal requirement for businesses to offer paid or unpaid vacation time to employees, but it is common knowledge (and common sense) that employees who occasionally take time off are more productive and engaged when they return to work. If you decide to offer vacation time to your employees, a well-drafted vacation policy will help to ensure that it works well for both your small business and your employees. Here are some important tips to consider.

Consider offering paid vacation time. Although offering paid vacation time will be an expense for your business, it is likely to be a benefit over the long term. Employees who are able to take a break tend to come back refreshed and rejuvenated--and ready to work productively for your company. In addition, it is a benefit that will help your business attract and retain stellar employees. According to the Bureau of Labor Statistics, three-quarters of workers had access to paid vacations in 2018, so offering this benefit will help your business compete with others seeking the same well-qualified employees.

Note: There is no legal requirement for employers to offer paid or unpaid vacation (though some states require paid family, parental, or sick leave for certain employees), but when paid vacation is offered, some states have applicable statutes regulating, for example, whether an employer can establish a “use-it-or-lose-it” policy or whether an employer must provide compensation for unused accrued vacation time upon the termination of employment. Check with a well-qualified business law attorney to make sure your policy complies with applicable legal requirements.

Make sure your policy is clear. If you offer paid vacation time (or paid time off, which includes vacation time, personal days, and sick days), make sure your employees understand how it works. Some businesses offer a fixed number of vacation days per year that roll over if they are unused, and others provide a specific number of days that are forfeited if the employee fails to use them (although, as mentioned above, a few states prohibit this policy). Additionally, there are a number of states that require employers to pay employees for unused paid vacation time. Include a clear explanation of your vacation policy in your employee handbook and require your employees to sign a statement that they have read the policy. This will help prevent disputes that could lead to litigation.

Require notice in advance. Many employees want to take a vacation in the summertime, and for small businesses with only a few employees, this can create a problem if several of them request time off during the same period. While you can still be flexible about when your employees take their vacation, requiring notice gives you the opportunity to plan for those absences by arranging for and training other employees or temporary workers to cover their essential duties.

Consider a “rota” system. Karen Dillon, in an article for the Harvard Business Review, suggests creating a rotating list of employees and allowing the employees at the top of the list to choose their vacation days first. The next year, those employees move to the bottom of the list, and other employees move to the top so that all employees eventually have their first choice of vacation days. This suggestion is especially helpful for small businesses that are unable to function when multiple employees are away at the same time or those that have difficulty finding temporary employees to fill in.

Give Us a Call

If you are considering offering vacation time to your employees, we can help you draft a clear, well-thought-out vacation policy that will accomplish your goals and comply with the law, as well as provide answers to any other benefit-related questions you may have. Please call us today to set up a meeting at 414-207-6292 or Book Now to schedule a free consultation!



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Wauwatosa, WI 53226

(414) 207-6292

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La Crosse, WI 54601​

(608) 886-9529


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