Going into leave debt: if you let employees borrow vacation time, provide a clear, consistent policy that fits your business needs

HR Magazine, Sept, 2005 by Roseanne White Geisel

Time is money. Benjamin Franklin's 18th century maxim is sage advice for 21st century companies. But when it comes to time and money, employees often want an ample supply of both. That's why more companies are letting their employees go into "debt" when it comes to paid time off.

The policy of advancing vacation time appeals especially to new employees who haven't worked long enough at the company to accrue time off. And it helps long-term employees who may have had to expend their leave under special circumstances. The policy gives employees added flexibility in managing their vacation time.

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"Employees cannot plan time away from work with 100 percent certainty," says Wayne Wendling, senior director of research at the International Foundation of Employee Benefit Plans in Brookfield, Wis.

But the appeal doesn't end with employees. There's an upside for the company as well, according to Lisa Franke, SPHR, CBP, a workplace analyst at CCH Inc., a provider of employment law and human resource information in Riverwoods, Ill. Among those benefits, she says, is a morale-boosting demonstration of trust in employees.

However, attorney John Levine, chair of the labor and employment group at Michael Best & Friedrich LLP in Milwaukee, is skeptical. "When we get calls from employers who do this, they always have remorse that they did." He says they often feel that it leads to the employees taking unfair advantage of the company, mostly by leaving before the time is paid back.

Even with his Pandora's box warning, Levine says the company should not have an absolute hard line against use of unearned days. He advises companies to think through the positive and negative implications of the flexible stance.

Indeed, advancing vacation days depends on the nature of the organization, the turnover rate and other considerations, says George Faulkner, principal in the Princeton, N.J., office of Mercer Human Resource Consulting. "I don't think it's just a black-and-white, yes-or-no issue," he says.

Employers need to consider several factors before they allow employees to borrow against vacation days:

* Is this policy compatible with the company's business needs?

* Is it necessary for recruitment and retention?

* What message is the company trying to convey to employees?

The Business Need

Vacation days generate costs in terms of wages or salaries and lost productivity in the short term. According to the 2004 Employers' Time-off and Disability Programs survey report by Mercer, scheduled time-off benefits accounted for 10 percent of payroll, consistent with previous years.

So, the first question a company must answer before setting a policy is whether advancing vacation days will interfere with business.

In the tourism industry, for instance, Vicki Banks, director of benefits for The Biltmore Estate in Asheville, N.C., believes it would. Biltmore's "schedules are done way ahead. It would be somewhat of a nightmare for some of our supervisors to also have to worry about vacation that isn't earned," Banks says.

The only exception: Staff members at or above the department head level are allowed to borrow against unaccrued time, Banks says. New hires who know they will need time off before earning it must negotiate that in the hiring process, she adds.

Employers in high-turnover industries where full staffing is an issue also may not want to exacerbate the problem by advancing vacation time, says Shelly Wolff, health and productivity practice leader for Watson Wyatt Worldwide in Stamford, Conn.

"Absenteeism is one of the most uncontrollable problems that employers face," says attorney Stephanie Dutchess Trudeau, a partner at Ulmer & Berne in Cleveland. "Allowing people to take time before it's accrued adds to the difficulties employers face."

Trudeau usually recommends against the policy. "The employer may already be subject to various [state and federal Family and Medical Leave Act] laws," she says. "Why would an employer add more reasons for people not to come to work?"

A similar view is held by Gregory Johnson, director of employee benefits at the Joint Commission on Accreditation of Healthcare Organizations in Oakbrook Terrace, Ill.

The commission has separate policies for vacation and sick days, and allows employees to carry over two weeks of vacation to the next year. That arrangement forces the staff to plan vacation time and use at least some of it in the year it is earned, Johnson says. Exceptions to the no-borrowing policy are rare and require approval by the vice president of human resources.

The need to recruit and retain high-quality employees prompts an employer to grant the privilege of using time before it's earned.

"When the economy and job markets are such that employers want to be competitive to get the best talent, you might want to offer that flexibility," says Mercer's Faulkner.

A flexible time-off policy is part of being an "employee-centric company" at Calibre Systems Inc. in Alexandria, Va., says Michelle Voisinet Caylor, PHR, CBP, director of human resources for the employee-owned management and technology services company. The policy contributes to a positive attitude and helps recruit and retain talented people, she adds.