What is a vacation policy? (And how to create one)

One of the key responsibilities of talent advisors is to keep their finger on the pulse of trends related to their workforce’s changing needs. This helps the companies they work for enact policies that will attract and recruit new talent, as well as retain their current talent in order to meet business needs.

Apart from higher wages – which no one is ever likely to turn down – one of the biggest employee concerns is paid time off. And according to research from Project: Time Off’s State of American Vacation 2018, it seems employers are starting to hear the message.

When your employees feel overworked and stressed, it causes burnout. Many employees don't take enough time off, and the reasons vary from person to person and workplace to workplace. One of the primary reasons people don't take time off from work is the vacation policy or lack thereof at their place of employment. An attractive company vacation policy helps ensure your employees get their time off. Learn how to create a vacation policy for your company.

Why do you need a vacation policy?

Having vacation policy guidelines is essential, as it helps your employees understand how much time they can take off each year and the process for requesting this time. Ensuring that you have a vacation policy in place at your company has many benefits. A vacation policy can show employees that you care about them as individuals, not just as employees. Encouraging employees to take time off:

  • Allows for a better work-life balance
  • Promotes healthy habits
  • Helps increase energy and productivity
  • Creates trust and dependability

Employees tend to stay with your organization longer when you make your workplace a welcoming place. By allowing people to take time off, you create an environment that makes employees want to work harder because they feel appreciated. Vacations give people a chance to leave work behind for a while so they can come back ready to take on any challenges or tasks you have for them. Productivity can also increase, boosting morale and creating a better work environment for everyone.

How to create a vacation policy

Consider these ideas on how to create a vacation policy that works for you and your employees:

Make it appealing

Many people choose not to use their allotted vacation time for several reasons:

  • They feel like they have too much work to complete.
  • They feel like their colleagues will judge them poorly for being absent.
  • They feel like their co-workers won't handle things well while they're gone.
  • The vacation policy you create must make using the time off appealing. The policy must ensure that shifts are covered and work gets done in the employee's absence.

"Although some employers may see vacation time as eating into their profits, it's not the case."

Provide the details

Your vacation policy needs to provide all the details about using time off. This policy needs to include the following:

  • How much time employees can take off every year
  • How much notice the employee needs to give for taking a vacation
  • Whom the employee needs to notify about an upcoming vacation
  • Whether vacation time increases during the individual's tenure
  • Whether vacation time carries over into the following year

The information you provide will depend on the details of your policy, but make sure everything is well-documented so that every employee has the opportunity to take time off.

Encourage time off

In your policy, make it clear that your company encourages employees to take time off during the year. Although some employers may see vacation time as eating into their profits, it's not the case. Employees perform much better when they have a chance to take a vacation. Carving time out for vacation can:

  • Increase mindfulness: Employees are breaking their routines and habits while on vacation. This break allows them to be more mindful and present, even when returning to work.
  • Boost brainpower: A boost in brainpower happens during times when a person's mind is at rest and relaxed. A vacation is perfect for helping employees get new ideas and be more creative.
  • Improve heart health: If you want your employees to enjoy healthier lives, encourage them to take time off. Studies have shown that those who vacation more frequently are less likely to develop health problems like heart disease and other cardiovascular issues.
  • Improve sleep: Many employees feel stressed about work or work late into the night, which can cause them to have trouble sleeping. On vacation, employees can disconnect, helping them to sleep better.

These benefits can ensure your employees perform better throughout the year.

Types of vacation policies

Creating an appealing vacation policy is a good start if you're trying to attract the next generation of workers. Consider some different types of vacation policies and what they offer:

Unlimited vacation

Unlimited vacation time is relatively new, but it can work for you if you do it right. Some companies have found that employees are less likely to take time off with this type of vacation policy. For example, employees contemplating vacation may fear repercussions such as a backlog of work, especially if their managers don't choose to take advantage of their own paid time off. As such, employees may feel they need to put in more work before and after their scheduled vacation to compensate for being out of the office. This stress could dissuade people from using their paid time off.

To address these fears about managing workloads around unlimited paid time off, managers should establish expectations about unlimited vacation time usage. For example, an accounting firm may ask that employees not use vacation time during the busy tax season. Managers can also invite employees scheduled for upcoming vacations to consult with them about the projects they're managing so that they can distribute the workload or reprioritize tasks as needed. 

Mandatory vacation

Having a mandatory vacation policy lets your employees know you want them to leave the workplace once in a while. You can implement this policy by not rolling over some or all of their vacation time so that they have to use it. As a result, every employee will take time off, which helps everyone on your team see that taking vacation time is acceptable.


Not all companies can offer a sabbatical, but it's an excellent way to give more time off to employees who have been at your company long term. With a sabbatical vacation policy, you'll set a time frame, such as four years, for employees to work, after which they'll be allowed to take an extended vacation of several weeks or months. Offering a sabbatical can encourage employees to stay with your company longer. Providing an extended period of leave, either fully paid or partially paid, gives employees something to work toward and a goal to achieve.

Now that you understand the importance of how to create a vacation policy, you can get to work offering something that will give your team members the R&R they deserve.


More tips for creating a great workplace:

Learn more about best practices for onboarding remote employees.

Find out how to conduct an exit interview to effect positive change in your company.

Discover tips for converting hiring event candidates to employees.

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