Unlimited holiday.  The idea grabbed the UK press recently as a result of Richard Branson's announcement that certain employees within the Virgin group would be given the right to take unlimited amounts of holiday.  In principle, this should be an attractive proposition.  After all, what is there to dislike about as much paid holiday as you like, to be taken as and when you like. But is this the reality of unlimited holiday? Below we explore:

  • the origins and concept of unlimited holiday;
  • the difficulties of operating unlimited holiday; and
  • some ideas of how to deal with those difficulties.

Unlimited holiday in theory

The idea of unlimited holiday as a benefit seems to have originated from the US, particularly tech companies in and around Silicon Valley.  Netflix are regularly referred to as the first company to really implement the policy-that-isn't, although there is evidence to suggest other companies operating in these sectors perhaps got there first. The advertised principle is that those employers want to treat their employees as adults, and allow them to take as much holiday as they like provided they get their work done. Numerous employers who operate the scheme describe it as being intended to do away with bureaucracy and treating employees like children. 

It sounds attractive, and does represent a new way of thinking about holiday and leave which is exciting for employers and employees. However, there are issues you should be thinking about when introducing such a policy in order to make it work for you.

Some points to consider

The cultural differences between the US and Europe

The US, where this approach originated, has no statutory minimum level for annual leave (although some states do some have minimum rest requirements).  Annual leave is not seen as an entitlement but a benefit, and unlimited holiday, therefore, must seem like manna from heaven. 

Unlike the US, the UK has an established statutory minimum level of annual leave which creates an automatic entitlement to 5.6 weeks' paid holiday.  European legislation ensures that this approach is followed across Europe (View table showing annual leave laws across Europe) where minimum levels of holiday are guaranteed for employees.

Unlimited holiday turns annual leave from being an automatic entitlement into an additional benefit that an employee has to justify using. In effect, it removes the idea of holiday being a guaranteed right of employees and engenders a complete change in approach to annual leave which is at odds with the underlying principles of EU and UK law. Food for thought if one considers the real differences between the US and European models of labour relations.

Will it encourage employees not to take holiday?

Converting a guaranteed entitlement into a benefit that must be justified by the employee also arguably encourages employees not to take holiday.

Employers who have adopted the approach are pointing to a reduction in holiday days taken as evidence of it causing no reduction in productivity; general consensus seems to be that at those employers who offer unlimited holiday, the number of days' annual leave taken on average is 16 per employee annually. 

And is this surprising, particularly in a post-recession (or mid-recession, depending on developments and your viewpoint) economy?  Without wanting to pick unfairly on Mr Branson, his press statement (despite numerous statements promoting the policy) contains a warning:

"It is left to the employee alone to decide if and when he or she feels like taking a few hours, a day, a week or a month off, the assumption being that they are only going to do it when they feel a hundred percent comfortable that they and their team are up to date on every project and that their absence will not in any way damage the business – or, for that matter, their careers!"

Whilst no doubt this was well-intentioned, written down this looks menacing particularly in today's climate of job insecurity.  When, on this basis, can an employee take holiday?  It is a very rare, and extremely lucky, employee whose pre-booked holiday naturally coincides with a week or two-week cessation in all work of any kind, completion of all projects and where absolutely no snags or queries arise during their absence from the office.  Furthermore, it is a brave employee who asserts that they are a hundred percent comfortable that they and their team are up to date on every project and that their absence will not in any way damage the business – or, for that matter, their careers. 

The European courts have been quick to reinforce the approach across Europe that not only are employees entitled to a minimum annual leave allowance, but that they should not be inhibited from taking it. This is inherent in the underlying European Working Time Directive, which has been reinforced in recent decisions relating to holiday at both EU and national level.

Please read more below from previous editions of Law at Work: 

The danger with unlimited holiday is that it runs the risk of putting the employer in breach of its obligations under the Working Time Regulations as employees may not take the holiday to which they are entitled, and the employer also runs the risk of being accused of deterring employees from taking holiday.

Does it solve the issues you want it to?

A number of companies who have adopted the unlimited holiday approach have asserted that it is intended to stop tracking and counting annual leave days taken and to change the focus on "face time" and presentee-ism.

Whilst that is commendable, it is unclear how an unlimited holiday approach actually helps here.  It is just as arguable that unlimited holiday encourages such behaviour – employees would no longer have a guaranteed right to take a set amount of holiday, and instead have to justify taking holiday.  How do they do this?  A better approach might be to tackle the culture of presentee-ism in a more direct manner, such as actually focusing on what people get done rather than the hours worked.

How will this work with the demands of a business?

On a practical note holiday taken will still need to be tracked, if not counted, because employers will still have to cover work and manage employees so that the business can run.  It is difficult to see how this might work in practice with a workforce as it is presumably likely that if a particular project is completed or a certain department is quiet, a significant number of employees may take holiday at the same time leaving no-one to cover or seek out new work.

How does it interplay with sick leave and long term absentees?

In theory, employees could take an unending amount of paid leave, followed by sick leave, and there is a danger of blurring of the lines between sick leave and annual leave, particularly where sick pay is set at statutory level or capped.  This may difficult to manage and could leave employers with concerns in relation to disability discrimination – how would you discipline an employee with Type 2 diabetes who takes what you consider to be unreasonable amounts of paid holiday but who you suspect is treating sick days as holiday days because of the pay difference.

Business decisions: where does unlimited holiday come in?

What happens in a redundancy situation?  Do employers take into account the number of days' annual leave taken as one of the criteria for selection, for example, and is it likely that employees will consider this to be the case even if not? Unlimited holiday and the change in approach it entails arguably makes this more likely to happen, and it may be difficult for employers to reassure employees on this point, which again makes it more likely employees will not take annual leave.

Likewise, what happens where there are performance issues?  Unlimited holiday makes it difficult to discipline employees where high levels of leave are taken, as it leaves the employer without a clear breach to point to. How does an employer judge what is excessive?  How much does an employer have to take family commitments into account, bearing in mind the risk of discrimination, for example.

So, given all the concerns, why would employers do this and how can they make it work?

The advantages of an unlimited holiday policy are clear:

  • it sounds attractive;
  • it suggests a relationship of trust between employee and employer;
  • it could improve productivity and act as greater motivation for employees who they are being rewarded for their output and productivity, rather than hours worked;
  • it does not appear (on recent statistics) to diminish productivity;
  • it could mean less paperwork;
  • it may remove admin and issues around holiday carry over; and
  • ultimately, such a policy may better serve the needs of the business.

In short, employees get the freedom to choose when and how they take annual leave, and employers get a motivated workforce that only takes holiday when it best suits the business.

And it can work, if the underlying business approach and commitment is in-line with EU and UK law, i.e. to encourage employees to work hard and to rest.  These are some points to consider if you are thinking about introducing an unlimited holiday policy-that-isn't:

Business needs: If you are genuinely considering a completely unlimited holiday policy, think about how you are going to make this work in practice, how you are going to meet the needs of the business and when you might need to control, reject or require employees to take holiday. Consider how you might build in some checks whilst maintaining the essence of unlimited holiday – you could offer employees time in lieu where you have to require them to work, for example.  You may also need to think about what work you are taking on and who you allocate to which projects in the context of annual leave.

Framing: If you want employees to take holiday but do not want it to be seen as a free-for-all, think about how you are going to frame this and explain your approach to employees. A policy is likely to still be needed in order to explain the company's ethos and approach because aside from managing such a policy, in the event of abuse you will need something to be able to point to in order to demonstrate (particularly to a tribunal) that an employee has acted inappropriately.

Working time requirements: A hybrid approach is often the best way to make this work in practice in the UK, i.e. employers offer the statutory minimum 28 days, and unlimited holiday on top of this. This at least helps to avoid breaches of the Working Time Regulations and arguably does not inhibit employees taking annual leave.  It can also make the unlimited holiday portion appear a genuine benefit.

Changing culture: The impact of an unlimited holiday policy is usually heavily influenced by the ethos of the company. If you are attempting to eradicate a "face-time" culture, or trying to combat a culture of persistent absence, think about the wider context and other solutions you can use in conjunction to make changes.

Administrative burden: Think about ways you can reduce the administrative burden, as this policy could be a great opportunity to do so.  In order to better manage holiday, most employers seem to still insist on employees formally notifying the employer in some way of their intention to take holiday, and the dates of that proposed holiday. Often a distinction is drawn between the 28 days statutory holiday (to be notified and logged in the usual way), and additional unlimited holiday (to be taken at the employer's discretion and/or notified to the employer). If you are going to do this, consider how you will track annual leave and whether this will need two systems.

Discipline: Provisions should be built into the holiday and termination provisions of a contract allowing an employer to discipline employees where it suspects or believes employees are abusing the unlimited holiday policy, as much for deterrent purposes as for practical reasons; if employees are abusing the policy, you want to be able to do something about it. Think about how and what you consider to be excessive amounts of leave.

Workaholics: You should also consider how you will deal with employees who do not, for a variety of reasons, want to take holiday or feel deterred or inhibited from doing so. This policy could be a workaholic's dream, and you do not want to be in the position of being in breach of working time requirements without being able to do anything about it. Monitoring annual leave from this perspective will give you the information to manage this risk.

Business decisions: You should be thinking about whether you would take the number of holiday days taken into account on a redundancy, whether you would consider this in performance reviews, and whether (and how) you would make allowances for employees with family commitments. Think about how employees may react, if for example you are seen to allow working parents more leeway; there may be a concern around discrimination if you are seen to be deterring working parents, particularly newly-returned mothers and adopters, from taking annual leave. In a redundancy situation, it would be risky to include holiday absence as one of your selection criteria.

Immigration: There are also likely to be implications for the employer where the employee concerned is a sponsored migrant, as visa requirements include working time obligations.  You should considering these carefully and making sure that any holiday provisions do not inadvertently lead the employer (or employee) to breach its immigration obligations. If you restrict sponsored migrants but not others, do be aware of the risk of discrimination this is likely to entail.