How to Create a Good Vacation Policy for your Business

2 years ago

Vacation leave is the most commonly offered leave benefit. It is generally used for time away from work for rest, relaxation, travel, handling personal matters, and other planned reasons. Vacation leave is typically scheduled in advance, although some employers allow employees to use vacation time for unexpected absences.

The Importance of a Good Vacation Policy

Complying with employee vacation rights is, of course, a smart place to start. However, this isn't enough to develop a vacation policy that benefits both you and your employees. The goal is to be able to use your own cursor to track the amount of time your colleagues require to recharge their batteries, ensuring a harmonious and productive work environment for all. Employees who are overworked, overtired, and do not have adequate free time - even for a long weekend - are more likely to overwork and burn out. As a result, not only does this increase the risk of absenteeism and sick days, but it also increases the time it takes to recover.

A paid leave policy lets you:

Reduce absenteeism: One way to combat the persistent problem of absenteeism is to establish a sick leave policy. Many organizations have success with setting up a paid time off policy in which hours of paid vacation time are accrued as an employee works.

Recruit and keep talented workers: Leave policies that assist employees in balancing their professional and personal life, particularly for important events like as the birth of a child or caring for a sick relative, help your organization recruit and retain exceptional personnel.

Increase productivity: While many small businesses owners fear that paid leave policies are too costly to manage, studies of workplaces with mandatory paid leave policies have consistently shown that most businesses do not suffer financially, but actually see positive results.

Vacation pay

Vacation will be paid at the employee’s base rate at the time the leave is taken. Vacation pay does not include overtime or any special forms of compensation such as incentives, commissions, bonuses, or shift differentials. If a holiday falls during the employee’s vacation, the day will be charged to holiday pay, if applicable, rather than to vacation pay.

PTO vs. Vacation Time

The essential difference between the two is that PTO covers any paid time away from work where the employee is not working; in contrast, vacation time refers to paid time off that’s taken for the employee to take a break with or without their family. It’s generally requested (and approved) in advance. In this regard, vacation is really just a type of PTO, but paid time off may not necessarily refer to vacation.

(Sick time, personal time, mental health cays, holiday pay, and jury duty are examples of non-vacation paid time off.)

Some Issues to Consider When Drafting Your Policy:

How much time. Employees earn so much paid vacation per work period. For example, a two-week-a-year vacation would accrue at .833 days per month worked. In many companies, regular full-time employees accrue one day of paid annual leave at the end of each month after the first six months of employment. Exceptions: Time spent on leaves of absence for jury duty, military service or extended illness usually does not count for vacation accrual.

Eligibility. At what point does the employee become eligible to take a vacation, i.e., after six months or one year of employment?

Requesting vacation time. How far in advance should employees schedule a vacation, and to whom do they make such requests? How much time may be taken at one stretch? Normally, employees with seniority will get priority when vacation requests conflict. Also, make sure your policy states that the company’s needs take priority, so vacations may need to be rescheduled or requests denied.

Unused vacation time. Can employees receive pay in lieu of vacation? At what point do they lose accrued vacation time, or may it be carried over from one calendar year to the next? Many companies insist that employees use accrued vacation within a certain period or lose it.

Inform Each Employee of the Rules of the Game

The house rules must be known to everyone, especially recent arrivals. Do you require a minimum workforce in August? Do you impose holidays in December during the closure of the site? Let new hires know and put these rules in writing. Then empower the team by asking them to manage the planning themselves and to prioritize taking time off during periods of reduced activity. Only intervene as a last resort, to render an arbitration. Unless there are collective agreements or contrary practices, priority is given to parents of school-going children (during school vacation periods), to employees with the most seniority, and to multi-employer employees. In the event of increased activity or absence due to the illness of an employee, an adaptation effort may be requested. In principle, from the start, that you will do your best to ensure that everyone is a winner. And, above all, set an example by imposing the same constraints on yourself.

Sample policies

Vacation Time Policy Sample:

You are eligible to receive paid time off if you are a regular, full-time employee who is scheduled to work a minimum of __ hours per week. Part-time employees who work more than _____ hours per week can accumulate paid time off on a pro-rated basis.

Vacation Accrual The amount of paid time off that you can accrue each year is based on the full-time employee accrual schedule below. Paid time off cannot be accrued during a leave of absence or suspension.

Vacation Accrual Schedule

Years of Service | Days Accrued | Hours Accrued | Max.Annual Accrual ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ______

Accrual Limit You may carry over unused paid time off from one year to the next. However, there is a cap on how much time can be carried over. Carryover paid time off is limited to _____ times your annual paid time off limit.

Termination In the event that your employment is terminated for any reason, you will be paid for any unused vacation time.

Managing Vacation Time

It is your responsibility to manage your paid time off and plan for it in advance. This means that you should consider when you will take a vacation or take days off for personal business. Remember, it is in your best interest to keep some days in reserve in case of unexpected events.

Minimum vacation time Increments The smallest increment that you can take is [hour, half-day, one day].


All employees must provide their respective supervisors with reasonable notice of their intention to take time off and must have their requests formally approved for scheduling purposes. Emergency circumstances may make advanced notice impossible. In the event of illness or emergency, speak to your supervisor as soon as possible.

Records It is your responsibility to complete an absence report for any paid time off that you use. We are required to track all absences for legal and compliance purposes. These reports will also be used to record your remaining amount of paid time off on your pay stub.

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