Unlimited vs Allocated Annual Leave

Unlimited Annual Leave

What started off as somewhat of a fad in Silicon Valley, is now becoming more and more widespread across the board. But how exactly does unlimited annual leave work, and how does it work from the point of view of both the employer and the employee? Some people may be of the opinion that unlimited annual leave is simply too good to be true, and that it is more a PR stunt than a solid HR initiative. First and foremost, what’s in it for employing companies that makes this initiative worthwhile?

In general, the attitudes of companies offering unlimited annual leave are they feel it will boost employee engagement and also help with talent attraction and retention within the organisation. It has been a major success in Australia for example, where ‘’Unlimited leave is working so well, some companies are offering it fully paid’’. In fact, Australian company Inventium found that when they introduced unlimited annual leave within their business, employees did not abuse it - in fact, the average amount of leave taken after one year was 24 days, and after two was 27.

This would give the general outlook that while employees will take what they need (which was clearly somewhat more than the standard 4 weeks offered in Australia), they are not abusing such unlimited leave policies. Other companies there, including eHarmony, Hawker Britton and Student Flights have also implemented similar policies and the number of days actually taken still remains small. 

 However, the response to unlimited annual leave hasn’t been wholly positive, with some employees reporting that what’s on offer isn’t always what it seems. For example, according to an article by The Guardian unlimited annual leave packages are generally limited to a select number of workplaces, generally within technology and professional services sectors. The article also goes on to describe such workplaces as ‘’demanding’’ and ‘’all-consuming’’, which means that employees often don’t feel comfortable with taking time off. If it is a highly competitive environment, then again this will put employees off taking annual leave, as if they are at risk of losing out on a promotion, bonus or placement then they are less likely to take that leave for fear of missing out. Another interesting point worth mentioning is that businesses who implement unlimited annual leave don’t necessarily have to pay back days they would generally owe to employees. Therefore, when employees finish up, they won’t be compensated for unused annual leave. 

However, it has failed to be proven if this is actually the case. In fact, it seems that when this benefit is on offer to people, often people do not take full advantage of it or utilise it much at all. Unfortunately in certain cases, employees are made to feel guilty for making use of their unlimited annual leave and taking more time off than is the norm. A survey carried out by IrishJobs.ie in 2017 revealed that 2% (of those surveyed) were offered unlimited annual leave.      

Annual Leave Allowance

Our recent Working Hours Report delivered some interesting insights on respondents attitudes to annual leave on the market at the moment. For example, in terms of variations across the various sectors, we can see that there are some differences in regards to annual leave when it comes to gender. We can see that while the majority of professionals (60%) use all of their allocated annual leave per year, the results were slightly higher overall when it comes to the female population (at 63% in comparison to 56% of their male counterparts). 

As mentioned with the above, there are certain advantages and disadvantages associated with the average allocated annual leave as there is with unlimited. Examples of positive factors associated with this approach include employees being able to take time off of their choice, there is flexibility available to employees which they will appreciate when they actually need it, it helps with employee attraction and can help set you apart from your competitors depending on how many days they offer etc. Certain disadvantages associated with paid allocated time off can include employers therefore offering employees less annual leave than they once did before, new employees requiring a long period of time to build up a substantial amount of annual leave, employees ensuring they use all of this annual leave as it is paid, whereas they may not have beforehand.

In order to make the most of such an initiative, employers must implement such practices as the following; ensure flexibility is within their company culture, establish clear T’s and C’s around the programme in advance, ensure that employees know how best to make use of your annual leave policy and that it is managed correctly so that both parties know what to expect. 

Is there a middle ground between the two?

Purchased Annual Leave

Another option to consider is the ability to purchase additional days. Again referring to the survey by IrishJobs.ie, 37% of employees surveyed responded that they have the option available to them to purchase additional annual leave from their employer, which usually entitles them to a maximum of 30 days per annum if they wish to purchase. The purpose of these purchasing schemes is to provide employees with flexibility in regards to planned time off work. In general the additional annual leave after the mandatory amount is unpaid, with the cost being deducted from the employees salary over the working year, at a reduced rate which reflects the unpaid leave. Of course, this is not always the case in purchase schemes and the terms and conditions of such can vary from business to business. 

Otherwise referred to ‘’Salary Sacrifice’’ schemes, the ability to purchase annual leave has received mixed reviews among both employers and employees as there are certain pros and cons associated with it. Positive factors associated with it include that it’s cost-effective, helps encourage employee engagement and retention and demonstrates an employers commitment to meeting employee wellbeing requirements. However, some negative factors associated with it include additional administration requirements, liability for an employer when an employee leaves and impact of a lower overall salary on pension contributions, etc. 

Overall, as we can see from the above - annual leave is a varied topic which divides opinion and which there are a number of different avenues surrounding. While it has always been a popular issue to discuss, in recent years, with various advancements and trends in relation to this evolving and changing, annual leave is a topical issue more than ever before.