Unlimited paid holiday is not a new concept but why would employers offer such a benefit? Alison Downie, partner at Goodman Derrick LLP, and Sinead O’Brien, trainee solicitor at the London law firm, investigate the scheme and consider how successful it has been.

First appearing in the US in the 1990s, unlimited paid holiday grew particularly in Silicone Valley amongst tech companies.

It travelled across the pond a few years ago. Virgin adopted it in 2014 and more UK companies followed.

Legally, UK employees are entitled to a minimum of 5.6 weeks or 28 days of holiday each year (full time) – an employer can include bank holidays as part of this entitlement. By contrast, unlimited paid holiday allows an employee to take paid annual holiday whenever they wish to do so each year with no limit.

 So why would an employer offer such a generous scheme? 

The original rationale was that far from exposing companies to extra spending with reduced output, it would help employees maintain a good work life balance and reduce over-work and stress. Indeed, many companies had found that employees were taking less holiday than their legal allowance. This was not good for general wellbeing and also affected the bottom line – companies had to pay for any untaken holiday each year end.

Giving employees control over their holidays would lead to happier employees, in turn resulting in greater productivity and increased profits. It could also help to attract the best talent.

What happened?

Early evidence showed giving enhanced responsibility and trust, which employees enjoyed, did not lead to employees abusing the new right by taking extra weeks off work. So a ‘unlimited paid holiday’ policy seemed like a win-win situation for companies and employees alike.

However, we are now at a crossroads. With more UK companies now offering unlimited paid holiday, more evidence has built up as to how effective such a policy really is.

On the face of it, the evidence is quite surprising and suggests that the continued increase in take-up – and the possibility of tech companies being in the forefront of this – is on the wane.

Among others, Charlie HR, the provider of HR software, recently cancelled its unlimited paid holiday scheme which had been running for three years. The reasons for this are clear and explain why such a policy may not be attractive to tech companies for which the well-being and morale of their key employees is crucial.

Charlie HR found:

  • Its high performers still continue to perform highly and they continued to take less holiday per year, only 21-22 days on average.
  • Giving people a fixed number of days holiday meant they owned them and so took them. The reverse happened with unlimited holiday. Plus it caused employee anxiety about not knowing an acceptable holiday limit.
  • The scheme was hard to implement. Some jobs won’t work with it but it is unfair to offer it to some and not all employees.
  • Work life balance became uneven. If an employee took an extended holiday then preparing for it and returning to work caused greater stress.

In reality it found the scheme was very limited in scope and had adverse effects.

Future guidelines

So whether many schemes will still be in place in, say, three years’ time is now uncertain, although the biggest UK companies are likely to continue with the policy.

Tech company take-up may continue for one reason – the huge demand from those seeking jobs in that sector which offer it. (Joblift analysis shows a 26% increase in demand per month.) It could be the answer to recruitment problems which may hit tech companies more in the future.

While the success of an unlimited paid holiday policy is open to debate, it is clear that any business seeking to implement such a scheme must provide the workforce with clear guidelines within an HR policy. These should include:

  • Requiring 2-4 weeks advance notice and formal line manager approval.
  • Use up statutory paid leave first.
  • Not be used in place of sick leave.
  • Monitoring to ensure employees are taking the legal minimum of 28 days each year
  • Leading from the top – praising employees taking it to minimise junior employees’ anxiety about it.
  • Set boundaries to remove uncertainty on amounts.
  • Reviewing the scheme after 2-3 years.