With higher operating costs, some businesses have eliminated benefits such as a vacation policy. However, businesses should strive to keep as many of these benefits as they possibly can. Employee productivity directly relates to how secure they feel, and your employees especially want their hard work and dedication to be acknowledged and rewarded. Vacation benefits allow employees to feel that if they have an emergency at home or just need a rest to recharge their batteries, that they can take vacation time off without fear of recrimination. Employees also feel appreciated when they get paid time off. Adopting a vacation policy makes good business sense.

Businesses do have much latitude in what type of vacation policy to offer. Standard vacation options include offering a fixed number of vacation days per years worked, cashing out un-used vacation and offering different numbers of vacation days depending on job classification. Businesses can provide such benefits without creating a financial burden on the company.

Consider implementing a vacation standard:

1. Study laws and standards pertaining to vacation benefits.

2. Consider options such as vacation time pay and vacation perks for employees.

3. Develop a plan for implementing your own vacation policy. 4. Provide each employee with a handbook that outlines company policies and benefits – then stick to the policy you establish.

Action Steps
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Explore vacation policy standards to see what limitations and obligations you have to your employees

In general, federal and state laws do not require businesses to offer vacation leave or vacation pay. However, certain circumstances do warrant some type of paid leave. And when companies do offer vacation practices state laws enforce company's policies in cases of claims by employees.

I recommend: The U.S. Department of Labor does not require businesses to offer vacation leave to their employers. However, their website describes certain cases with federal contracts with private business in which the company must provide vacation pay. Cornell University Law School compiles links to each state's labor and industry laws. Similar to federal law, many states also do not require a business to offer a vacation policy. This website provides quick links to check the laws in your state.

Evaluate available tools to set a vacation policy for your company

Many companies specialize in helping others to operate a successful business. Some provide templates for you to document your policy statement. Others provide services to help you initiate a workable vacation solution.

I recommend: Inc.com provides a free sample vacation policy template from which you can build your own. Key Organization Systems explains possible consequences on your employees of vacation deprivation. gNeil provides tools to manage and motivate people. This sample vacation strategy gives options for setting your vacation policy.

Implement a standard vacation policy within your company

Establish the policy through your human resources department and designate personnel inside your company to administer the policy. Document the policy in an official policy statement. Establish a process for interpreting the policy consistently and putting it into effect. The most important human resource management function is to provide each employee with a written employee handbook, or at least the company's vacation policy. Include information on issues that might arise, including unused vacation, vacation perks, vacation pay, length of vacation, any attendance requirements and accrual policy. Adhere diligently to the policy so your employees have no reason to file a grievance or create dissension within your workforce.

I recommend: Verizon Small Business Center sells a sample vacation policy. You can view part of the policy on its web site or purchase the complete template. Business Owner's Toolkit provides sample vacation policies after becoming a free Toolkit member. KnowledgeLeader offers a 30-day free trial membership to tools and publications, including policies and procedures related to vacation and other HR topics. Consider using the Vacations Policy Writing Kits from Personnel Policy Service to create your employee vacation policy.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  If businesses choose to offer vacation time, enforcement of the vacation policy can become a legal issue. For example, if an employee takes a day off, expecting payment and doesn't get it, that employee can take legal action to ensure the company follows its own policy. Because of this, it becomes very important for your business to have its policy in writing.

Entrepreneurs in startup mode have a reputation for working around the clock. Although the notion of a little R&R may seem foreign to you, your employees deserve-and want-a break. A well-planned and clearly communicated vacation policy:

1. Keeps your workforce energized and motivated.
2. Improves productivity.
3. Prevents unpleasant surprises like understaffing or faux-sick days.
4. Allows you to compete for better talent.

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Count the days

The federal government doesn't require you to offer any paid days off. However, more than three-quarters of American workers get paid vacation days, and you'll have trouble attracting good talent without a policy.

I recommend: Get the facts on your legal obligations at the U.S. Department of Labor's Web site. Expedia.com's annual Vacation Deprivation study shows that the average American received 14 vacation days. For more complete information, Payscale.com breaks out average vacation days by more than a dozen criteria, including age and industry.

Use advance notification, blackout dates and other limitations

If all your workers take vacation at the same time, your business could come to a standstill. Prevent this from happening by requiring a certain amount of advance notice, and/or by establishing certain peak business dates as off-limits for vacation. Any limitations to the vacation policy need to be stated clearly in your employee handbook.

I recommend: Download a sample employee handbook template from the EmployeeHandbookStore.com and find vacation forms at HRDirect.com. Discover several useful strategies for maintaining business continuity while key staff members are on vacation at About.com.

Consider instituting a

More companies are replacing the traditional vacation, sick and personal days with 'Paid Time Off,' which lumps all categories into one bank of paid days. The idea is to keep employees from surprising employers by calling in 'sick' in order to take a weekend trip.

I recommend: Salary.com takes a look at paid time off policies. Review some of the pros and cons of this approach at Monster.com.

Increase vacation time with length of employment

Though you should adopt a vacation policy that gives workers equal access to time off, length of employment is the one criterion that employers generally use to create progressive tiers of vacation time.

I recommend: The Bureau of Labor Statistics has an online chart (dated, but still reliable) of the average number of vacation days for U.S. workers at differing tenures.

Set policy for unused vacation days

It's up to you whether to let employees accrue vacation days by carrying over unused days into the next year. Some states require that you compensate employees for unused sick days when they quit or are terminated.

I recommend: Nolo.com addresses this in its useful guide to Providing Vacation and Sick Leave. You can research your state its State Laws page.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Sabbaticals aren't just for academics. You may find it worthwhile to give veteran employees the chance to recharge by taking an extended leave.
• •  Offer employees additional time off for qualifying volunteer projects.
• •  Reports show that one-third of American workers are chronically overworked. That leads to burn-out and consequently poor performance or quitting.

While business owners have taken some comfort in knowing that neither federal nor state law requires them to pay their employees' vacation time, they should also understand that any vacation policy they decide to adopt must comply with labor laws at both the federal and state levels. For example, if you initiate an HR policy that promises to pay employees for vacation time, the state will not allow you to back down from that commitment.

The Internet sources that get you up to speed on knowing vacation policy laws and regulations include the following:

1. Access state laws that impact a company's vacation policy.

2. Consider how legal experts interpret state vacation policy laws and regulations.

3. Find out the standards that other businesses are following as they write their employee vacation policy.

Action Steps
The best contacts and resources to help you get it done

Know where to find state labor laws that ultimately affect your company's vacation policy

Find out if your state requires you to offer vacation pay and how your company's vacation policy must explain 'earned vacation' time.

I recommend: The California Department of Industrial Relations explains state law regarding earned vacation time. Minnesota employment law firm Fredrickson & Byron explains the legal significance of clearly stating your company's vacation policy. Business Management Daily publishes articles relating to regulations in North Carolina about vacation benefits. Commentaries on the Labor Law Center Blog explain changes to federal regulations that, in turn, impact state laws pertaining to employee vacation pay.

Use employment law sources to discover vacation policy regulations employers must know

Read how legal experts interpret state labor laws and whether they require you to pay vacation time for employees working part-time, or if you are allowed to limit the number of vacation weeks employees may carry over from one year to the next.

I recommend: Legal Zoom.com explains why employers must know about their state's labor laws on employee vacations. Check out answers to the questions about vacation policies that employers pose on Law Guru. At All Experts.com, employment law experts interpret state regulations as they impact an employer's vacation policies. Read posts on Above The Law that explain changes to vacation policies that do not violate state laws.

Read the standards HR professionals are following as they draft vacation policy

As you consider the kind of vacation policy your company is going to follow, it might help to see how other businesses are writing vacation policy that does not conflict with state laws and regulations.

I recommend: Use the Employment Law Information Network and HR Village as dependable sources of actual HR vacation policies that fully comply with state laws. Commentaries at Human Resource Blog explain whether your company is legally permitted to change employee vacation policies unilaterally. Read articles on Business Week that explain a new procedure some HR departments are adopting for their firm's vacation policies.

When it comes to the benefits that today's employees have come to expect from their employers, a vacation policy is right up there with medical coverage. Companies with a standard vacation policy are sending the right message. They're showing employees they understand that everyone needs a day off sometimes, whether for personal reasons or just to recharge. If you don't offer a vacation policy, you're at a distinct disadvantage when it comes to attracting top performers. Know vacation policy key terms to get some insight into this popular employee benefit.

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Fair Labor Standards Act

The Fair Labor Standards Act, also known as the FLSA, is a federal law providing minimum wage and overtime pay standards for government and private sector employees. Whether the federal government requires private businesses to pay vacation time has been an issue of ongoing concern among companies in the United States.

I recommend: Go to the US Department of Labor page to find out whether and how the FLSA impacts a company's vacation policy.

Vacation deprivation

Vacation deprivation is a term that describes a distinctly American habit. Studies show that many workers in the United States do not use all of their earned vacation time and that they take fewer vacations than their counterparts abroad.

I recommend: Key Organization explains the causes and results of vacation deprivation among United States workers. For example, find out how financial considerations play a role in employees' vacation plans and how the fast lifestyle in the United States contributes to vacation deprivation. You'll also learn how vacation deprivation can lead to more stress and actually reduce worker productivity.

Vacation pay

Vacation pay is any amount paid to employees while they are on vacation. Vacation pay is a concern of businesses that allow employees to take their vacation in daily increments.

I recommend: Business Owner's Toolkit offers a case study that suggests how you might handle payroll for employees who take part of their vacation during one week and work straight time during the rest of the week. You'll also learn a formula for determining wages in situations like these.

Unpaid vacation time

The issue of unpaid vacation time refers to an employer's policy on whether it reimburses employees who did not take all of their earned vacation over a given time period.

I recommend: The State of California's Department of Industrial Relations offers some helpful insight into this key issue. Find out how, in some states, an employer's written vacation policy is used to determine whether it must provide unpaid vacation time. Consider how California law's definition of vacation time as wages plays a role in determining an employer's responsibility to pay.

Vacation accrual

Most company vacation policies include a clause about vacation accrual, the method by which they determine how employees accumulate vacation time.

I recommend: BLR offers a standard method for determining the number of vacation days employees accrue in one year. It also discusses the decision by some companies to require employees work a certain amount of time before that accrual begins.

Vacation pay at termination

Just one of the issues employers must consider when they terminate an employee is whether state law requires them to reimburse workers for vacation pay.

I recommend: My Employment Lawyer, a service offered through Fortney & Klingshirn, discusses Ohio law as an example of state laws that speak to this issue. Find out the circumstances under which some state courts may award a terminated employee compensation for unused vacation pay. You'll also find out why lawyers suggest that businesses address this specific issue in their employee handbooks.