September 24, 2023
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Vacations good for employees and employers


Jonathan Fraser Light

By Jonathan Fraser Light

As we near Labor Day, it is important to remember that vacations for employees are a good idea.

We all need to re-charge our batteries. Western Europe has it figured it out; employees receive several weeks off a year and companies don’t even bother to try to get much commerce done in August since most of the workforce is on vacation.

Unfortunately, U.S. businesses are notoriously stingy when it comes to time off. Even when employers offer generous time-off benefits, many of those benefits go unused. One study, by Samuel Adams (the beer folks), estimated that in 2016 Americans did not take 662 million vacation days to which they were entitled. Los Angeles was No. 4 on the list of underused vacation cities (Washington D.C. was No. 1; a little stressed out in D.C., I’m guessing). Another study found that 59 percent of managers and 53 percent of all employees don’t use all their vacation each year.

Worker burnout is a problem, so employers should consider being more vigilant about insisting that employees use their vacation time. It’s not only good for employees but it’s in the employer’s best interest. Although California allows a cap on vacation accrual, all vacation is assigned a dollar amount and must be paid out at separation from employment (unlike many states that allow “use it or lose it” policies).

For those employers who lump vacation and sick time together as Paid Time Off (PTO), the same accrual, cap and payout rules apply. By keeping the vacation and sick time separate, however, an employer doesn’t have to pay out unused sick time when an employee leaves.

Some employers don’t bother accruing vacation days for senior level employees. At our firm, the executive director and all attorneys take time off, with pay, when they want. A few of our clients have adopted this same strategy for their senior executives and it seems to work well. Some larger employers in the Silicon Valley offer this program for all employees in their workforce. From a pragmatic perspective, there is no accrual to pay off at separation.

This can save companies in the end since those workers who have accrued PTO or vacation time tend to have higher salaries and thus a bigger cash payout at separation.

I’m not aware of comprehensive studies, but there’s some thought that employees actually take less vacation when there’s no tracking — either out of guilt, peer pressure or management pressure. If an employer implements a “no accrual” system for some or all employees, the employer should ensure that employees are indeed taking a reasonable amount of vacation.

One 10-worker employer instituted a forced one week of vacation every eight weeks for each employee. Everyone in the office knows the schedule and manages their workload to accommodate their individual time off. The company found that its workers were more efficient in their compressed time frames and morale was excellent. Another option is to add a single two-week vacation block in the mix and stretch the gap to 16 weeks so workers can take longer vacations if they choose.

Having a lot of employee vacation accrued on its books is a contingent liability that can affect a company’s credit availability. Some employers have become creative to solve the accrual problem — by allowing a PTO “exchange,” in which employees may trade PTO (or vacation days) for additional contributions to their 401(k), make vacation-day donations to employees in need of extra paid time for illness, add money toward college tuition or make donations to a favorite charity. Other companies permit employees to cash out some of their vacation days, usually in December when bills and expenses seem to pile up, as long as they leave a certain portion of their vacation time intact.

It’s clear that taking steps to ensure employees use their vacation days or PTO is good for employees and employers. Increased morale and increased productivity are only two of the likely benefits when employers provide a fair, flexible time-off program that employees can use to the fullest.

• Jonathan Fraser Light is the managing attorney at LightGabler in Camarillo. He can be reached at