11 Jul 2023
by Emma Gray

Unlimited holiday – a modern benefit or a step too far?

With heightened competition for skilled workers and tech employers seeking to differentiate their benefits package, some are considering rolling-out unlimited holiday to staff. Are the upsides worth the downsides?

The Upsides

The employee upsides to unlimited holiday seem straightforward. Are there also potential employer benefits?

Offering this benefit may allow an employer to distinguish its benefits package from its competitors.

It is (potentially) a substantial, generous and morale-boosting benefit. It may demonstrate that the company values its employees, trusting them to make sensible decisions about when, and how much, holiday they take. It provides flexibility to employees without requiring formal flexible working requests.

It could (potentially) reduce administration. However, in the UK (and other jurisdictions with statutory holiday entitlements), the overlay of the Working Time Regulations 1998 and complex case law interpreting them limits this advantage.

The Downsides

There is complexity to what appears, on the face of it, to be a simple offering. Press reports suggest it took the leading tech company in this area years to perfect its policy. Employers need to be prepared to adjust the arrangements over time and this may not be the benefit to introduce if a quick roll-out is needed. What are the key issues here?

There is scope for abuse, particularly by less-committed employees. Holiday therefore requires monitoring, limitations and employer controls. This may negate some of the potential advantages e.g. reduced administration.

There is a risk of under-staffing at business-critical times. Employers should retain power to decline requests.

There is potential for perceived unfairness. If those who take less holiday have to cover for those who take more, this could generate resentment between staff.

There are certain discrimination risks e.g. younger workers, who feel less able to take  holiday in order to progress their careers. And statutory requirements on roll-over need to be considered to avoid discrimination claims from employees on maternity leave.

Unlimited holiday removes an employer’s ability to grant additional leave as an incentive.

Anecdotal evidence suggests employees actually take less holiday where it is unlimited. Employers need to ensure that employees have the opportunity to, and are encouraged to, take statutory minimum leave to comply with working time and health and safety duties. Culture may affect the extent to which holiday is taken - those in leadership roles should demonstrate proper use of the benefit.

Roll-out considerations

Non-contractual policies with express amendment powers for the employer are easier to reverse/amend than changes to employment contracts. Employers could also introduce this on a temporary basis initially, with an unfettered right to withdraw.

Even if a policy is used, check employment contracts and existing holiday policy to ensure they don’t cut-across what is proposed.

Introducing the policy mid-year may pose complications. This is a benefit best rolled out at the commencement of a holiday year.

Stakeholder considerations

How would this be justified to shareholders/investors/key stakeholders? If the company is seeking to raise capital or has a traditional shareholder base, for instance, this type of policy could raise concerns as it may be perceived as difficult to control.

Trade unions and other employee representative bodies may need to be informed/consulted before roll-out – collective agreements, terms of reference and any statutory overlay should be factored into the process. 

Quoted companies need to consider if this would work for senior staff with regard to their Director’s Remuneration Policy.

The policy

Controls are essential – e.g. holiday requests to be subject to company sign-off, maximum blocks of leave (e.g. to stop people taking the full school holidays off), restrictions on holiday being used to effect part-time work (e.g. taking every Friday off), and monitoring of leave taken.

How will productivity be reviewed to ensure there is no impact?

The policy should be clear on accruals and roll-over, since allowing entitlements to build up in perpetuity could pose problems (e.g. pay-out of accruals on termination).

How will competing requests be managed? Employers need the right to reject requests, with notice being required from employees before leave is taken.

Employers should consider staff categories – does the benefit extend to workers or just employees?

International angle

Multi-jurisdictional businesses should take international legal advice before introducing this benefit on a global scale and consider whether one global policy is possible if that is the preferred approach. This benefit is likely to be easier to introduce in some jurisdictions, such as the US, than in others.

Check out the Linklaters Knowledge Hub for more insights.