Use It Or Lose It – A Good Time Off Policy?

Not every company chooses to put a cap on time off  since not everyone considers rollover a problem. But for those companies that do, there are a couple of ways in which to cap it. One of those is by zeroing out time off balances at the end of the year. This is called a use it or lose it time off policy. Employers don’t always realize it but this type of policy can cause conflicts in work flow and employee engagement.

What Is a Use It Or Lose It Time Off Policy?

Some employers want to put a cap on how much time off employees can earn. They don’t want their employees earning unlimited amounts of time off so they put a limit on it. One way to limit time off is to prohibit any roll-over at all. This type of policy effectively zeros out the employee’s time off balance at the end of the year (calendar year or anniversary year).

This is called a use it or lose it policy. Employees have to either use their accrued time off or they lose it.

This policy can work with the right company culture but, most often, it turns out to be a loss of benefits for employees.

In a perfect world the no roll over policy can work

In a company culture where time off is encouraged, where periodic disconnecting is mandatory, and where no one is ever made to feel guilty for taking time off, this policy can work. When employees know they will lose their time off by a certain date, they might make a stronger effort to schedule vacations each year. Conversely, if time is allowed to roll over, employees might be more inclined to postpone vacations.

• Employees might want to take all of their time off since it cannot accumulate beyond a year.
• Knowing they will lose it, employees might make a point to take their vacations. This forces them to unwind and renew even when they might not otherwise.
• Employers don’t have to pay out unused vacation time at the employee’s termination. (negative benefit for employee)
• Employers don’t have to worry about employees taking very long periods of time off since time cannot be accumulated.

The problem with a no roll over policy

The above scenario happens in a perfect work world but most of us don’t have jobs there. The truth is, taking vacations is looked down upon in many of the places people actually work. People who never take a day off are applauded for being the hardest workers. Finding time to get away from the work load is extremely difficult for most workers. It is because of this that some states like California, Nebraska, and Montana do not allow employers to implement a use it or lose it policy at all. Some states have guidelines governing its use, such as making sure employees have a reasonable opportunity to take their time off.

• Some years are busier than others. A no roll over policy effectively penalizes employees who work when their company needs them most.
• Employees could end up scrambling to take unused vacation time at the last minute when the time is not right. The company could end up understaffed as a result of the fact that the employee had to use up the time off balance.
• If all of the staff renew on the same date, say December 31st, everyone could be trying to use up their vacation time at the end of the year around the holidays.
• Use it or lose it policies can give employees a bad impression about the company’s culture.
• Taking benefits away from employees is not good practice.
• Some states don’t allow it.
• Some states only allow it when employees have reasonable opportunity to use the time off. This opportunity is arguable and could set up an employer for a possible lawsuit.

A Better Time Off Policy

A better policy, if you don’t want employees accumulating unlimited amounts of time off, is to simply put a limit on what they can earn. An accruals cap stops employees from accumulating time off over a certain threshold. This threshold can be the same as the number of hours the employee earns per year. Or it can be slightly greater than that.

For example, if employees earn 80 hours per year, with the cap set at 80 hours, they could never earn more than 80 hours. This type of cap still encourages employees to take their time off before the year’s end because, if they don’t, they stop accruing. This is a better scenario than losing time they already earned.

If employees should roll over a portion of the time they didn’t use but not exceed a certain number, employers can set the cap at that value. So, for example, if employees can roll over one year of unused time but no more then, using the above example, you’d set the cap at 160 hours. Since 80+80=160. When they’ve accumulated 160 hours, they stop accumulating more. Again, this will encourage employees to use their time off, rather than never take vacations at all. But in this case, employees can take more vacation time if the previous year didn’t provide the opportunity for it.

Caps can help encourage employees to take their time off just like a use it or lose it policy can. Caps are more employee-friendly, though, and so are a better choice.

How to Use a Cap

Using a cap requires monitoring of employees’ accruals regularly. Doing this manually just gives you one more thing to check on during payroll. Time off tracking is generally more difficult to do by hand. That’s why most businesses are moving to online accruals tracking.

We’ll help you set up the time off cap.