It sounds like the ultimate example of corporate beneficence: Take as much vacation as you like, as long as you get your work done. And in the right company, with the right culture and the right manager, such “unlimited vacation” policies could be a pretty fabulous perk.

Yet they’re not being offered purely out of altruism. The obvious benefit to companies is that the promise of such flexibility helps them attract and retain more employees, setting them apart from more traditionally minded, we-don’t-trust-you employers.

But unlimited vacation policies also have another benefit for employers that gets far less attention: a financial upside. When employers stop doling out a set amount of vacation days, they no longer have to pay out unused days if workers quit or get laid off from the company.

“That’s a very large financial advantage to the employer,” says Carol Sladek, a partner who leads work-life consulting at Aon Hewitt. “They eliminate that financial liability.”

While unlimited vacation policies are still rare in Corporate America (just 1 to 2 percent of companies offer the benefit), according to the Society for Human Resource Management, the perk is starting to seep into industries outside Silicon Valley, where it first became popular. Earlier this year, about 30,000 of General Electric’s more senior U.S. salaried employees became eligible for its “permissive time off” policy, which doesn’t set a limit on the number of days they can take off.

Under a traditional vacation policy, employees either accrue vacation time over the course of the year, or start off the year with a bank of days that are owed to them. If they leave the company before they have used up all the time they accrued, employees are typically paid for their unused time. Not so at companies with unlimited vacation policies – they no longer have to carry any liability on their books for what goes unused.

Sladek says companies have been showing more interest lately in the concept.

That could be because people are taking less and less time off, leading to bigger and bigger piles of accrued time on companies’ books.


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