paid time off policy

Which Vacation Policy is Right for My Small Business?

The Hartford

At first glance, offering an unlimited vacation policy may seem like an obvious way to attract and satisfy the employees of your small business. Recently, however, studies have proven that this level of freedom can actually increase anxiety among staff members and negatively impact their performance at work. So, how do small business owners find a suitable vacation plan for their employees? In episode #136, Gene Marks and Elizabeth Larkin discuss the pros and cons of various vacation and paid time off policies.

Executive Summary

2:27—Today’s Topic: Do Employees Perform Better at Work with a More Relaxed Vacation Policy?

2:45—Contrary to popular belief, businesses that offer an unlimited vacation policy have noticed an increase in employee stress levels; many of their employees are unsure of how much vacation time is considered appropriate.

5:04—On average, 20-30 days of paid time off (PTO) seems to be an acceptable amount among small business owners and their employees.

6:03—Unlimited vacation days or PTO can leave your middle management in the lurch and also decrease team morale among your other employees.

6:50—Small business owners can offer one of the three following vacation policies: the traditional vacation plan of two weeks with an additional five or ten days off; PTO plans of up to 20 days; and an unlimited vacation. The PTO plan tends to be the most popular among small businesses.

9:48—If you have more than 50 employees, you can provide your employees up to 12 paid weeks of unpaid time off without any penalty under the Family and Medical Leave Act. If you choose to pay at least 50% of their salary during their leave of absence, your business can qualify for an additional tax credit.

11:41—Gene encourages business owners to use a “benevolent” management style because employees will be more responsive.

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Transcript

Elizabeth: Welcome back to the Small Biz Ahead Podcast. I’m really excited about today’s question, Gene, because it’s about vacation time.

Gene: You like your vacation time.

Elizabeth: I do.

Gene: You take incredible vacations.

Elizabeth: I do.

Gene: Where were you last?

Elizabeth: Well, the last place I went was Montauk, New York, but before that I went to Bali, Indonesia, and Singapore.

Gene: Unbelievable vacation.

Elizabeth: Then I’m going to … I’m planning to go to Hong Kong in December.

Gene: For how long?

Elizabeth: A couple days.

Gene: Yeah. Elizabeth, everybody. She’s big into accumulating these frequent flyer miles, so she’s literally going to Hong Kong on a frequent flyer mile grab, is that right?

Elizabeth: Well, I’m gonna eat and stuff. I’m gonna hang out. I’m gonna see big Buddha.

Gene: Right.

Elizabeth: Stay in a cool hotel, because it’s kind of off-season to go to Hong Kong then.

Gene: Well, vacation is big among your employees. It is-

Elizabeth: Vacation is a big thing.

Gene: I believe that when we read about … People say the wages aren’t going up as much as with the economy. Why aren’t people getting more salaries, and all that. I think there’s a lot of reasons why, but I think one of them is that employers are providing other benefits other than actual compensation. Yes, greed is part of it, but they’re not … There’s PTO, paid time off, has become an enormous benefit that’s been a big demand by the M Generation. I hate using that word, but because of that I think that that doesn’t figure into the salaries calculation. Whereas a company might say, “We’re only increasing salaries two and a half percent, but we are offering more PTO benefits,” I mean, that is a form of compensation.

Elizabeth: All right, well, we’re gonna get into this after we hear from our sponsor.

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Question: Which Vacation Policy is Right For My Small Business?

Elizabeth: And we’re back.

Gene: Hey! What do you know?

Elizabeth: We’re gonna talk about a question … Oh god. That was terrible. Sorry Ryan. Today’s question is, and I’m actually … This wasn’t a question we got submitted. This is a question I’m going to ask Gene.

Gene: Okay.

Elizabeth: Because he’s a boss.

Gene: I’m ready.

Elizabeth: Is-

Gene: I’m the boss, or a boss?

Elizabeth: You’re a boss.

Gene: Go ahead. Go ahead.

Elizabeth: The question is, “Do you think employees perform better at work when they have a more relaxed vacation policy?” What I mean by that is there’s a lot of companies who are instituting unlimited vacation policies. Now, I think that would get more people in the door, but do you think that would maybe engender more loyalty from your employees?

Gene: Unlimited vacation policies, anecdotally, are failing.

Elizabeth: How?

Gene: They are failing, and the reason why … I’ve been actually doing … I’m gonna be writing on this soon. Some of the larger tech companies like LinkedIn, Facebook, some of the other ones, they’ve added these unlimited vacation-

Elizabeth: Target.

Gene: Target. What’s happening is that because you’re leaving the choice up to the employee, some employees, or many employees, are finding that it’s more difficult for them to decide how much vacation they should be taking. It’s putting too much stress on the employee, so it’s like a … If you have a use it or lose it kind of policy where, okay, you get your two weeks, or whatever, and everybody’s sort of in the same boat, and you can talk about your vacation, but if you work at a competitive place like a LinkedIn, and you’ve got a bunch of people that are … One guy in a cubicle who’s working 60 hour weeks, and then you got the other guy who’s going off to Bali, and Hong Kong for months on end. When it comes time for promotion, people are worried who’s gonna get that promotion, so you’re leaving too much choice up to the employees, and a lot of these employers are finding that it creates a lot of extra stress.

Elizabeth: And people aren’t even taking any more vacation than they were before.

Gene: They’re taking less. They’re taking less, because it’s not like the choice is being left up to them. I always tell my client … It’s funny, because when I speak to these different associations, and these are like manufacturers, job shops, distributors or whatever, and I’ll take a poll of the room, “How many people here are offering unlimited vacation in your place?” Nobody raises their hand, and my contention is that they don’t offer unlimited vacation to their employees because they care about their employees.

Elizabeth: Oh, yeah right.

Gene: That’s the reason why. It’s because they know. They’ve read the research and they know that employees are more unhappy with unlimited vacation, and that’s why very few small businesses would even consider doing it.

Elizabeth: I think people are afraid that their employees would actually take advantage of it, but the research says they’re not.

Gene: They’re not. It’s the opposite.

Elizabeth: They’re taking three weeks, which is what they were taking before-

Gene: Less, less.

Elizabeth: Or possibly even a little less than what they were taking before.

Gene: Yeah, so it’s turning out that … It’s an interesting human psychology question. How do you deal with that? I mean, you’re think, “Gosh, you have unlimited vacation. Isn’t that the greatest benefit ever?” But people are reacting to it differently than I think what employers thought they’d be acting.

Elizabeth: I’m all for, and we want to focus on small businesses, what would be right for them, so I’m all for … I think I have 30 vacation days this year.

Gene: Mm-hmm (affirmative).

Elizabeth: I carry over five days from last year. I always buy a week every year. Most big companies you can buy a week of vacation.

Gene: Is it vacation days, or paid time off?

Elizabeth: It’s PTO. It’s PTO. It’s paid time off.

Gene: Explain what the difference is.

Elizabeth: Paid time off means if I’m sick.

Gene: Right.

Elizabeth: I think it includes bereavement, any of that. It’s just all-inclusive of any time you’re gonna be out of the office.

Gene: Okay.

Elizabeth: The reason I buy five days is because if you don’t use those five days you get paid back in the first week of December, and I just love to get that infusion of cash right before the holidays.

Gene: Right. Interesting.

Elizabeth: It works out really well for me. I’m gonna say I probably take 20 days a year.

Gene: Mm-hmm (affirmative).

Elizabeth: I think that’s just right.

Gene: Yeah, yeah.

Elizabeth: Doctor’s appointments.

Gene: Yep.

Elizabeth: Actual trips you want to go on.

Gene: Yep.

Elizabeth: Times when you’re sick. Times when you have a family member who’s sick, and you … Because if you have little kids, you can’t go to work if they’re sick.

Gene: Sure.

Elizabeth: You have to stay home with them, so I thin that’s right. I work at a big company.

Gene: Right, so I was just gonna say.

Elizabeth: The problem, for me, with having an unlimited vacation policy, even at a big company, isn’t really that … I don’t think anyone would take advantage of it, but since I manage people I know that some people would never go out on vacation, and others would take every Friday off, or something like that, so it kind of leaves … I guess I would be considered “middle management.” It kind of leaves your middle managers in a lurch, because you don’t really know … It’s not good for team morale, either, if someone’s constantly out, and everyone else is in the office all the time.

Gene: Makes sense. Makes sense.

Elizabeth: I would say for a small business, depending on … It really depends on what type of business you are, but if you are a tech company you should probably be giving people more time off than if you’re a retail business and you’re paying people hourly. Obviously that’s very different.

Gene: Well, you only have three choices between vacation plans. Okay, you’ve got the traditional vacation plan, which is two weeks off and 10 sick days, or five sick days, and that’s just what it is, and we account for that. You’ve got the PTO plans, which is like you get 20 days off a year, whatever the heck you want to use them for. Go ahead and do your thing.

Elizabeth: Which I really prefer.

Gene: Right, and I’ll get to that, and then finally there’s the unlimited vacation. The PTO plan, the one that you prefer, that tends to be the most popular among all of my clients.

Elizabeth: Yeah.

Gene: If you’re running a small business, I see most of my clients, and I’m talking about these are companies with less than 100 employees, they offer anywhere from, believe it or not, five to 15 PTO days off a year, which I know-

Elizabeth: Five?

Gene: I know that sounds low. It depends on the employee, and the employee … I think five is too low. To me, the most common number that I find is 10, and then it grows after like two to three years-

Elizabeth: 10 including sick days?

Gene: Including sick days, yeah.

Elizabeth: Wow.

Gene: But here’s the thing, though. Most of the clients I know, they have a stated policy. They’ll be like, “All right, it’s 10 PTO days off, and that’s what it is,” or whatever, but because you work for a small business it’s not as closely-enforced as it is if you work for a big company like The Hartford. One of the benefits of working for a small business is that you can be a little flexible, and your employees know that, as well.

The reason why you have a policy is for that one percent of employees-

Elizabeth: Takes advantage.

Gene: That one person who takes advantage, so then you gotta pull out the policy and say, “Okay, I guess we gotta do that,” but I find most of my clients, they state the 10 days, and then after like two to three years they’ll say, “Okay, it’s 15 days,” then after seven years it’s 20 days. I also have clients, as well, because they have the stated policy, but I’ve had people that’ve had good employees, and they’re like, “Geez, my son’s getting married,” or whatever, “And I’d like to take a full week off. Is that okay?” A lot of the employers that I know, they just, “Sure, that’s fine. Go ahead and do your thing.”

Again, you want to … When you’re recruiting employees, your biggest … You’re up against big companies that all of these benefit plans, so one of the advantages as a small business owner is you can say, “Listen, we have stated plan, but I’m telling you know, as the owner of the business, we can be flexible with that plan depending on your needs-”

Elizabeth: See, I would rather.

Gene: That’s a great benefit.

Elizabeth: As someone, like if I was managing at that company, though, I would just want the general PTO policy of like 20 days, no flexibility.

Gene: I agree. I think that is-

Elizabeth: It’s so much easier.

Gene: Which is why it’s so much more popular, is the general PTO policy.

Elizabeth: Because you’re saying someone’s like, “Oh, I want to go off because my son’s getting married.” What if someone doesn’t have kids, and just is like-

Gene: Agreed.

Elizabeth: “I want to go to Hong Kong for the week.”

Gene: Yeah. I agree. I agree.

Elizabeth: That’s not really fair.

Gene: It gets you down into … Sometimes it goes down a slippery slope, but again, if you’ve only got five, or 10, or 15 employees, or whatever, everybody knows each other pretty well, and it’s usually … You know.

Elizabeth: Yeah.

Gene: But you want to have that stated policy there to protect you from that one employee.

Elizabeth: Yeah, definitely.

Gene: Now, a little tax tip for you, because this was from the tax reform guy. You know the Family and Medical Leave Act?

Elizabeth: Yes.

Gene: Elizabeth, so that’s if you’ve got more than 50 employees, and if somebody goes away on a sick leave, or is caring for parents, or whatever, they’re allowed, or a newborn, you can give them up to 12 weeks of unpaid time off, and you’ve got to keep their job, and still provide them with the benefits. That’s what-

Elizabeth: Yeah.

Gene: By law you have to do that with more than 50 employees. With the Tax Reform Act, if you pay at least 50% of the person’s salary, you can get a tax credit of that, up to 12 to 25% of what you pay on your … This is a credit, which means that at the end of the year when you do your taxes, if your credit is $1000, you literally take $1000 off the top.

Elizabeth: That’s great.

Gene: Over the tax that you owe, so it’s sort of like the government saying to you, “We don’t have any national paid time off policy, or anything like that, but, however, if you would like … We’re gonna give you an incentive to provide a little PTO to new parents, or for people that are on leave. Provide their jobs, Family Medical Leave Act, but if you pay them 50% you can get a tax credit for that,” so talk to your accountant about that.

Elizabeth: Great.

Gene: Good stuff.

Elizabeth: All right, we’ll be right back with Gene’s Word of Brilliance.

WORD OF BRILLIANCE: NICE

Elizabeth: And we’re back with Gene’s Word of Brilliance.

Gene: It’s one word this time.

Elizabeth: Wow.

Gene: Elizabeth, so I know. Usually it’s like eight words, my Word of Brilliance. This time the word, Elizabeth, is nice.

Elizabeth: Okay.

Gene: Apparently, now I don’t know if this comes as a surprise to you or not a surprise at all, but new research has found that being nice to your employees actually pays off.

Elizabeth: What? Who would have thought?

Gene: Who knew, right? This is a big research study that was just concluded by Binghamton University. They surveyed 1000 members, now, of the Taiwanese military. I don’t know why they chose that group, but they chose the military, because the military can go either way, and then also, in addition to that, 200 adults that were working full time in the US, and they looked at two different types of leaders: the ones that were more authoritarian, so these are the ones that were like they rule by absolute authority, and they’re demanding, and they’re mean, and they’re whatever to their employees.

Elizabeth: That’s how I am in the office.

Gene: That’s what I hear form all the people working for you is that, “Elizabeth is like, she’s just beating us up left and right. We can’t get a break with her,” and then they compared that to members of the survey group that used a benevolent leadership style, where the primary concern is the personal and the familiar well-being of their employees. They found across all these leadership styles, that the benevolent one, the showing care and concern, the employees that responded back said that they were happier in their jobs-

Elizabeth: I mean, did they have to even-

Gene: Sometimes they do these studies, and … But, you know what, I thought to myself the same way. I’m not a big fan of some of these research. I’m like, “Why do they even?” It’s whatever, but it is a question if you were to ask people and say, “Listen, what’s the better management style?” The military, they’re not benevolent at all. I mean, they’re harsh, and that’s what they do, and it’s the military, and you can’t argue with their success, so then you think to yourself, “Maybe … I don’t know. Maybe that is the management style we should all be doing, is like a military type of rah rah,” but this research says no, it’s actually not. You needed to be a nice boss, and if you’re nice, you’ll get more productivity and more happiness from your employees.

Elizabeth: Really? Interesting.

Gene: Yep.

Elizabeth: All right, so where do you fall on that spectrum with your employees?

Gene: Oh, I just ignore my employees. I’m an absent … I’m actually definitely not authoritarian at all. I’m definitely-

Elizabeth: You’re like, “Take as much vacation as you want [inaudible]”

Gene: I’m actually a pretty nice guy to work for, unless you catch me in a bad mood. Then watch out.

Elizabeth: I don’t know … Long-time listeners will probably remember one day Gene went on a rant about one of his employees, who is no longer with-

Gene: Probably no-longer with us, yeah. Sometimes it does happen, but people get under my skin.

Elizabeth: What was it? Oh, she asked for the day off because she was putting her cat to sleep.

Gene: Do you remember that? She was putting her cat to sleep-

Elizabeth: On Saturday, so she wanted Monday off.

Gene: Monday and Tuesday, I think. She wanted to take two days off after putting her cat to sleep, and I think I forbade her from doing it. I think in the end I think I said, “Fine, take Monday off, but come back to work on Tuesday.”

Elizabeth: Yeah.

Gene: I felt like a jerk for say, “How dare-”

Elizabeth: She’s not with the company?

Gene: She’s not with the company anymore. I mean, there was other factors that we ultimately got rid of her, but I’ll never … I was just shocked at that, but it wasn’t … What was funny also about that … Not to her face. I thought I was fairly nice, and all that.

Elizabeth: No, just on a podcast.

Gene: Just to you, yeah. Just to a podcast for all the public to hear, I came back and complained so everybody could hear that.

Elizabeth: All right, we’ll be right back in a couple days with our next episode, and this is about opening up a second location of a restaurant, and what to do. The do’s and don’ts. Thanks for listening, everyone.

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