Unlimited leave: pros and cons

Some high-profile UK businesses have recently implemented unlimited holiday for employees, something which US behemoths such a Netflix or Roku have been doing for years. Sounds great, doesn’t it?! But, how well does it sit with UK employment law and does it actually provide for a more productive and motivated workforce?

It’s a controversial scenario and unfortunately more complex than it initially sounds.

Breaking down the concept

There is no disguising the fact that an ‘unlimited holiday’ badge will make an employer appealing to prospective employees and can create a lot of recruitment interest in a competitive market. Unlimited holiday is definitely seen as a ‘perk’ for employees.

Over 26 per cent of employees aged 24 – 39 would prefer this over a pay rise. Employers also perceive it to be a great way to reduce sick days, with between 35-50 per cent fewer sick days being taken by staff where the employer has such a policy in place.  Further ‘benefits’ are that it provides a trust platform between employer and employee; with the employer trusting its employees to manage their own holidays and take as much time off as they feel they need.

Post-pandemic businesses, many of which are now hybrid office/remote and no longer fixed hours of bums on seats, are considering the quote from Richard Branson when he implemented unlimited time off for his staff at Virgin Management: “…as we don’t have a 9 to 5 policy, we don’t need a vacation policy.”

However, one of the central pitfalls of unlimited leave is a psychological one; it’s counterintuitive - many staff feel guilty about taking holiday at the best of times and this has only increased since the pandemic. Without the clear and defined statutory limit, employees just don’t know where they stand, resulting in ‘decision anxiety’. Statistics indicate in such situations, staff become concerned about peer pressure and taking the ‘right’ amount of holiday. So much, that they tend to take decidedly less than their usual entitlement; around 20-21 days per year.

Many employers are citing a ‘performance element’ of such a plan, that the employee is permitted such leave only if their work is done. Thus, promoting a ‘results first’ culture. Perhaps not such a good idea then, in the UK where research showed 9 out of 10 workers considered work-life balance to be more important than salary.

Legal considerations

The UK has statutory minimum holiday entitlement, being 28 days for full-time staff which is the legislation that we have translated and gold-plated from former EU law specifically to protect employee wellbeing.  It is important that employees take time off so their employers are not in breach of the Working Time Regulations 1998 and that any unlimited holiday policy has these minimums built in to ensure legal compliance. Protections may also need to be implemented within such policies themselves to deter abuse.

Given we in the UK generally pay for accrued untaken contractual holiday entitlement on termination, this too is likely to cause issues where the policy is ‘unlimited’. Does an unlimited policy mean a departing employee is in for a windfall?

For most employees, the answer is no. Most employers with such leave entitlements place a limit on the amount ‘due’ in a departure year (often to the statutory minimum), although generally they do not apply a clawback of leave taken in excess of this. Unless it’s clear such leave was taken by the employee knowing they were leaving, and effectively trying to take advantage of the entitlement. 

Unlimited leave may have many 'pluses', but at least as many, if not more, ‘minuses’ in the UK employment landscape. Ultimately, the policy has to work not only for the teams within the business, but the individuals themselves too. If considering this kind of benefit, an employer would be sensible to assess its worker demographic first and then run a survey to ascertain whether employees are clear on the pros and cons and still actually want it.  If they do, a trial period, for say a year or maybe two, may also not be a bad idea before wholesale commitment is implemented.

Andrea London is a partner at Winckworth Sherwood wslaw.co.uk

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