Startup holiday policies – unlimited time off doesn’t work

As an early startup founder, you have unlimited flexibility to work when and where you want, and for as long as you want. It only makes sense to extend that flexibility to the whole team, right? Indeed, that’s where the idea of “unlimited” holiday came about. I adopted this as our holiday policy when Server Density was founded in 2009.

However, it didn’t really work out as intended. The problem is that there is always something else you should be doing. It’s never a good time to go away and you certainly can’t disconnect completely. I travelled quite extensively in 2010 both to the US for the company and my first ever trip to Japan on holiday. But I didn’t ever have a true “holiday” in that I could completely disconnect from work.

If the founder and CEO can’t take real time off, how do you expect the rest of the team to be able to interpret the “unlimited holiday policy”?

Over 9 years at Server Density, we tried several different approaches to holiday policy. I’ve previously written about startup financial incentives so this post is about the different holiday policies we tried:

Unlimited holiday policy

With this policy, there is no quota and anyone can take as much time off as they like, subject to manager approval. The company does not count the days off each person takes, although it is of course still recorded so everyone knows if someone is off.

Pros

  • It sounds good, especially to those new to startups. Everyone likes the idea of “unlimited” because it means they don’t need to worry about whether taking a day from their allowance is a good use of time, and won’t miss out on events because they’ve used all their allowance.
  • You can use it to make the most of travel opportunities. The further away you go from home, the longer it takes to get into the timezone and so the more time you want to spend in a destination. I know 2 weeks is the minimum amount of time I would want to take for a trip to Japan.

Cons

  • There is no guidance about how much is “reasonable”. You will probably not hire someone who will take advantage and disappear for 3 months, but what is the right amount? Expectations are ambiguous and if the founders/senior team are not taking much time off, the rest of the company may feel pressure to avoid holiday.
  • Without guidance, some people will take off more time than others. Perhaps those will fewer deadlines or less pressure will find it easier to take holidays. Managers will be reluctant to approve holiday, especially longer trips. And when holiday is taken there will be an unspoken pressure to “check in”, with email or Slack.
  • If you don’t actually track time off, you can’t tell if someone is abusing the system or let other people know people are off. So you do have to track it, which means it is not “unlimited holiday” but “no measured allowances”.
  • The startup marketing doesn’t match the reality, which hurts your long term reputation. If a new candidate asks your team (or reads a Glassdoor review), will they be enthusiastic about the reality of working there?

Bonuses to encourage people to take time off

With the realisation that the pure “unlimited holiday” policy wasn’t necessarily working out for everyone, we decided to introduce an incentive to take time off. This amounted to a £1000 cash bonus at the end of the year if you took at least 25 days in the calendar year. This was originally a 50% salary bonus in the final month of the year but we adjusted that to a fixed amount because it became expensive.

Pros

  • Using a financial incentive to encourage behaviour is a well understood approach. It is used in all sorts of areas of life, from sales commissions through to encouraging people to give up smoking.
  • It makes it clear what the holiday policy expectations are. The actual number of 25 days could be changed but it sets a clear guideline for how many days you are encouraged to take.

Cons

  • It assumes everyone is incentivised by money.
  • How do you set the amount? £1000 means different things to different people but a percentage of salary is also somewhat arbitrary and can prove expensive.
  • How do you deal with edge cases e.g. someone who takes 24 days? Is it fair that someone who takes 25 days gets the bonus whereas the person who just misses it does not?
  • If someone suddenly realises towards the end of the year that they need to take time off, what happens if it is not a good time or lots of people are in a similar position? You could see lots of holiday requests right at the end of the year.
  • How do you deal with people who join the company part of the way through the year? Pro-rate the 25 days? Pro-rate the bonus?
  • It introduces a large cash outflow in the final month of the year. As your team grows, this could become a problem for cashflow.

Setting an expected minimum with active encouragement

After trying the above, this is the approach we were using before Server Density was acquired. We had an unlimited holiday policy, tracked all time off but set an expectation that everyone would take at least the UK statutory minimum – 28 days. Anything over that was generally allowed, subject to sufficient notice, availability of any cover and in consideration of occasional deadlines. In practice, we rarely denied requests for time off and most people were in the 30-35-days range each year. We also removed the bonus.

Pros

  • The expectation is clear and it follows the legal requirements. The UK fits nicely in-between the crazily low allowances of the US and the quite-high expectations common in Europe, so it feels like a reasonable middle-ground.
  • It is a good benefit to talk about when recruiting because it’s still unusual to have “unlimited” holiday in the UK, outside of tech startups.
  • It is down to managers to ensure their team take the minimum time off, spread throughout the year. This removes some of the responsibility from the team member and makes the manager think about any pressure they might be applying to work under unreasonable pressure.

Cons

  • It is still “unlimited” and so the value of having a day off is less than if each person had an annual allowance. To me, this means taking paid holiday doesn’t have the same feeling of value. If you can have as many days off as you like, you value them less. Using something like time off in lieu therefore has no effect and individuals may appreciate the holiday time less.
  • There is an upper limit. As a founder, you have to set the example and what if you want to go on a 3 week holiday? That’s almost all your allowance gone.

Conclusion – how would I do it today?

Unlimited holiday by itself simply doesn’t work. Many others have found this, too.

Introducing financial incentives also doesn’t work. The differences are marginal and it can end up being expensive for the company.

However, the motivations for exploring these kinds of policies are still essentially valid. You want employees to feel trusted to balance the needs of the business and their desire for time off, give them the flexibility to enjoy life and make expectations clear so that nobody feels unnecessary pressure to work so much they burn out.

If I was creating a new company holiday policy today, I would go with fixed allowances. This would probably start at the UK statutory minimum during the employee’s first year and then gradually increase the longer they have been with the business. This is similar to how Basecamp run things – 3 weeks plus a few extra days here and there if needed.

I would also be flexible e.g. if someone had used all their days off but wanted a day or two more for an important event, it seems unnecessarily mean to deny the request. I would also consider allowing some unused time off to be rolled over into the next year. This would encourage employees to think about time off as something of value, but also that the company encouraged people to use it.

Ultimately this is about balancing the requirements of the business and the needs of the team, which should align almost exactly most of the time. If employees feel rested and relaxed, and feel like they don’t need to strictly count time off, the business benefits as well as the employee. The advantage of early-stage startups is that you can experiment with these things.