Advisory Services
Vacation Plans

Standard or awards vacation policies allow one or two weeks of paid vacation upon completion of one year of employment. There are many disadvantages to this approach:

• Lack of flexibility
• Absenteeism and tardiness are overlooked
• Superior performers and marginal employees receive identical benefits
• Employers pay for vacations at a higher pay rate

Awards vacation policy is likely costing 3 to 5% more than it should. An accrual vacation policy could be the answer.

Accrual vacation policies give employees credit for vacation earned each pay period. For example employees may earn 3.3 hours of vacation every two weeks. Vacation time is treated like a savings account where vacation accumulates until a withdrawal is made. Employees with vacation-time balances can be allowed time off.

• Employees can schedule vacations when they want them.
• Vacations are often taken before review dates at lower pay rates.

For hourly employees who fail to work their allotted time an accrual policy gives employers the option of assigning pro rata credit based upon the actual number of hours worked.

• Normal vacation credit for 40 hours is 1.54 hours (80 hours divided by 52)
• Those who work less, say 4/5s of the period earn only 1.23 hours

Such a policy penalizes tardiness and absenteeism and rewards those who work hard with useable vacation time.

In companies with high turnover an accrual vacation policy could be more costly because the company pays employees for time they have earned as opposed to no vacation benefit if an employee quits before their anniversary date under the awards system. Exceptional cases like this can be controlled by prudent use of eligibility requirements and probationary periods.

Let COPAC help you make an informed decision. In addition to our valuable payroll services we are here to help advise and educate our clients.