Should you offer unlimited annual leave?

To make unlimited annual leave work, trust and transparency are essential.

Annual leave is one of the perks of a full-time job, but is four weeks enough? Companies such as Netflix, Virgin and Inventium don't seem to think so. Should you lift the cap and offer unlimited leave? Three experts debate.

Dr Amantha Imber

Founder, Inventium

Amantha ImberI introduced unlimited paid annual leave in 2016. I wanted to bring more work-life balance into my team. Like most management consultants, they are required to travel a lot and the hours can be quite long. And, like most organisations, we’d been capping paid annual leave at four weeks, but the working hours were uncapped. I wanted to even out the equation.

While annual leave is unlimited we focus on the intent, which is that people use it to rebalance. If someone wants to take five months off in the south of France and be paid for it, it goes against this intent. No one in the past two years has abused the policy.

What does the policy look like in reality? People might take the odd long weekend here or there as well as a significant break, such as four weeks off in the middle of the year, for example.

To make it work, trust and transparency are essential. You also need to employ people who behave like adults. 

We track the benefits of our policy. People feel that they have greater work-life balance. Sick leave has dropped by half. When you give people autonomy and flexibility and you implement strategies to improve their wellbeing, naturally they feel healthier.

“I wanted to even out the equation. While annual leave is unlimited we focus on the intent, which is that people use it to rebalance.” Dr Amantha Imber

I think unlimited annual leave can work across any industry, as I think it represents a fairer employment contract. However, it would be challenging in organisations that have shift workers, for example, and in industries that pay overtime.

Gary Champion

Principal, HBA Consulting

Gary ChampionI don’t think unlimited annual leave will become the norm for all businesses, however it would certainly lend itself to certain industries, such as professional services. As the nature of work in these types of industry tends to be project-based, it would be more feasible for people to take time off in between projects to recharge their batteries.

There are a few factors for employers to consider in order to make unlimited annual leave work. The business would require a very good planning framework, as they’d need to forecast work confidently and align it with their people consistently and transparently. They would also need a very good workload management system.

There must be mutual trust between employer and employee. Clear communication throughout the organisation is also essential, as well as attendance management systems. Who is going to be away and when? Has work been completed before taking leave? Who will be covering a role when it is taken?

“The business would require a very good planning framework, as they’d need to forecast work confidently and transparently.” Gary Champion

If a company is tempted but uncertain as to how such a scheme might work, it may consider trialling it via a pilot process in one division of the business where it would be best suited. 

Set it up as a benefit rather than entitlement – a bit like a performance bonus system that people can access as part of the pilot to test whether it works. Employees across the business can then access the benefit of unlimited annual leave if the organisation can see a return on investment, such as a reduction in sick leave, attraction of high-quality candidates and greater employee engagement, during the pilot stage.

Monitor results over time, before making a considered decision about the applicability and viability of such an arrangement.

Kate Carnell AO

Australian Small Business and Family Enterprise Ombudsman

Kate CarnellResearch confirms employees – and employers – who have a positive work-life balance feel more motivated and less stressed, which generally increases productivity. Small businesses that employ staff face a range of unique challenges in providing this balance, as their focus is usually on maintaining and growing the business.

Flexible work arrangements, taking regular breaks and holding social events can improve work-life balance. A website I recommend is Heads Up, which has a small business section charting the steps to a healthy workplace.

On the premise unlimited leave is made up of four weeks paid and any other leave is without pay, introducing this would be a huge challenge for small businesses, particularly microbusinesses with one to four employees. For example, if you have four staff and one is away, it reduces your capacity by 25 per cent, putting pressure on everyone else.

If the annual leave was at the same time every year – say two months over the Christmas school holidays – the business owner could plan and train up a replacement staff member. However, if it was ad hoc across the year, finding a suitable casual or part-time employee and training them would be both costly and time-consuming.

“If you have four staff and one is away, it reduces your capacity by 25 per cent, putting pressure on everyone else.” Kate Carnell AO

The challenge for small business employers is to meet the needs of their employees, for flexible work to align with family requirements and, at the same time, run an efficient and productive workplace. 

Getting this balance right leads to happy employees and lower staff turnover which, in turn, leads to improved productivity and profitability.

The Experts

Dr Amantha Imber
Dr Amantha Imber is an innovation psychologist, founder of consultancy Inventium and co-creator of the Australian Financial Review’s Most Innovative Companies list. With a PhD in organisational psychology, Imber has worked with companies such as Google, Apple, Disney, Virgin Australia and Commonwealth Bank. She has been featured in Harvard Business Review, Forbes, Entrepreneur and Fast Company and is the author of two books, The Creativity Formula and The Innovation Formula. In 2016, Imber was inducted into the Australian Business Women’s Hall of Fame.

Gary Champion
Gary Champion is principal of Canberra-based HR consulting firm HBA Consulting, providing advice and assistance to more than 100 organisations across the public and private sectors within the ACT and nationally. He has extensive experience undertaking organisational reviews and restructures, implementing workplace change and business improvement. Champion’s qualifications include a bachelor of education and master of business administration.

Kate Carnell AO
Prior to her appointment as Australian Small Business and Family Enterprise Ombudsman in 2016, Kate Carnell was CEO of the Australian Chamber of Commerce and Industry. She has also served two years as CEO of not-for-profit organisation beyondblue and four years as CEO of the Australian Food and Grocery Council. A pharmacist by profession, Carnell ran her own small businesses for 15 years, before becoming ACT chief minister in 1995 for a five-year period. In 2006, Carnell was appointed an Officer of the Order of Australia for her services to the community through contributions to economic development and support for the business sector, knowledge industries, the medical sector and medical technology advances.

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