Unlimited annual leave policies- can unlimited annual leave really be without limits?

The pandemic has brought a sharper focus to mental health and employee wellbeing in the workplace. This, coupled with a shift towards more flexible working arrangements, has caused some organisations to review the manner in which they apply time off to employees. As a result, we have seen the emergence of trends such as providing unlimited annual leave.

Unlimited annual leave is a policy whereby employees are not given a set number of annual leave days per year, meaning an employee can take as many days of annual leave as they like.

Statutory annual leave entitlement in Ireland

Under the Organisation of Working Time Act 1997, minimum statutory annual leave entitlements are calculated by one of the following methods:

• Four working weeks in a leave year in which the employee works at least 1,365 hours, unless it is a leave year in which he or she changes employment;
• One-third of a working week per calendar month in which the employee works at least 117 hours;
• 8% of the hours worked by an employee in a leave year, subject to a maximum of four working weeks (this is the method normally used for calculating part-time employees’ entitlements).

Employees covered by two or more of the above calculations will be entitled to use whichever reference period results in the greater amount of annual leave.

Advantages and disadvantages of unlimited annual leave

Advantages

• Talent attraction and retention – having a policy on unlimited annual leave is an employee benefit which may attract more talent to the organisation. It may also assist in retaining current employees
• Employee wellbeing – giving employees unlimited annual leave will allow for greater work/life balance which may in turn increase employee wellbeing. Employees may also feel that they are trusted in their role which may improve job satisfaction
• Improve productivity and efficiency – as many unlimited annual leave policies have minimum performance targets as a pre-requisite to being entitled to taking additional annual leave over and above the statutory entitlement, this may improve productivity and efficiency

Disadvantages

• Pressure on other colleagues - On occasion, a policy on unlimited annual leave may create issues amongst team members and colleagues where some employees may be benefiting from the policy greatly while others are not able to due to the requirements of their role. In addition, if colleagues are consistently on leave this may put extra pressure on colleagues who are not availing of the policy to the same degree. For this reason, this policy may be more appropriate in environments where there is less team-work involved.
• Additional annual leave no longer granted for long service or other reasons – if unlimited annual leave is already in place, then an organisation will not be in a position to use this as a method of rewarding employees for long service or for other reasons.

Considerations regarding unlimited annual leave

If an organisation is considering implementing such a policy, the following points would be recommended to consider:

• Even if an organisation has an unlimited annual leave policy, it would be important to ensure that each employee is availing, at the very minimum, to their statutory annual leave entitlement as per the Organisation of Working Time Act 1997.
• The wording of the policy should be clear, in particular an employer may consider the following: 
  • There should be clear procedures for requesting leave. It should be outlined that any leave requested must be approved in advance of the leave being taken. An employer may also set out how far in advance the leave should be requested
  • An employer should clearly outline within the policy that the organisation reserves the right to reject requests for leave
  • Consideration should be given to how competing requests for annual leave will be dealt with
  • An employer may consider setting a maximum number of days which may be taken at any one time
• The organisation should also consider how annual leave would accrue (aside from the employee’s statutory entitlement) during periods of protected leave like maternity, parental etc. and how this would be calculated.
• Many employers may put in place minimum performance targets as a pre-requisite for taking additional annual leave over and above the statutory entitlement. If such a pre-requisite is in place this may be more appropriate for roles where output can be easily measured.
• An employer should consider how performance issues will be dealt with if this is clearly linked to the employee taking too much annual leave.
• It would be important to consider the wording within the employment contract and ensure compliance with the Terms of Employment Information Act 1994 to 2014. In particular Section 3 of this Act states that “An employer shall, not later than 2 months after the commencement of an employee’s employment with the employer, give or cause to be given to the employee a statement in writing containing the following particulars of the terms of the employee’s employment, that is to say …..(j) any terms or conditions relating to paid leave (other than paid sick leave)” . Therefore, annual leave entitlements should be clearly set out within the employee’s contract of employment.

Research indicates that unlimited annual leave packages are generally limited to a select number of workplaces, generally within technology and professional services sectors. Reports also suggest that in a highly competitive environment, employees may be put off availing of an unlimited annual leave allocation, if they are at risk of losing out on career advancement opportunities or bonuses.

While offering unlimited annual leave can be seen by some as having the potential to significantly boost employee engagement and retain talent - devising a clear policy that all employees and management are au fait with would be critical to its successful implementation. The wording of the policy must be carefully considered, and all eventualities taken into account.