Vacation Time: Should Small Businesses Offer More or Less?

It's the age-old debate: Employees want more paid time off, but employers don't want to give it. Who's right? And is the tide shifting?
July 16, 2013

Florida Congressman Alan Grayson introduced a bill in the U.S. House of Representatives this year that would require a week’s paid vacation for full-time employees of companies with more than 100 employees, and part-time workers putting in 25 hours or more weekly. After three years, employers of more than 100 would have to offer two weeks. Also after three years, small companies with 50 or fewer employees would have to offer one week.

Grayson introduced a similar proposal in 2009 without success. John De Graff, founder of, a Seattle group that advocates for more time off from work, says, however, that he’s talked to many small-business owners who support such a law, because it would allow them to offer paid vacation without putting themselves at a competitive disadvantage.

U.S. vs. the World

Generally speaking, American companies have the world’s worst vacation policies compared to businesses in similarly wealthy nations. America is the only advanced economy without a national legal requirement for paid vacation or paid holidays, according to a recent study by the Center for Economic and Policy Research, a Washington-based nonprofit education and research group. Business owners aren’t voluntarily taking up the slack either.

One out of four U.S. workers receives no paid vacation or paid holidays at all, the study found. And U.S. private sector employers that do offer paid vacation and paid holidays provide just 16 days per year in all. That is less than the legal minimum in 19 other wealthy nations. All European countries require at least 20 days of paid vacation per year. Some mandate 30 or more. Australia, Canada, Japan and New Zealand require 10 to 20, according to the report. 

Freedom to Restrict Vacation

U.S. businesses’ freedom from federal vacation requirements can be traced to the fact that laws here are generally more favorable to employers, according to John Schmitt, a senior economist at the Center for Economic Policy and Research. Also, workers are less likely to be represented by collective bargaining agreements than employees in other countries, he says.

However, U.S. businesses may not be reaping much benefit from their policies. Schmitt points out that from the end of World War II until the 1990s, productivity growth in Europe outpaced the U.S. “Having a mandatory vacation of, say, 20 days per year is totally compatible with very rapid levels of productivity growth,” Schmitt says. “It might help or hurt a little but it’s not determinative.”

Other studies indicate that employees who vacation perform as well or better. Tony Schwartz, co-author of The Power of Full Engagement, cites a 2006 Ernst & Young study that found for each additional 10 hours of vacation employees took, their performance reviews were 8 percent higher the following year.

Also in 2006, a team of former NASA scientists used tools employed to evaluate astronauts in a study for Air New Zealand that found vacation improved employees’ sleep, stress levels and overall health. Most interestingly from a business perspective, vacationers showed an 82 percent increase in productivity.

Booster or Buster?

Business owners, however, generally see vacation as a productivity buster. Chuck Kocher, who owns an ActionCOACH franchise advising small businesses in Colorado Springs, says he generally advises startups and early-stage businesses against offering paid vacation. “Initially the new company must pour all of its startup cash and cash flow back into the company to fuel its growth,” Kocher says.

Kocher says that paid time off can increase employee loyalty and productivity, but workers at new companies understand that it’s not likely to be offered. Even after a company is on stable financial ground, he suggests policies granting paid time off to new employees only after 90 days on the job. After that, they should get a day off for each two months worked and five to 10 days per year afterward.

“It usually takes a business several years and as much as up to five years to get to that place where paid time off benefits can be offered, but the financial health of the organization must come first,” Kocher says.

The Cost of Benefits

But no-vacation policies could cost a business more when all the costs of having workers are included, De Graff says. That’s because health costs go up as vacation declines, he points out.

"Overwork and the stress that comes from it is one reason the U.S. spends far more on health care per citizen than any other county, while ranking only average on many health measures," De Graff says. He blames employers who focus on short-term financial results rather than the long-term benefits of having healthier workers.

“Business really has blinders on here,” he says. “We’re in denial. And as we continue to be in denial, our health is going to get worse.”

The tide may be shifting, however, as we see more businesses acknowledging the benefits vacation can have on staff. At Power Public Relations, founder and CEO Amy Power says vacation is part of her competitive advantage. And any future changes in the company’s vacation policy aren’t likely to involve restricting it. Each of her 11 employees receives 10 days of paid vacation a year, and she thinks vacations help make employees happier, which in turn makes clients happier.

“The only thing we would do differently is make it more generous as employees gain tenure with my firm,” Power says. “Or use extra vacation days as bonuses for excellence at work.”

Read more articles on small-business benefits.

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