Unused Vacation: A Corporate Liability?

One in four workers who couldn’t use vacation time in the pandemic intend to use it by year’s end. Who will run the store then?

With travel restricted and her company needing all hands on deck to navigate the pandemic, Stacey didn’t feel comfortable taking a vacation this summer. Instead, she put in for two weeks off at the end of the year. So did her colleague, Tim, as well as about a half dozen other people on her team. 

Call it the great vacation liability. According to one survey, nearly 40% of workers—likely stressed from the pandemic—had put off their summer vacation until later in the year. And now, as many are doing exactly that, leaders are finding they could be faced with another shutdown of sorts—not because of COVID but because everyone wants time off at the same time.

Joseph McCabe, vice chairman of Korn Ferry’s Global Human Resources Center of Expertise, says a large quantity of accrued unused vacation days represents both a financial and managerial challenge for organizations. On the one hand, companies don’t have the cash flow to pay out large numbers of unused vacation days. On the other hand, forcing workers to “use or lose” vacation days could hurt morale; some workers might not want to take off during the school year or while travel is limited or because of financial concerns, for instance. On a more practical level, it could create an unprecedented scheduling challenge for managers.

“Organizations have to come up with creative ways to accommodate vacation requests but also maintain enough staff to run the business,” says McCabe. And indeed, some organizations are struggling to find fast answers, considering everything from a four-day workweek (discussed in Europe mainly but not implemented much yet) to asking employees to limit their time off to one week a month.

The problem with the monthly scenario, however, is that parents whose kids have returned in part to school (a fluid situation) may have only limited windows to take a family trip—usually Thanksgiving week and the week between Christmas and New Year’s. Ron Porter, a senior client partner in Korn Ferry’s Global Human Resources Center of Expertise, says that during his years as a CHRO it was rare that a manager had to deny a vacation request over the traditional break periods because workers had 12 weeks to choose from. But now, as most firms continue to battle to rebuild, leadership may need to ask managers to make some tough choices.

“Telling someone they can’t take a vacation when they want is a tough message to deliver, especially if they will lose the days if they aren’t taken,” Porter says. One possible answer he suggests is for firms to allow more workers to roll over vacation time—but with expiration dates in the first quarter of next year.

To be sure, experts say it’s in the interest of leaders to work out a solution; working for long stretches without a break poses real business risks, especially since millions of people have seen their professional lives blur into their personal time by working from home for months. All of this can lead to employees burning out, which can dent engagement, productivity, and performance, especially mental acuity. Moreover, continued social unrest has heightened the importance of a mental health break, says Ken Kunkleman, a Korn Ferry senior client partner focused on people strategy. “People are concerned about social issues, the election, job security, school, and more,” he says. “A change of scenery for a few days is a great investment for the worker and the organization.”

With pay cuts, furloughs, and layoffs still widespread, experts say any hope workers may have of getting paid out for unused vacation days appears unlikely. Even though most employees would prefer more money to time off, most companies aren’t in a financial position to dole out extra cash. Besides, “cashing out vacation days is just an income driver that defeats the whole purpose of taking time off,” says Porter.