Business owners would not be able to operate without their hourly workers. With industries such as retail and hospitality (the backbone of our economy) relying heavily on employees that are paid by the hour it is important to make sure you have the right policies in place to be legally compliant.

Such policies include how much to pay each individual per hour as well as clear documentation explaining any sick or vacation accrual and other employee benefits that form part of your workplace.

Currently federal law does not mandate employers to provide vacation pay to their hourly workforce, however research demonstrates that business owners that do make this option available for their staff experience positive effects. Recent research conducted by Project Time Off shows that when an employee takes time off, their employer is the one that benefits. Offering paid vacation time and having a workplace culture that supports using it leads to less employee turnover and a boost in worker productivity.

Business owners understand that increased productivity leads to other positive outcomes like more profitability, but navigating current administrative burdens such as ensuring compliance with Fair Workweek laws and other regulations that apply to their city or state already has employers at breaking point.

The thought of needing to then calculate further considerations like vacation pay, coordinate the backfilling of shifts, add up labor costs and look at the overall impact in the short term on the company bottom line is just too overwhelming.

It is one of the reasons why workforce management tools have introduced auto-scheduling technology as part of their their platforms. Employers only need to implement the policy and can rely on technology to handle the rest. No overwhelm required.

So, knowing that you are absolved from managing the administrative burden of vacation leave, here are the most important things you should consider when implementing a policy about it for your business:

1. How will vacation time be accrued ?

Determine how much vacation your business can afford, then decide if you want to offer vacation based on the number of hours worked by hourly employees or if they are allotted a certain number of vacation hours based on how long they have worked for you.

For example, employees who work with a company for one year receive an average of 11 days paid vacation; workers that are with the company for five years are entitled to an average of 15 days paid vacation and those who with 10 to 20 years working with a company could receive 17 and 20 days (respectively) of paid vacation according to the Bureau of Labor Statistics.

2. Should you opt for vacation pay or paid time off (PTO)?

When contemplating whether to provide vacation pay for hourly employees, you could group together personal days with vacation time and sick time. The total number of days will equate to the PTO from work. Public holidays are normally excluded from PTO. The downside of PTO is that an employee who has to deal with frequent family emergencies or sickness could end up with very little (or no) vacation time.

It is in your best interest to use the accrual method because hourly workers normally experience a high level of employee turnover. Therefore, you could end up at a financial disadvantage if paid vacation time is given at the beginning of the employment period and an employee decides to leave.

Another factor that will help business owners determine if they want to go down the route of issuing vacation pay or PTO is calculating how much labor costs can the business can realistically afford in relation to providing paid vacations. This needs to be assessed based on your specific business model as every business' expenses and revenues vary.

3. Which workforce management tool do you want to have manage it?

You have two options when it comes to tracking and managing your employee's vacation pay and accrual: Excel or implementing workforce management software. In order for the Excel tracking method to be effective, you need to include the following:

Your hourly employees' maximum vacation hours per annum
The maximum number of hours your hourly employees can work per annum
The rate of your hourly employees' vacation accrual
The amount of hours your employees work in each pay period
The number of vacation hours that your hourly employees earn in each pay period
The amount of vacation pay that your hourly employees earn in each pay period

Although Excel spreadsheets may be convenient to set up, they can become confusing as your business grows or when more holiday requests are made.

With workforce management solutions, business owners can seamlessly manage and track vacation time. Many workforce management software offerings have a built-in scheduling features that enables hourly employees to apply for leave and for business owners to easily approve directly in the platform. Often times they also have an open shifts function that backfills shifts for your employees who have taken time off.

4. Should you implement a “use it or lose it” policy?

There may be times that your employees do not use their allotted vacation time during the designated period. You must consider if it is in the best interest of your company to allow them to carry over those days or if those days cannot be used. One thing to consider if you allow time to be carried over is that you will need to specify the amount that can be carried over as well as the deadline for taking vacation days.

5. Are you required by state to pay your employee for the vacation time they've earned if they decide to leave?

There are some states where vacation is considered a form of compensation, despite that there are no federal laws that regulate employee vacations. You should research the laws in your state to find out whether you must let your employees accrue vacation or be paid out for any unused vacation time.

Track and measure the benefits

The benefits of vacation time to hourly workers, such as decreased turnover, increased productivity and employee satisfaction, can only be realized if you accurately work out how much paid vacation your business is willing to offer, largely based on affordability for your company. By answering the above questions, you will be able to develop a better policy for your business and hourly workers.

Read more:

Derek Jones is VP of Business Development at Deputy in the Americas. He has over 16 years of experience in delivering data-driven sales and marketing strategies to SaaS companies.

Instant Insights /

5 points to consider when designing a vacation policy for your hourly workforce

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