While offering paid vacationtime for hourly workers may not be mandatory, employers understandthat having a workplace culture that supports using it leads toless employee turnover and a boost in worker productivity.

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Business owners would not be able to operate without theirhourly workers. With industries suchas retail and hospitality (the backbone of oureconomy) relying heavily on employees that are paid by the hour itis important to make sure you have the right policies in place tobe legally compliant.

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Such policies include how much to pay each individual per houras well as clear documentation explaining any sick or vacationaccrual and other employee benefits that form part of yourworkplace.

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Related: 3 questions to ask about outsourcing absencemanagement

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Currently federal law does not mandate employers to providevacation pay to their hourly workforce, howeverresearch demonstrates that business owners that do make this optionavailable for their staff experience positive effects. Recentresearch conducted by Project Time Off shows that when an employeetakes time off, their employer is the one that benefits. Offeringpaid vacation time and having a workplace culture that supportsusing it leads to less employee turnover and a boost in worker productivity.

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Business owners understand that increased productivity leads toother positive outcomes like more profitability, butnavigating current administrative burdens such as ensuringcompliance with Fair Workweek laws and other regulations that applyto their city or state already has employers at breaking point.

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

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It is one of the reasons why workforce management tools haveintroduced auto-scheduling technology as part of their theirplatforms. Employers only need to implement the policy and can relyon technology to handle the rest. No overwhelm required.

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So, knowing that you are absolved from managing theadministrative burden of vacation leave, here are the mostimportant things you should consider when implementing a policyabout it for your business:

1. How will vacation time be accrued ?

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

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For example, employees who work with a company for one yearreceive an average of 11 days paid vacation; workers that are withthe company for five years are entitled to an average of 15 dayspaid vacation and those who with 10 to 20 years working with acompany could receive 17 and 20 days (respectively) of paidvacation 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 hourlyemployees, you could group together personal days with vacationtime and sick time. The total number of days will equateto the PTO from work. Public holidays are normally excluded fromPTO. The downside of PTO is that an employee who has to deal withfrequent family emergencies or sickness could end up with verylittle (or no) vacation time.

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It is in your best interest to use the accrual method becausehourly workers normally experience a high level of employeeturnover. Therefore, you could end up at a financial disadvantageif paid vacation time is given at the beginning of the employmentperiod and an employee decides to leave.

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Another factor that will help business owners determine if theywant to go down the route of issuing vacation pay or PTO iscalculating how much labor costs can the business can realisticallyafford in relation to providing paid vacations. This needs to beassessed based on your specific business model as every business'expenses and revenues vary.

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

You have two options when it comes to tracking and managing youremployee's vacation pay and accrual: Excel or implementingworkforce management software. In order for the Excel trackingmethod 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 perannum
  • 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 ineach pay period
  • The amount of vacation pay that your hourly employees earn ineach pay period

Although Excel spreadsheets may be convenient to set up, theycan become confusing as your business grows or when more holidayrequests are made.

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With workforce management solutions, business owners canseamlessly manage and track vacation time. Many workforcemanagement software offerings have a built-in scheduling featuresthat enables hourly employees to apply for leave and for businessowners to easily approve directly in the platform. Often times theyalso have an open shifts function that backfills shifts for youremployees 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 allottedvacation time during the designated period. You must consider if itis in the best interest of your company to allow them to carry overthose days or if those days cannot be used. One thing to considerif you allow time to be carried over is that you will need tospecify the amount that can be carried over as well as the deadlinefor taking vacation days.

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

There are some states where vacation is considered a form ofcompensation, despite that there are no federal laws that regulateemployee vacations. You should research the laws in your state tofind out whether you must let your employees accrue vacation or bepaid out for any unused vacation time.

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Track and measure the benefits

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The benefits of vacation time to hourly workers, such asdecreased turnover, increased productivity and employeesatisfaction, can only be realized if you accurately work out howmuch paid vacation your business is willing to offer, largely basedon affordability for your company. By answering the abovequestions, you will be able to develop a better policy for yourbusiness and hourly workers.


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Derek Jones is VP of Business Developmentat Deputy in the Americas. He has over 16 years ofexperience in delivering data-driven sales and marketing strategiesto SaaS companies.

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