Why companies are now helping staff pay for their vacations

A growing number of Canadian companies are upping the ante when it comes to providing employees with holiday time — by helping staff pay for vacations.

It’s the newest effort to combat the perplexing problem of employees who don’t use up their vacation days, as well as a way of diversifying benefits — a useful hiring and retention tool in a tight labour market.

It’s facilitated through Vacation Fund, a new Toronto-based company that helps employers in Canada and the United States expand their benefit offerings by matching contributions made to employee travel savings, deducted from each paycheque.

CEO Erica Pearson co-founded Vacation Fund in 2017, initially envisioning the service as a consumer product that simply automated the vacation-savings process.

But while pitching the service to tech companies, Pearson started hearing about the dual problems of hiring staff, as well as getting them to use their vacation time. She was also hearing about forward-thinking companies — mostly in the U.S. — that had started to offer “paid paid vacation.”

Notably, the Chicago-based Basecamp, which makes project management software, pays employees $5,000 US a year in a use-it-or-lose-it travel fund.

“These companies talk about how it’s the best retention strategy ever because they’re paying their employees to disconnect and go somewhere new every year,” said Pearson.

Vacation Fund was relaunched in January 2018 as an employer-matched vacation savings tool, and has since been adopted by at least nine Canadian organizations.

“Most companies are doing a 50 per cent match on people’s contribution into their vacation funds, capped at anywhere between $10 and $100 a paycheque,” said Pearson.

Vacation Fund makes money by charging participating companies a monthly subscription fee, which is based on the number of employees, she said. Although plan members can use their funds for any kind of travel, the company is also able to earn revenue by offering some travel deals with a select number of industry partners.

Broadening appeal to young workers

While a typical rate of participation for most employee benefits programs is 50 to 60 per cent, even for things like RRSP-matching programs, Vacation Fund’s clients report an 80 per cent opt in, said Pearson.

“Most benefits cater to stage of life, and this is one of the few benefits that — regardless of your age, or gender, income bracket, marital status — you’re expected to take some time off during the year.”

That said, the program does hold particular appeal for younger workers, said Erin Bury, CEO of Willful, a digital estate-planning platform. Bury has established a Vacation Fund program both at Willful and at Toronto-based communications agency Eighty-Eight, where she was managing director.

There’s “a big gap” between the benefits companies typically offer and the values of younger employers, she said. Managing a team of 14 people, all millennials, during her time at Eighty-Eight, Bury said she thought about adding an RRSP program to the usual health and dental benefits on offer.

“But whenever I broached the subject with them, they just didn’t seem interested in it. Most of them were under 28 years old so … the idea of RRSP savings wasn’t really thrilling to them,” she said.

Kaitlyn Ward, an account manager at Eighty-Eight, is one of those millennial staffers. Ward recently returned from a trip to France and Italy with the money she saved through the program.

“I think I saved for about five months through Vacation Fund,” said Ward. “I ended up saving, with the employer contribution, about $2,000, which for me was huge. Living in the city, with the cost of living in Toronto, I don’t usually have a lot of money in my savings account.”

An employee retention tool

Ward said she’ll definitely use the program again. “Obviously, as a young person, travel is something that I’m passionate about. It’s the one thing you can spend money on that you become richer for [it].”

Ward said she believe the program makes staff feel more engaged and acknowledged. “This signals that we’re not a traditional office, and our employer recognized that and wanted to make sure that we were getting benefits that work for us — and make us happy — so we can put out the best work that we can.”

Because a period of time must pass before staff can access the funds, the program also acts as a retention tool.

Bury said the expense is nominal compared “against the cost of having to hire a new employee.”

Internal surveying at Vacation Fund has found that some people would stay with a company an additional 12 months or more to access just $500 in vacation cash, Pearson said.

Unused vacation days an expensive problem

Unused vacation days cost companies in a number of ways. They’re associated with higher absenteeism for illness or stress leave, as well as with higher staff turnover and lower productivity.

They also create a significant balance-sheet liability for employers, who are then faced with the potential cost of paying out those vacations in cash. That gets particularly expensive if a company goes through downsizing and must compensate numerous departing staff at once.

But the culture of a company has to clearly communicate that it’s good to take a break.

“I’ve certainly seen, and heard of it, where people are afraid to take their leave. Or maybe the culture of that company is one that suggests you should be working 100 hours a week and you’re a bad employee if you take time off,” said Amanda Keleher, executive vice-president of people at Index Exchange, an advertising marketplace.

Keleher has worked for a number of companies that had implemented unlimited vacation policies. But for all the headlines the concept grabbed when first adopted, she said, they often don’t work.

“It drove a lot of anxiety because no one knew what to do with that,” she said. In some cases, employees actually took fewer vacation days. “The key thing was to set a minimum and that helped people a lot.”

Keleher recently made a number of changes at Index Exchange to ensure staff members take time off. First, she added an extra week off to the company’s base vacation offerings in Canada and the United States. Then she stopped offering a partial payout of unused vacation at the end of the year, instead rolling those days over for future use.

Part of a company’s responsibility is to be clear on how they want to approach vacation — and to talk about it with staff, she said.

“How empowering, if you have a less experienced individual coming to your company and you say, ‘It’s super important that you take your time off, and we actually keep an eye on this, and we’re going to be encouraging you to take that time off,'” she said. “Then it’s really clear.”