Mandatory vacation policy

Mandatory vacation policy is a requirement for employees to take a minimum amount of time annually away from work. It is also called minimum paid time off or mandatory time off (MTO). While nearly all the world’s wealthiest countries require employers to offer workers paid time off, the United States does not. In many cases, employees in the country do not use all the time available to them. Some cite peer pressure, while others feel the work they must complete before taking vacation time, and the workload that will await them when they return, make the prospect and practice of taking time off too stressful.

According to the US Bureau of Labor Statistics, in 2024, 91 percent of private industry employees of companies with at least five hundred workers were eligible for paid vacation leave. Of those employed by companies of fewer than fifty employees, 70 percent were eligible for paid time off (PTO). Access varied by industry, with 96 percent of those employed in the financial industry eligible for PTO but just 44 percent of those working in leisure and hospitality eligible.

Researchers say that time off benefits workers and employers. For example, it can help employees feel renewed and refreshed. Experts note that absenteeism caused by illness, stress, or injury typically costs companies thousands of dollars per employee every year. Because workers frequently do not use all their PTO, some companies have instituted MTO policies for the good of the workers and by extension to benefit employers.

Background

PTO was first suggested in the United States. President William Taft proposed two to three months of annual vacation for every worker in 1910, but Congress refused to pass legislation on the subject. Not long after Taft began his push, Sweden and Germany passed laws requiring seven weeks of paid vacation annually. By the time the US Department of Labor raised the issue again around 1930, more than thirty countries mandated PTO, and by the late twentieth century, PTO requirements of other countries averaged seven weeks. (The United States had not passed legislation for minimum PTO as of 2025.) In 1993 Congress passed the Family Medical Leave Act (FMLA), which provides at least twelve weeks of unpaid time off for employees who need to care for immediate family members with medical conditions. At the state level, some states require paid sick time.

Many US companies offered paid vacation and sick days by the end of the twentieth century. In the twenty-first century, companies were increasingly switching to PTO systems, which lump paid vacation, sick, and personal time into the same class. Some companies also add holidays to this mass of PTO. Such systems can have drawbacks, however. For example, people who are sick may go to work to preserve their PTO for vacation or personal use and potentially infect coworkers. The same may be true of those who wish to roll over or cash out unused PTO. Some companies that consolidate all paid days off as PTO reduce the number of days available. For example, if a company permitted employees to take ten vacation days and five sick days, under a PTO system workers might have twelve days available to them.

Overview

Businesses have various policies regarding unused PTO. Many require workers to forfeit the time when the calendar (fiscal or annual) runs out; this is also called a use-it-or-lose-it policy. Some businesses allow employees to roll the days over; this is often the case for police officers and firefighters covered by union contracts. A third option is to permit workers to cash out the days, which means they are paid the equivalent wages. Some of these options are not permitted in certain areas. For example, some states ban the forfeiture of PTO. In many cases, employees are permitted PTO based on length of employment, and a new hire may acquire PTO after six months on the job. Time off may increase at certain milestones, such as five years of employment.

Some companies offer flexible time off (FTO). FTO has a set number of days per year that employees can take, and often they do not need approval as long as it is under two weeks at a time, depending on the company's policy. FTO typically lumps holidays, vacation, and sick leave into one bank that employees use at their discretion. FTO is paid time off. In some case, when employees use more days than their FTO policy allows, they are docked pay or must seek approval from management.

Other companies have policies of unlimited PTO, reasoning that employees are valuable to the company and best understand their needs for time off. Such policies may cause stress and confusion among workers who are unsure what an appropriate amount of annual PTO may be. Some companies have found that people feel they are being judged when they take time off and succumb to peer pressure to work without a break. They may be fearful of appearing to use too many days. In these situations, MTO can ensure workers take time off to recharge while also allowing leeway for those who need additional time off.

Experts point to several advantages of an MTO policy. It prevents or reduces rollover and cashing out of time off; cashing out can have a significant impact on a company’s finances if many employees avail themselves of this option, while rollover can negatively affect a business’s ability to operate should many employees be permitted to accrue a large amount of time. Furthermore, in some societies and cultures, workers are loath to take time off from work. Many industries suffer from high turnover caused by burnout. Some companies emphasize work-life balance and encourage employees to use time available.

Companies implementing an MTO policy have many issues to consider. For example, MTO is generally a minimum number of days, not all the time available to an employee, and like PTO, it may vary based on experience. A company may set MTO at a few days for newer hires and more for those with many years with the business or determine MTO based on responsibility; those whose roles are more stressful might have a higher MTO requirement. Employers must also consider how these days are to be taken. Is scheduling at the discretion of workers, who might want to stagger days, or are they required to take blocks of MTO—say three or five days—to increase the likelihood that they return refreshed? Employers might require MTO to be taken at intervals, such as one day every eight weeks, or during a slow season for the business or department. In some industries, it might be necessary to institute blackout periods when employees cannot take time off. For example, tax preparers often are not permitted to schedule vacation during tax season. Companies may also limit the number of people who can be off at once or mandate that members of a team not be off consecutively to avoid disrupting continuity on projects. The message that a company takes its MTO policy seriously must begin at the top. If managers and executives decline to take MTO, workers will likely get the message that taking time off is optional or even discouraged.

Some companies have experimented with MTO. For example, Harvard Business Review reported on SimpliFlying, a small company that required employees to take one week off every seven weeks. To ensure compliance, the business insisted that any worker who checked in, such as by answering email, would not be paid for the week. The company found that employee creativity, happiness, and productivity improved. Workers reported taking family trips, learning new skills, and finding time for favorite activities. Because it is a small business, the company adjusted its policy to require employees to take a week off every eight weeks instead of seven. Financial firm Goldman Sachs instituted an MTO policy in early 2022. All employees were required to take at least fifteen days off annually, including a block of five consecutive days. Employees of financial firms are often under extreme stress and subject to burnout, and experts suggest that MTO can help such companies attract and retain talent.

While MTO can offer many benefits, the nature of the break is also important. For example, a SimpliFlying executive spent his first MTO week moving rather than relaxing or engaging in some enjoyable activities. As a result, his productivity the week after he took MTO was significantly reduced. Employees are only invigorated if they leave the stress of work behind and engage in activities they enjoy or take time to relax. Research has found that workers see more lasting benefits when they take a significant block of time off, such as a week, rather than a day or two.

In addition to benefits to employees, MTO can offer advantages for businesses as well. For example, managers may realize that one worker has been handling too much of the work or certain employees are essential to the company’s success. Time off for one person typically requires others to pick up some work, so MTO can be the impetus for cross-training. Workers with less experience may have opportunities to learn new skills, and managers may discover strengths such as leadership potential. Employees may be boosted by additional trust and responsibility. Furthermore, management can be motivated to think about long-term goals. An MTO policy can serve to attract talent by showing the company values work-life balance.

Bibliography

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