Wanting to be a good employer, we often make decisions without thinking of all the costs and benefits to our organization.  The two main reasons to give vacations are:

  1.    To reward longevity!
  2.    To allow employees time to refresh and get recharged!

I am reminded of the time I was working at a Consulting firm that would give either overtime or compensatory time, “comp time”, for extra hours worked during the busy season.  Being a young mother, I opted for “comp time”.  This was fine with the managing partners until I started using the earned time – in the summer – during their slow cash flow time.  Although they grudgingly gave me my earned time off with pay, they did not understand the cost and benefit of this arrangement.  They also did not acknowledge that it is generally illegal under federal law (state and local governments are allowed to do this is certain instances).

So, before you either say NO or YES, work through a Benefit Analysis to better understand what a day of vacation will cost. 

Check with your CPA about any plan you want to start – there are laws and rules that must be followed AND usually a way can be found to make things work well for your company and your employees.    Tips below for Happy Vacationing – Linda  

Vacation Cost

  • Actual Wages of Employee
  • Other Employer cost of Employee (FICA, 401K, Other benefits tied to wage)
  • Who will do the work of the vacationing employee?  Other employees? Temporary – what is cost?
  • Opportunity Cost of lost sales if business is closed for a holiday.
  • Requires extra planning for scheduling.

Vacation Benefits

  • Provides employee with time to rejuvenate – often leading to increased productivity and decrease accidents.
  • Increased Morale as employees feel you appreciate them and in turn will stay with your company longer (turnover is very, very expensive)
  • Can be used as a reward for longevity of employees.

Other Ideas and Tips

Know what a 40 hour week costs you per employee.  For example.  If you pay an employee $15 per hour and you want to give her a one week vacation, you need to know the actual payroll cost to you, the employer.  National statistics give figures of 20% to 40% for payroll costs over and above wages.  While working at a university in the 1990’s, the rate applied to my employees was 40% for hourly and 25% for professional.  For this example, I will use 30%.  We will assume that this employee would work 2080 hours during the year (that is 40 hours per week for 52 weeks).  

Wage Per Hour

Benefit Rate

Total Cost – 40 hours

Cost per hour over the year (2040 hours)


30% or $4.50/hr


38 ¢

 You will have to decide if you are willing to pay an employee the equivalent of an extra $.38 each hour all year so they can have a vacation – but this would cover your direct costs. 

Develop a vacation plan

  • If you use part-time employees, they may be glad to cover some extra time while others vacation.  Overtime for existing employees will likely be less than hiring part-timers or temps. 
  • Summers are when many people vacation and college students are looking for jobs and learning experiences.  Put those feelers out early to find temporary employees.  
  • Using a staffing firm may seem expensive, but often you can use existing employees to cover the more demanding jobs and a less expensive temp to do office/phone work.  Remember: the example above showed that the vacationing employee actually costs $19.88/hour in real dollars.  
  • Ask your employees for input on how to cover the workload. 

Example:  A restaurant I know faced the prospect of one of the food prep persons going on maternity leave.  Their policy allowed for 2 weeks paid time off and the rest would be family leave – no pay.  The other kitchen staff looked into some “pre-prepped” foods (especially in the vegetable chopping department).  The cost was $125 per week additional food costs and the employee’s wages were $450 per week.  These two costs together for the first two weeks were hefty, but the story had a great ending.  When the young mother came back after her leave, a line cook had moved on, a food prep person moved into that job, the returning employee was doing different food prep and the entire kitchen staff decided they could do the without a new employee.  They actually saved the cost of one employee (approximately $22,000 per year) by increasing food costs $6500 per year.  The net savings was $15,500!

  • Know your Business’s Down-time.  If your business has specific down-times, encourage time off then.  Annual Bedding Flower Growers often have a very slow late summer.  Since they usually have busy overtime during March-May, sharing with employees that the business will be closed for 2, 3, 6 weeks, will let them plan their vacation times around your business time.  
  • Be Creative.  Maybe you really can’t afford to pay employees for holidays but you will not be open on Christmas, July 4, Thanksgiving.  Well, can you afford to give them a holiday bonus?  If the shop is closed on Memorial Day, but each employee receives a $50 check – it doesn’t cover their wages, but it does give the message that you care and value them as an employee.
  • Be Fair.  Remember when working with employees they do share information with each other.  Assume there are NO Secrets in any company!  Setting different plans for different people can be problematic – but sometimes you will make exceptions to get that fantastic employee.  Whatever you do, write it down and make it part of their package.  Then review what other employees are receiving.  During the Go-Go 80’s when MBAs seemed to be needed everywhere, it wasn’t unusual for MBAs to jump companies, often.  You see, if you stayed too long at one place, to attract the new guy (with less experience) the firm would give him more money and more perks than the seasoned employee was getting at that moment.  It took several major accounting firms awhile to figure this out when they were the ones losing employees!
  • Be willing to allow employees – Vacation without pay.  If your policies only allow someone to have a one week vacation after one year, they may need more sooner.  Allow for the opportunity to take unpaid vacation (when planned ahead of time) so that good employees will join you and can still fill their own needs. 

Do remember the two main reasons to give vacations and have vacation costs:

  1. To reward longevity!
  2. To allow employees time to refresh and get recharged!