Manager Mistakes that Could Cost Your Small Business

Manager Mistakes that Could Cost Your Small BusinessLeading people is tricky. Not only do you have to get the work done, but you have to deal with different personalities and characteristics that can sometimes be difficult to navigate. Top all of that off with legal compliance and managers can feel as though they are walking through a minefield every day.

Because leaders are human beings, they are going to make mistakes. They are not always going to get it right when it comes to interacting with their people. Most of those mistakes can be overcome. Some may take a while, but if diligent, a good leader can overcome. Some of those mistakes however, can be financially costly. Here is our short list of manager mistakes that could cost your small business big money.

In the Interview:
A classic line I heard from a leader once who I was chastising for asking about marital status in an interview was, “It’s only bad if they sue us.” While that’s true, someday, someone will and then what? The law is very specific about what can’t be asked in an interview. Crossing the line here will be costly at one point or another. Leaders need specific interview training the minute they assume a leadership role. Company’s can not assume that the questions not to ask are common sense. I have seen leaders with tons of common sense ask questions they shouldn’t and not realize they were crossing a line. Anytime a new law like the salary history law comes up, leaders should be aware and given appropriate ways to have the conversation in accordance with the new regulation.

Employee Relations Issues:
Handling employee performance issues and employee complaint properly is crucial to the success of any business. Not doing so can be financially detrimental, especially to a small business. In 2016, 45% of all claims handled by the EEOC were for retaliation. If you look further down the list you’ll see areas that could have been avoided with proper leadership training and appropriate handling of employee relations issues. Now certainly, some of these cases are frivolous and ended in favor of the employer, but they still had to bare the cost of defending the suit and that can sometimes be costly enough in and of itself.

Classifying Employees Incorrectly:
For a while now, the issues of exempt, non-exempt, employee or independent contractor has been a thorn in the side of employers. Employees who are classified as salaried in an effort to avoid paying overtime may be due tremendous amounts of back payment if found to be classified improperly. Independent contractors who should be classified as employees can be due not only back pay but all other rights employees are afforded such as benefits or payment for time off. Small businesses should check with a knowledgeable resource whenever creating a new position to ensure it is classified properly. If there is any doubt that current employees are classified correctly, a full audit should be conducted.

Closely related to dealing with employee relations issues is inconsistency in word and deed. This inconsistency could manifest in the way one employee is treated over another or by a handbook that highlights benefits employees actually do not receive. Inconsistent behavior, however it presents itself, is an easy gateway for a lawsuit. Handbooks should be reviewed annually to ensure they are up to date and leaders should be trained on focusing on equality and consistent behavior.

As mentioned several times throughout this article, the key to avoiding many of these costly mistakes is proper training. If your company does not have some level of leadership development program, or at a minimum, a leadership orientation, then one should be considered. Any one of these issues can be taken to the point that can be financially crippling for a small business.

At the same time, these are issues that can be easily mitigated with the right processes in place. It is one of those areas that the time it takes to ensure compliance and consistency is much less than the time it takes to defend the reverse. It’s time well spent for any business.

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How Pre-Employment Personality Assessments Can Help Recruiting Efforts

How Pre-Employment Personality Assessments Can Help Recruiting EffortsFor a long time now there have been great debates about the validity of personality assessments. Myers Briggs, DiSC and others have been regarded as useless in determining the way a person really thinks and/or works.

I tend to disagree.

I have been using personality assessments for over a decade and find that, at least the more well known assessments, do consistently resonate with their test taker and offer up great points of conversation for team building discussions and pre-employment. It is the pre-employment use I want to talk about today.

More and more team dynamics play a role in how effective and efficient a department is. One or two bad apples and the whole team is dragged down. Often, the bad apple isn’t necessarily a poor performer, but more often there is a personality conflict between that person and another or even the entire team. And that is difficult to manage and overcome if it gets out of hand.

For leaders, thinking about team dynamics in the hiring process is essential. It is not enough to simply look at how a person’s skill set and past experience is going to fit into the position, but how the person’s personality is going to mesh with the rest of the team. Since the interview process usually produces the best of a person, meaning they are not being their total self in an effort to impress, simple questioning can prove fruitless in figuring out how a person truly works and interacts with others.

And that is where pre-employment personality assessments come in.

Let me be clear. I believe pre-employment personality assessments can be a part of the recruiting process, not the whole thing. I also believe you have to go with a personality assessment that has been validated for pre-employment. Neither Myers Briggs or DiSC are validated for pre-employment. Finally, you have to have someone certified to be able to review the results with the candidate and leader. Someone should be trained in how to interpret the results and highlight what is important for the candidate/company to consider.

I am a certified coach with Hogan Assessments and really like the assessments they offer, the results that are provided and, most importantly, provide great discussion point to review with the candidate and leader. Below is my process for administering and reviewing personality assessments in the recruiting process.

Determine the Right Positions
I don’t think all positions need personality assessments as part of the recruiting process. I believe crucial leadership roles or the first few roles in a small business/startup are usually perfect for a personality assessment step added to the process.

The Assessment is a Final Step
If not the final step, the assessment piece should be one of the ending phases of the recruitment process, meaning only your top candidates take it. You don’t want to make hiring decisions early on based on a personality assessment. If you have results that tell you what their personality may be like before you’ve gone through any other stage of the interview process, you are making a decision without the full picture.

Review the Results
The most important step is to fully review the results with both candidate and leader together. This is where it’s important to have a certified coach who can help interpret and discuss the results that may impact the workplace – both positively and negatively. This conversation must be open and honest. It should allow the candidate to describe how they may act in a workplace setting when certain situations arise. It should also allow the candidate to get an even better understanding of the workplace they will be working in and determine if it is right for them.

When done well, these pre-employment personality assessments allow both candidate and leader to walk into the employment relationship with a head start on how they might work together. Both are aware of areas of synergy and areas that may create conflict. They already know how they might adapt to one another’s style. Information that will also help the leader integrate the new hire into the team as a whole.

For all the debate over personality assessments and their validity, this consultant is a fan. They do require care in administration and execution, but with the right help and facilitation can provide insight now found anywhere else in the recruiting process.

*this post is not sponsored or affiliated with Hogan.

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Do Your Employees Really Have Autonomy?

Do Your Employees Really Have Autonomy?A common conversation I have with small business leaders centers around the idea of autonomy. How much authority is given to employees to do their work the way they see fit? Autonomy in it’s most simple definition is independence. How much independence do employees have?

In my experience, leaders and employees often answer this question very differently.

In many small businesses, autonomy is a selling feature for potential candidates. One of the cool things about these environments is that things are moving so quickly that leaders often don’t have the time to micromanage. They also know they need employees who have expertise they don’t have to get the work done which naturally leads to more autonomy. Especially in the very early stages, these environments are rich for highly autonomous work.

But often, the independence gets stripped away.

Maybe it’s by the leader who wants to be copied on every email. Or the one who wants his employee to “check in” at least once a day with project updates. There are always reasons why this is necessary – at least in the leader’s mind.

Or the leader who gets angry when an employee decides to work from home instead of the shared space. The employee does all the work and is available throughout the day via technology, but the leader is upset they aren’t in the office. No performance issues, just an idea that everyone should work from the office.

Now, let me be clear. There is nothing illegal about having rules around being copied on every email or never being able to work from home. A little defeating maybe, but not illegal. A leader can create almost any rules they want for their business.

But you can’t have those rules and then say that you support an autonomous environment where you trust employees to get the work done.

It reminds me of the Margaret Atwood quote from “The Handmaid’s Tale”.

“A rat in a maze is free to go anywhere, as long as it stays inside the maze.”

Many environments I have both worked in and walk into these days are a bit like a maze. The leader has sculpted visible and invisible walls that employees are not allowed to venture outside of. Some of these walls are necessary, others, not so much. Either way, the more the walls, the less the autonomy. When we do culture work in an environment with these walls, the gap between the level of autonomy a leader thinks they give and the level the employee feels they have is often quite large.

It’s a question worth asking of autonomy is important to you and your recruiting efforts. How much autonomy do we really offer and do our thoughts about what we already offer line up with our employees? It is my thought that autonomy is only going to become more and more important in the years to come. Thinking about where your business sits on the subject now and ensuring those thoughts are carried out into action can only help the business in the long run.

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HR 101: A Guide for Small Business

HR 101: A Guide for Small BusinessEarlier this week I talked about the importance of HR in a startup. Whenever I talk about this topic I receive questions about what exactly I’m referring to when I say HR. Is it just the legal stuff like paying employment taxes or is there more. It’s a good question with an answer that would probably differ depending on who you asked. Here is my idea of HR 101 in a small business or startup environment.

Essentially there are three things that I believe small businesses need to think about in the very early stage of their people development. I do believe it is important to start thinking about these things with the very first hire. The degree to which you should build strategies around these areas grows with every hire.

The baseline nature of HR is tacit. The role was invented to ensure compliance. While it has evolved in the last few decades to much more, the necessity to ensure legal compliance remains, especially in states like California. Setting up and growing a business dictates the need to be legally compliant in hiring, payroll, performance management and more. This is HR at it’s most basic and the bare minimum of what all small businesses should consider.

At this stage, companies are figuring out what payroll service provider they will use, acquiring unemployment tax ids and workers’ compensation insurance and ensuring workplace posters are legal documents are available to all employees. This is where ensuring you understand laws around documents required at hiring (tax forms, I-9 etc) is important. Writing handbooks, understanding the law around required benefits (if any) and making friends with legal counsel are all important parts of the compliance area of HR infrastructure.

Quite possibly the most important step for early stage small businesses is figuring out the recruiting process. It’s not enough anymore to just place an ad and hire the first qualified person you see. Small businesses have a lot at stake. The first few hires are crucial. I encourage small business leaders and especially new founders to really think about the type of person you want to hire beyond the job description. This requires thinking about what type of environment you want to build in the long run and what intrinsic characteristics a person needs to help you get there.

Let me give you an example from my own business. I started this business because I wanted to be able to navigate being mom and worker. I wanted the utmost flexibility, beyond what even a 100% telecommuting job would give me. I wanted to be able to completely own my schedule. One thing that has made me successful in doing so is that even though I may not sit down and work a typical 8-5, I am extremely responsive to my clients needs. This means I may be taking calls at swim practice or answering texts while grocery shopping, but responsiveness is important to my clients and so I make it a priority. When I started to think about hiring employees, I knew this was a trait I needed in them. I don’t care when, where or how they work, but when I or a client reaches out, I need them to be responsive. That doesn’t mean stop everything and do what the client asks, but it does mean giving some response to let the client know you are on it. Beyond any skill set they may have from their past experience, this trait is the most important for me.

I have clients who say they need critical thinkers or individuals not afraid to push boundaries. Whatever those things are, the hiring process should seek them out. The process has to be thorough enough to sift through a person’s experience and character to make the best decision.

Organizational Structure:
I’m often impressed with business leaders who know ahead of time the type of organizational structure they want to build and then are very deliberate in keeping it so. What normally happens is that leaders let business growth, or the ideas of other leaders, dictate the type of organizational structure. With that, you either end up with too many leaders or not enough. Small businesses can go through times of explosive growth. With that comes decisions around how to break out departments and how the reporting structure should be. While this can be organic to some degree, thinking about how this builds out early helps focus development.

Regardless of what other consultants may say, there is no one right structure for small businesses. Some of my clients are very flat while others have multiple layers and leaders even though they only have 100 employees. While I prefer a more flat organization initially, that doesn’t mean it always works best. Much of what works is dictated by the founder or CEO’s personality and preferences. How involved do they want to remain in the minutia and how much are they willing to let go.

I often lump leadership development in this as well. As you think about organizational structure and potentially adding layers to a business, it’s imperative you also think about how you are going to develop those leaders you hire or promote. Assuming they need no development is short sighted. All leaders need continual development opportunities and the need for this doesn’t change because a business is small. In fact, I would argue it increases.

While HR infrastructure is so much more, these three areas are the most important for new businesses or those in an early stage of growth. Thinking about them early rather than waiting until they are broken will prevent so many headaches down the road. In future posts we will break down these areas one by one to give more detail and guidelines on how to build strategies in each area to set you on a path of success with your people processes.


The Case for Human Resources in a Startup

The Case for Human Resources in a StartupI met with a HR professional thinking of branching out on her own last week and had a great discussion around startups and human resources. The question we were pondering was why startups, and in my experience many small businesses for that matter, not think about HR early in the process.

I’m not sure we have the answer.

In my six years of running this business I have come across two types of businesses. Those that do think about HR right away and want to build infrastructure as soon as they make their first hire and those who think about HR after they have received a letter from the DOL. There are far more of the latter than there are the first. The first are typically more successful – anecdotal on my part of course, but my experience nonetheless.

My stance is and always has been that founders should start considering people practices from the minute they make their first hire. This doesn’t mean they need to implement complex programs right away, but their are people implications that should be considered before that first hire hits their first pay day, and I’m not just talking about the legally required stuff.

The biggest case I can make for building an HR infrastructure early, lies in the way the business grows from a headcount perspective. Once a startup receives it’s first or second round of funding, it usually has hires it wants to make immediately. Depending on the size of the funding, a startup could double in size in a matter of months. Because this all moves very quickly, the recruiting process, onboarding process and culture establishment is usually muddled, convoluted and often non-existent. Mistakes can be made in the hiring process, new hires aren’t trained properly or at all and the environment that is established is not what the leader intended.

Thinking about people infrastructure early in the process does add one more thing to a founder’s plate. It does mean they have to be deliberate about how they hire and how they move through every other phase of the employee life cycle, even if they only have five employees. But fixing mistakes later is difficult and painful.

It is the epitome of the old adage which I’ve heard phrased a million different ways, but I like this one.

“Take the time to do it right the first time or be forced to spend the time doing it over later. The choice is yours.”

So my plea to startup founders or small business leaders who have never really thought about the people infrastructure and have just been winging it – think about it. If you are struggling to hire, struggling to train, struggling to get people on the same page, you need to put people strategies in place to fix all of this. The longer it goes without attention, the harder it is to create what you actually intended in the first place.

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New Employee Orientation in CA: Why a Formal Process is a Good Idea

Employee Orientation in CA: Why a Formal Process is a Good Idea Ah California. It’s amazing the stuff I didn’t know about California law before I moved here. I’m thankful now I never landed a CA client while living in the Midwest because the truth is, there is a lot about the law I wasn’t aware of.

But nearly three years and a slew of clients later and we are almost experts. I say almost because not even the lawyers in CA call themselves experts – way too many changing laws to ever fully feel confident you know everything in this state.

One of the things that is different in CA than most states is the requirements around onboarding and offboarding of employees. Not only does the state require that certain documents be given out, but with the various unique laws in this state, hello meal period penalty, businesses will want to prove they have shared everything necessary with new employees.

This is why a thorough orientation (and onboarding for that matter) program is necessary. Orientation programs are held the first day(s) of a new employee start. There is a difference between orientation and onboarding which you can read about here. For this article we are just going to focus on orientation.

Because I believe all orientation/onboarding programs should be more than just paperwork, I’m going to highlight both the legal and soft touches that should be included in orientation. While the legal aspect is specific to CA, there is no reason why a business in any other state couldn’t consider this as a guideline as well.

So many times we bring new employees in, sit them down, shove new hire paperwork in their face to have them fill out and then sit them at their desk to figure things out. This isn’t a fun way for anyone to start. The first thing a new employee should experience is introductions. Introductions to the team, the leaders and anyone else they will come in contact with on a regular basis. Allow the employee a few minutes to share about themselves and key players to do the same.

One on One Supervisor Time
I’ve heard stories of how some employees do not meet with their new leader until their 3rd or 4th day or even later. New employees and their leaders need to immediately start to build trust and rapport. You can’t do that if you are a ghost for three days and then pop in for a drive by. Leaders should sit down with their newly hired employees on day one and go over high level expectations and what they think the employees first 90 days will look like (this is where the complete onboarding program comes in).

Legally Required New Hire Paperwork
Of course, there are those legal documents employees must fill out. In all states the minimum paperwork is the Federal tax form and the I-9. State tax forms may be required in some states. In CA, state tax forms are required only if the withholding differs from the federal withholding. Also in CA, there are other documents that must be provided to employees as well. SHRM just did a nice write up about this and I hate to re-invent the wheel so you can read about all of those documents here. I encourage employers to have a document that new hires sign stating they received these documents just as extra proof they handed them out.

Employees can typically be left alone to fill these out without help from HR or their supervisor, but someone may want to be nearby in case they have questions.

Non-Legally Required New Hire Paperwork
All businesses typically have other documents that they want new hires to sign as well. This could include benefit paperwork, non-disclosure agreements or equipment lists. An employee handbook should also be given to employees during orientation. When providing these documents, I encourage a member of HR or the leader to walk through these documents with the employee to explain why they are being asked to sign them.

In CA, there are laws specific to the state that are usually outlined in an employee handbook. Things like meal periods and penalty, preventing sexual harassment and pregnancy leave are unique to the state. I encourage California employers to highlight these specific policies and any procedures around utilizing them that employees need to know. And in all states, I encourage employers to receive a signed statement from every employee stating they received the handbook.

The Soft Touches
One thing that can often be overlooked during a new employee orientation are those soft touches. Things like who may take the employee to lunch or having their desk ready with supplies and a name tag. Anything that makes the employee feel as though you were anticipating their arrival and are happy they have joined the team.

I’ve heard leaders say they don’t want to spend a ton of time or money getting a workplace setup for an employee in case they don’t show up on day one. The flip side is the employee who does show up and then has to wait three days to get a computer setup with email. It doesn’t take too much time or money to get the basics setup and then invest in more once you know the person actually starts. Plus, if you are constantly worried about your employees not showing up on day one, something is broken in the recruitment process which is a whole other blog post.

The goal of orientation is not just to get the legally required documents you need, although that is important. The goal is to make the new hire feel welcomed and appreciated from the start. First impressions are made so quickly and it is hard to overcome a negative impression within the first 90 days.

Think about how you would like to walk into a new role and then do everything possible to make sure a new hire gets the same treatment.

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3 People Related Leadership Challenges Small Businesses Face

3 People Related Leadership Challenges Small Businesses FaceStarting a small business is tough. A founder has to figure out all the in’s and out’s of running a business while somehow keeping themselves afloat financially. From offering a viable product or service to finding customers to finding the right systems, every aspect of a small business has to be considered and dealt with quickly.

And then you hire employees.

At times more stressful than the customer side of owning a business, is the people side. Hiring, motivating, training, paying and sometimes firing employees is draining on even the most organized and skilled among us. In our work with startups and small businesses who are experiencing growth that creates a need to hire, sometimes a high volume of candidates, we have uncovered three people related challenges that seem to pop up over and over.

Hiring First, Thinking Later
I’m a big fan of this philosophy and follow it in most areas of my business. Jump first, build the parachute on the way down. It serves many of us well as entrepreneurs. Until it comes to hiring people. Founders find themselves needing help and leap before they think. They will hire a family member or someone they think can do the job without thinking about how it should work out. And by work out I mean both the basics around how they will get paid and what laws have to be considered as well as the more advanced around hiring structures and performance management.

Too Many Layers
The amount of instances in which this challenge creeps up is astounding. A 20 person businesses does not need three layers of managers. It doesn’t. I will fight to the death on this one. This typically happens because a family member or friend was hired and wanted an executive title. Then someone decided they needed a team and that team needed a layer in the middle. Before you know it you have a whole lot of “managers” who really aren’t managing anything. This leads to so many complications such as pay disparity, general lack of continuity and ego based decisions.

Here is what I have seen work best. Everyone reports to a founder(s) until the founder(s) can no longer effectively manage everyone, then another leader(s) is hired or promoted. Only adding leaders as necessary and being very clear in the division of duties when new leaders are appointed. Beyond that, layers are only added after intense discussion and when everyone agrees that it makes the most sense. Leaders shouldn’t be added because someone thinks they need a leadership title. They should be added when it makes business sense.

Not Thinking Long Term
I have a new client from another country who is bringing their product to the US for the first time. During our first call they asked me what types of activities we could do around culture and building the type of environment they felt was important. Before we talked about a payroll system or the vacation policy, we talked about culture.

From the moment a business hires it’s first employee, it is creating an environment for employees to work within. The business can either be deliberate about it or let what happens happen. Either way, 3 years from now an environment will have been created. If a founder gets caught up in today and doesn’t at least think about a few months and years down the road, something may be created that they aren’t happy with.

And undoing that can be nearly impossible.

There are many other challenges that businesses face, like growing too fast or not dealing with issues swiftly, but these are the three that seem to hit small businesses on a regular basis. The people side of the business should be taken as seriously as the customer side. It should be as well thought out and planned as the product of service you are offering. Leaving people matters to chance may work for 1 in a million new businesses. Not sure that’s a chance I would be willing to take.


What is on Employee’s Minds While at Work? Hint: It’s Not Work

What is on Employees Minds While at Work?Acacia HR’s Christine Kopp is taking over the blog today. Enjoy!

Do you know what your employees are thinking about while they are on the job? Here’s a hint, it’s not work.  We all know that employees come to work each day with their personal baggage. Whether it is a personal struggle, childcare issues or financial stressors it comes through those doors on a daily basis and impacts efficiency and engagement.  The latter topic is what I want to focus on today by looking at your employee’s financial well-being.

Financial well-being is nothing new, but it is gaining more traction as something small businesses need to focus on. Most Americans don’t have $500 in their savings accounts and the amount of debt people are living with is staggering. Many come out of high school and even college with just the basic understanding of finances and even more live paycheck to paycheck. In the highly competitive business world we must have our employees on the top of their game and not distracted with how they will afford their car payment. But that is exactly what they are thinking about while at work. Financial stressors are making your employees less efficient because they are so distracted with their financial baggage they aren’t giving their all.

So what is a small business supposed to do with likely a small budget? Here are a couple of ideas to get your organization helping employees with their financial well-being:

Get it on your wellness calendar

Many of us have been doing walking challenges, biometric screens and focusing on healthy living for our employees for quite some time. Why aren’t more companies focusing on their financial well-being? Make a financial literacy month and focus a newsletter specifically on the basics of financial literacy and promote any benefits your company offers like 401(k).  Once you have made the commitment that you are going to focus on financial wellness get it on the calendar!

Look for financial well-being services you are already paying for

That’s right, some of these resources are already being included in your Employee Assistance Plan or 401(k) plan and even your medical plan. At the company I used to work for, our EAP gave us a specific number of instructional hours… for FREE! Since we focused so much of our well-being initiatives on the health aspect, we would set these hours up at our locations and have employees sign up for classes like ‘Living on a Budget’ or ‘Financial Planning 101’.

Your 401(k) provider is also a great avenue to explore what resources they have available. You are paying those commission fees right? Well put them to work and check and see if your plan allows onsite financial planning and set employees up with 20 minutes.  If these aren’t viable options, set up a Finance Fair in the break room and have some reputable financial planners come out on site.  There are also many great training options you can purchase and have your employees sign up for or you can develop your own.

Hopefully these ideas will get the ball started on creating a financial well-being program that will not only benefit your employees greatly, but you will see the results in a more happier and productive work environment.




There is a Candidate for Every Environment

There is a Candidate for Every EnvironmentIn May at the WorkHuman conference, my friends Robin Schooling and Bill Boorman did a talk on recruiting. One thing that Bill said that has stuck in my mind ever since is that when it comes to fit, there is a person for every environment. There are people who are willing and able to work in even the most toxic environment.

He’s right.

Last month I filled an Office/HR Manager position for a very challenging environment. The hiring managers interviewed 8 candidates. During both my pre-screen and the onsite interviews with the candidates we were very honest about what this person would be walking into. While not a toxic environment, one that was very demanding in a culture that is very direct and could be perceived as aggressive. For some of the candidates, the truth about what they would be facing was enough for them to say that it wasn’t the right place for them.

For others, and ultimately for the person who was hired, that type of environment was refreshing and invigorating.

The lesson I learned while recruiting for that role made it very clear that there is a candidate out there for most any environment. The key is being honest in the recruitment process and asking very targeted questions to ensure you are finding the right one.

If the environment is challenging for one reason or another, be honest.

If the CEO yells and there is no changing that, be honest.

If the leadership doesn’t really put an emphasis on employee development and just wants people to come in and do their job, be honest.

If the hours are long and the work is hard, be honest.

If the company is in a transition phase and need to get over a tough hurdle, be honest.

Whatever it is, bumps, lumps and all, be honest.

But then you have to be honest about the good. What would make someone want to work in all of this? Is it the chance to get in on the ground floor of something that will be amazing in time? Is it the chance to work with some of the smartest minds in your industry, even if they are jerks? Is it the chance to eventually build something that is far different than what it is today if everyone can just get through this part?

I often hear from HR leaders who say they struggle to hire or retain hires because of the environment they are in. Usually I find this to be because they are not completely honest during the process and then the hire sees the reality they are facing and feel duped. That is not a way to start a new job.

It may take a little longer to find the right person when your environment isn’t one that would land you on a Fortune Best Places to Work list, but that doesn’t mean the right person isn’t out there.

It’s a weird truth to comprehend, but that doesn’t make it any less valid.

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Should Your Small Business Have an Unlimited Vacation Policy?

Should Your Small Business Have an Unlimited Vacation PolicyIn our work helping small businesses build HR infrastructure, we often spend a bit of time discussing time off policies. For the record, I have never had a business decide not to offer time off, but have certainly had businesses go back and forth for some time trying to decide which policy is right for them. There are many options.

Paid Time Off (PTO) – where all time off hours are in one “bucket” and employees can take them as they choose.
Gifted Time Off – where employees are gifted their year’s allotment of time off at the start of the year (or their employment) and can take as they choose.
Accrued Time Off – by far the most popular, where employees accrue time based on hours worked.
Unlimited Time Off – the policy that has risen in popularity in the last few years where, as the name suggests, there is no tracking of time off and employees can take as much, or as little, as they want. This is the policy we will discuss today.

An unlimited vacation policy in one where employers do not give guidance on how much vacation time can be taken and can not discipline for taking too much time. If an employee is taking too much time and their work is suffering, they can be disciplined for performance, but not for time off. The policy truly is an open policy where employees are in control of time off. Leaders can enforce black out periods or deny requests, but there should be definitive business reasons to do so.

In recent months, I have had several clients who started their business with accrual based policies consider switching to unlimited policies. After consideration some have switched and others haven’t. The decision comes down to a few key points that each business has to evaluate for themselves.

Before I list those steps let me say that for my clients in California, we are extra careful. With the labor code as it is in this state, we want to be sure we are not violating any law that could allow employees to feel they need to seek legal recourse. The point of an unlimited policy should be a benefit to employees and California in particular is extra strict about making sure they are in fact, a benefit.

The first point that needs to be discussed around an unlimited vacation policy is whether or not the culture of the business supports it. My business, for example, is perfect for unlimited vacation. My employees can work from anywhere, anytime. They have no set schedule and do not have to report into me on any given day. They have work to do and as long as it gets done I don’t care how or where. They don’t need to tell me when they are taking a day off, they only need to make sure the work is complete. While not all businesses can be this relaxed, many can do some variation of this and those are perfect for unlimited vacation policies.

If your business demands that people be in your location on a very consistent basis and vacations that aren’t planned months in advance will hurt productivity then an unlimited policy is probably not for you.

Employee Base
Most of the employers who I know either have these policies or are looking at implementing them are made up of mostly exempt employees or are considering offering it to only exempt personnel. These individuals are already in the mindset of having control over their schedules. They are used to independent work and know how much or how little they need to work in a week to accomplish what they should.

State Specific Law
As mentioned, California and other states have stricter laws in their labor code that make unlimited vacation policies tricky. First, mandated sick leave laws require employers to prove they are providing so many hours of sick leave per hours worked. In these states, I always encourage employers to have a separate sick leave policy in accordance with the law and only make the vacation time unlimited.

Further, employers have to be very careful of doing anything that seemingly caps the unlimited vacation or tracks it in any way. The minute this time is capped or tracked, it is no longer unlimited. This is the one policy where the required record keeping is minimal and actually discouraged.

The Transition
When transitioning from an accrued policy to an unlimited one, it is always advised to have a specific end date of the old policy and start date of the new one. Employers should pay out any accrued vacation. I have heard of companies who have given employees a window of time to use their accrued vacation before moving to the unlimited policy, but if employees aren’t able to do so they are legally required to pay it out anyway so it may be easier to plan to pay it out. Employers should have a clear communication plan on how vacation will be handled, how employees can request time off and if there are any restrictions or blackout periods.

It has been argued that unlimited vacation policies result in less vacation time for employees. For this reason, I prefer employers to build in a way to encourage employees to take time off. It could be that you offer a free flight to a destination of their choosing or something along those lines. It should be something tangible rather than paying out time as that could be misconstrued as an accrual system.

One final thought. I have had clients who have switched to unlimited vacation policies only to switch back. The reasons are varied but sometimes employees and leaders end up not liking them as much as a more structured system. It certainly isn’t for everyone. Before transitioning to a system like this, it would be beneficial to talk to employees and leaders and get their thoughts before proceeding. The last thing you want to do is implement and then find out everyone hates it. Time off policies are supposed to be rewards for work well done, not policies that make things more difficult.

If you are considering moving to an unlimited vacation policy and want to talk through the implications for your team, we would be happy to help.

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