How to set up a vacation policy for employees

When I worked as a business consultant, I was often called upon to help small business owners create vacation policies. The type of vacation policy that I suggest creating can save companies money and reduce scheduling stress while still keeping morale in mind. Explanations are given as to why certain "traditional" vacation policies might not be effective for you.
Personal and Sick Days
I personally subscribe to the idea that personal days and sick days should be assumed together. This gives employees more flexibility as to when they can be taken, and does not allow for a large amount of days. When wrapped with vacation days, employees can get too many days off and this can hurt your small business. I have found that allowing for three to four personal/sick days a year gives the best balance of keeping employees working while allowing for ample personal time.
First Six Months
When an employee has passed his or her first six months with the company, I suggest giving a few personal days to use by the end of the first year of employment. This gives the worker something to strive for during the first half of a year with the company. Allow for the extra days off if the time allotted for these days fall during the next calendar year.
Vacation Days
I like the policy that many companies have that allows for one week of vacation after the first full year of work. I suggest, though, that a second week not be given until the third year of work and a third week given after the fifth year of work. This will save the company money over time since the average worker will not stay with the same job for five years or more. Once a person has been with the company for ten years, vacation should be maxed at four weeks.
Rollover and Opting Out
I do not like the idea of rollover vacation weeks or allowing for workers to opt out of their vacations or personal days to take extra pay instead. Time off should not be compounded by rollovers because it can allow for too many days in one year. Opting out does not allow the person to rest up and refresh during the year. If you want to allow rollover, then I would suggest capping it to encourage employees to take vacation time during the year they earn it.
While personal days might not be known until the last minute, vacation weeks should be announced at least 30 days ahead of time pending the quick acceptance or denial by management. Once you get the announcement of a vacation, your approval should be given within three business days so that proper planning can begin by all parties. Of course, this will still allow people to declare vacations with more advanced notice.
When to Start?
Many businesses will divvy out vacation days and personal days on the anniversary an employee's first day of work. While this makes for a strong vacation policy for some large companies, I do not like the idea for small business owners. If you start them at the beginning of the year, you do not have to keep track of everyone's hire date in a vacation log or planning journal. This saves time and reduces mistakes.
Blackout Days
I suggest accepting vacation blackout days. Look over the calendar and blackout your busiest times of the year. Make sure that you employees understand that it would harm the business if they were to take these weeks off. Note that big retailers do not allow vacations during the holiday season, inventory, and a few other key times of the year.

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