Employers are taking many puzzling actions right now:

• Hiring so many people from outside and promoting so few
• Holding off funding vacancies and leaving jobs vacant for long stretches
• Laying off employees when reasonably sure those jobs will need to be filled in the future

The answer to many of these puzzles has to do with the quirks of financial accounting and the strange way it handles human capital.

Those quirks explain another strange practice, which is the move to so-called unlimited vacations. Why would companies do something like that, which sounds so generous, when they otherwise seem to be pinching pennies on everything to do with employees?

The answer comes back to financial accounting. The unstated point behind moving to unlimited vacation policies is what gets dropped in the process, and that is accrued vacation time, which you earn by working. The employer owes you that time once you’ve earned it.

The accounting problem for employers is that those accrued vacation days count as liabilities on their books, liabilities that have to be offset by assets.  We may remember during the pandemic, when fewer people were taking vacations (presumably because there was no place to go). Companies were actually pressing employees to take time off, sometimes giving them financial incentives to do so. They did that to get those liabilities off the books.

When the company moves to unlimited vacations, it drops the accrued policy, so the liability goes away, and the company instantly becomes more valuable.

You might say, it helps the company but unlimited vacation time still sounds like it boon for employees. The reason it is not is because then employees lose their rights to vacation time. What they get instead is a promise that they can take what they need. But there is no promise that the management will not pressure employees to decide that they only need what works for the company.

Even now with accrued vacation time, only 27% of employees used all of their earned time off (interestingly higher level employees take more of theirs). The usual reasons have to do with work demands: Employees feel their work won’t get done if they take time off, there is pressure from supervisors to stay on the job, and so forth.

Is it possible to imagine a company where a truly unlimited vacation policy would work? In other words, will the time off that individual employees want correspond to what the employer needs or wants? We should add to that concerns of fairness, that an individual employee will be okay with some of their peers taking off more time than they do, creating an uneven workload.

It is possible that employees put the needs of the employer first so that they simply never need time off unless there is nothing that needs to be done at work. Or, if employers don’t run lean and have enough buffer employees to get the work done whenever people need time off.

Ask yourself how likely either of those is to happen. It isn’t working for employees now, even though they have a right to take time off. It is hard to imagine that it works for employees when companies want to run leaner, faster, and harder.