Mandatory vacation?
August 9, 2014 9:56 PM   Subscribe

Why is a company making all employees to take a paid vacation?

A friends' company is forcing all its employees (tens of thousands) to take vacation time during a specific week this year as a special one-time action. They will use up vacation days, but they will still get paid (as long as they have vacation days -- otherwise unpaid).

I realize this is legal in the US, but I don't understand the motivation. It's not a furlough, exactly, since vacation days cannot generally be used on furloughs. What is this called?

It seems to me this will have an almost negligible impact on the company's cash flow, since most employees have more than enough vacation days to cover the week, and will shift their other planned vacations into that time.

So I can think of only two reasons for doing this:

1) The company wants to reduce stockpiled vacation days as a liability on its balance sheet (relatively benign). But this would be a fairly small effect, right? And wouldn't finance people be aware of this as a one-time gimmick?

2) The company is planning a massive layoff and wants to pay out less for unused vacation days to the terminated employees (worrisome). But this also would be a tiny part of the cost of a layoff, right?

Basically I don't understand how taking an action that will annoy a lot of people and not really save any money makes sense.

Any ideas?
posted by miyabo to Work & Money (24 answers total) 1 user marked this as a favorite
A company I worked for did this once, and at least part of the reason was that it was a week they expected most people to take off (July 4th) and they wanted to turn off or reduce A/C and auxiliary services for the buildings. Plus not a lot of work normally got done on weeks like that since so many people were already planning on being out of the office.
posted by tigeri at 10:05 PM on August 9, 2014 [2 favorites]

It not only reduces the liability of accrued vacation hours, improving the balance sheet but also reduces payroll expenses by almost 2% which can be a big number when there are tens of thousands of employees
posted by metahawk at 10:05 PM on August 9, 2014 [11 favorites]

I'm just spitballing here, but perhaps the company wants to upgrade or perform maintenance on its facilities?

The only other thing I can think of at the moment is that the company saves money by knowing when the employees will be gone, even if the amount of time lost is the same as if the employees took their vacation time whenever. Especially if it could be shown that the week they were gone was, like, the least profitable week of the year to pay people to do these jobs for some reason.
posted by alphanerd at 10:06 PM on August 9, 2014

What kind of company is it? For many companies, particularly those in manufacturing, wages are a only a small part of their operating costs. The company my brother works for (in Canada) does this every couple of years if business is slow anyway. It doesn't really cost them anything extra since they'd be paying people regardless and it does save them money on all their other costs.

They've also done this to have a week for maintenance. Basically if large numbers of people are going to be unproductive for any reason, they might as well be using vacation days rather than sitting at work wasting time.
posted by scrute at 10:07 PM on August 9, 2014

It does save money -- they can close the office, turn off the lights, turn of the a/c, etc.. And I think you might be underestimating the impact of having folks use up those vacation days.

On a more positive note, it's good -- important, actually -- for people to take their vacation days, and many people don't, at least in the US. It's so much easier when everyone is on vacation because you don't come back to a pile of email.
posted by bluedaisy at 10:08 PM on August 9, 2014 [3 favorites]

A big IT system change? A possible acquisition of the company and the buyer is doing a mass due diligence session? A legal or security audit of some sort?
posted by mullacc at 10:10 PM on August 9, 2014 [1 favorite]

Response by poster: It is a tech company -- most employees are very highly paid and are in hundreds of small offices around the world.
posted by miyabo at 10:11 PM on August 9, 2014

This will guarantee higher attendance the other 51 weeks. Maybe that is important.
posted by J. Wilson at 10:17 PM on August 9, 2014 [2 favorites]

Response by poster: Thanks. Good to know "massive impending layoffs" isn't the only explanation. Would appreciate any other ideas.
posted by miyabo at 10:34 PM on August 9, 2014

The length of the mandatory vacation period is actually quite short and is in contrast with the type of month-long shut down that companies sometimes do in places like France while everybody heads to the beach as part of a compliance with a summer holiday labour laws. Given that the company is tech then my guess would be that they may be planning a major systems transformation of some sort - one where the traditional down-time window of a weekend is not going to be enough.

But if this were going to be the case, I'd expect them to be pretty open about it and to have told your friend. What are they telling their employees as a reason of the down-time?
posted by rongorongo at 10:34 PM on August 9, 2014

Response by poster: They are not saying anything other than impenetrable corporatese.
posted by miyabo at 10:36 PM on August 9, 2014

Best answer: I smell layoffs.

Having everyone out of the offices makes it easier to keep a re-org on the down-low while the head-choppers get the paperwork sorted, figure out how to do damage control, handle security, etc.

I worked for a tech company that pulled this crap -- closed the office for the Xmas/New Years week without giving any indication that trouble was brewing; and when everyone came back, began the bloodletting.
posted by nacho fries at 10:43 PM on August 9, 2014 [8 favorites]

Best answer: I would suggest to friend that she takes all personal data off her computer and takes home any important personal items from her desk. Just in case.
posted by 724A at 11:54 PM on August 9, 2014 [29 favorites]

If corporate isn't being up-front about the reason for the forced vacation, it's definitely not a reassuring sign. I'd prepare for layoffs.
posted by Aleyn at 12:22 AM on August 10, 2014 [8 favorites]

What was the reason _they_ gave? If they didn't give one, then you have your answer.
posted by devnull at 1:07 AM on August 10, 2014 [1 favorite]

This is something that happened regular at the very large three-letter IT Company at which I formerly worked. This is an organisation with literally hundreds of thousands of employees, and all those vacation hours get reported as liabilities, often at an in-country level, but also come quarterly report time to wall street. It can add up to a pretty big number.

Regarding this: wouldn't finance people be aware of this as a one-time gimmick?

Well it's not really a gimick. You are reducing your liabilities, and it's not one time, as leave regularly accrues. Further to this, the market, rightly or wrongly, cares not about such jiggery pokery, so long as the fundamentals appear to be going the right(ish) way. It can make the difference in a quarterly reporting cycle, and, many of these large companies and their shareholders care very much about numbers on a quarter-to-quarter basis firstly.

It does not mean the company is in immediate trouble, though it probably means the company isn't sitting flush. Other organisation also have mandatory "summer" vacation leave (typically two weeks), that you must take whether you have leave accrued or not, sadly legal in most places. Others will mandate less than a week's outstanding leave by the end of q3, for example. Getting your employees to go into leave debt, however, is in my experience more of a desperate measure, which implies that quarterly numbers are looking grim.
posted by smoke at 2:49 AM on August 10, 2014 [5 favorites]

Just chiming in to say that unless they are giving your friend a darned good reason for this that clearly indicates that it's not about the company being in financial trouble (like they need to do some major upgrades), something is probably up. It may not mean that layoffs are imminent, but you should prepare for them none the less (just in case). I nth 724A's advice to, discreetly, remove important personal items from her desk and personal information from her computer. Also, she might want to start working on the usual about to be laid off preparatory tasks. At a minimum I suggest updating the resume, CV, LinkedIn profiles, etc. She may also want to use some of that unplanned vacation time to start job hunting.
posted by jazzbaby at 7:59 AM on August 10, 2014 [1 favorite]

We are forced to take a week or so of vacation over Christmas every year depending upon how the dates fall on the calendar. I believe the origin of this was to do maintenance in the factories, but that's not really relevant to most employees now days.

Perhaps other facilities work is going on, I'm not sure.

It could be some employees are accruing too much vacation and the company wants to get it off its books.
posted by beowulf573 at 8:00 AM on August 10, 2014

Yeah, the fact that they're not giving a real explanation makes me think financial troubles and possible layoffs on the horizon. Who knows, but be ready.
posted by J. Wilson at 9:03 AM on August 10, 2014 [2 favorites]

I'm thinking #1, reducing the stockpiled vacation time liability. I'm not sure why you think this would be a fairly small effect. You say yourself that there are tens of thousands of employees and they are very highly paid.

But yeah, I'm cynical, so I'd be polishing up my resume and networking a bit just to be on the safe side.
posted by Beti at 9:03 AM on August 10, 2014 [1 favorite]

Best answer: Vacation liability has a very high "interest rate" because it is denominated in hours / days and not dollars, so it moves by combined wage and benefit inflation and merit / promotion raises. A CFO really wants it used now, not later. If leave accruals were denominated in dollars of total compensation cost, a week of vacation not take would only by 3 days off after a few years ... and CFOs would love to see it accrue.
posted by MattD at 10:08 AM on August 10, 2014 [4 favorites]

Best answer: I've worked for a couple of tech companies that have done this, and nothing horrible has ever happened that was obviously connected, like layoffs when we got back. Eventually a rumor comes out of finance that they were trying to goose the numbers for that quarter. In each case the company was struggling a bit and so it made sense that they would resort to that sort of game-playing.

So I vote for reducing liability, with a side of "it was going to be a slow week anyway". It does send morale into the tank, though.
posted by five toed sloth at 6:35 PM on August 10, 2014 [1 favorite]

miyabo: "2) The company is planning a massive layoff and wants to pay out less for unused vacation days to the terminated employees (worrisome). But this also would be a tiny part of the cost of a layoff, right?"

It doesn't even change a thing. Cashing out vacation is a 1:1 deal -- you can either get paid to take a weeks worth of vacation, or get fired now, lose the vacation and get paid for that same weeks worth of vacation. I'm not sure what metahawk's 2 percent is about.

It's entirely plausible they're doing it so that management can give themselves a week to plan layoffs. But its not impossible. TED has blogged about giving its employees a mandotory 2 week vacation. I doubt they're attempting to goose the books or fix any cash flow issues; this article suggests they've been doing it for 5 years now.
posted by pwnguin at 9:19 PM on August 10, 2014 [1 favorite]

Best answer: So unfortunately this one does have a right answer. About 1 month after requiring everyone to take a week off, they quietly fired about 10% of their staff -- roughly 2,000 people.

Even though it is a very high profile company (you have heard of them), there hasn't been a single news article or even blog post that I can find. I imagine there is an ironclad NDA attached to the severance agreement.

There was no pattern to the layoff -- it wasn't any particular group or experience level. Everyone from fresh-out-of-college kids to Senior Directors nearing retirement was affected.

It is clear to me that they specifically required everyone to take time off in order to reduce the cash payout when they fired them. Yet another new and surprising way that companies can be sociopathic.
posted by miyabo at 1:48 PM on October 11, 2014

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