Unlimited Holiday: Should SMEs Adopt It?

The phrase ‘unlimited annual leave’ might scare you a little as a business owner and have you picturing either an empty office with tumbleweeds rolling through, or a complete operational meltdown. But the reality is that the standard 28 days plus bank holidays model we are used to, isn’t exactly a guarantee of productivity either.

Unlimited time off isn’t just a trendy perk for Silicon Valley tech giants. For UK SME’s it could be a huge opportunity to rethink flexibility, boost trust and build a culture where performance matters more than hours clocked.

So, is it right for your business? Let’s take a look at the facts.

What is unlimited holiday?

At its core, unlimited time off is exactly what it sounds like. There is no capped allowance on the number of days an employee can take off in a year.

Instead of offering an allotted amount of time to take, employees are trusted to manage their own time. Taking leave when they need it provided their work is done and their team is covered. 

In 2025, 1 in 4 (25%) missed out on some of their annual leave and 1 in 10 workers missed out on 5+ days of annual leave. Yes. Really. And full time employees take or will take around 69% of the leave they are entitled to. So for those afraid employees might take advantage of unlimited holiday, you might want to think again.

Offering unlimited annual leave shifts the employment contract from ‘time-for-money’ to ‘value-for-money’. You stop buying their presence and start buying their output. And in a traditional model, annual leave can be viewed as a debt the company owes the employee but in an unlimited model, leave is flexible and a tool to be used to maintain high performance.

The pros and cons of unlimited annual leave

Like with any disruptive policy, there are both pros and cons to consider.

So, should SMEs adopt unlimited holiday?

Is this model right for a business of 50 people scaling fast?

The case for yes:
SMEs are agile. You don’t have the bureaucratic layers of a FTSE 100 company. You know your people. In a small, high-growth environment, output is visible. If someone isn’t pulling their weight, there’s nowhere to hide. This makes the transition to output-based working easier. Unlimited annual leave aligns perfectly with the “all hands on deck” mentality of a scaling business, work hard when it’s needed, rest fully when it’s not.

The pitfalls to watch:
SMEs often lack the robust performance management systems needed to make this work. If you don’t have clear KPIs (Key Performance Indicators), how do you know if someone has “earned” their time off? If you measure success by “bums on seats,” this policy will fail.

You also need to protect your “hero” employees. In every SME, there are a few people who carry the weight of the world. They are the least likely to take leave. An unlimited policy can accidentally encourage them to work themselves into the ground.

Best practice for implementing unlimited time off

You’ve decided your SME is ready to take the leap and offer unlimited annual leave. Great. But it’s key to remember that a little preparation is needed beforehand to support its success. Don’t just delete the holiday cap and hope for the best.

Here’s how to implement a framework.

1. Set clear guidelines (not rules)

Unlimited doesn’t mean unmanaged. You still need a policy that outlines:

• Notice periods: “For 1-2 days off, give 2 days’ notice. For a week or more, give a month.”
• Coverage: “You must ensure your responsibilities are covered before you leave.”
• Blackout periods: “No leave during the end-of-year audit” (if applicable to your industry).

2. Implement a minimum leave requirement

This is the secret sauce. Instead of a maximum cap, set a minimum requirement (e.g., 25 days). Make it mandatory to take at least this amount. This removes the guilt factor and ensures people actually rest.

3. Lead by example

If the CEO never takes a holiday, the team won’t either. Leadership must model the behaviour. Book a two-week holiday, turn off your Slack notifications and show your team that the business won’t collapse if people disconnect.

4. Monitor usage with tech

You stop counting days for payroll, but you must keep tracking them for wellbeing. Use HR software to monitor who is taking leave and, more importantly, who isn’t. If someone hasn’t taken a day off in three months, that’s a red flag for a manager check-in.

5. Focus on outcomes

Shift your management style entirely. Stop asking “how many hours did you work?” and start asking “did you hit your targets?”. If the targets are met, it shouldn’t matter if they took Friday off.

Real-life examples of unlimited holiday in action

Big names like Netflix and LinkedIn popularised this, but it works for SMEs too.

Consider the example of a UK-based tech agency with 40 staff. They switched to unlimited annual leave but noticed a drop in days taken. Staff were anxious. They pivoted, introduced a “minimum 28 days” rule and incentivised taking two consecutive weeks off with a small cash bonus. The result? Burnout dropped and recruitment costs plummeted because everyone wanted to work there.

Conversely, another SME tried it without clear KPIs. One employee took 50 days off while their team struggled. The resentment caused two resignations. The lesson? The policy wasn’t the problem; the lack of performance management was.

Is it legal to offer unlimited annual leave in the UK?

Even with an uncapped policy, employees are still entitled to a legal minimum of 5.6 weeks’ paid holiday per year (which is 28 days for full-time employees, including bank holidays). Employers must ensure that staff can actually take this time off and aren’t discouraged from using it.

Unlimited leave can’t replace statutory leave or result in employees taking less than their legal entitlement because expectations are unclear or workloads make it difficult.

One key complication is what happens when an employee leaves.

Under a standard holiday policy, unused statutory leave is usually paid out. With unlimited leave, employers need to be careful that the policy doesn’t accidentally create confusion about:

• Whether employees are “using” statutory leave first.
  
• Whether they could claim they didn’t get the chance to take statutory leave.
  
• How to calculate outstanding holiday pay fairly.

This is why many UK employers combine “unlimited leave” with a minimum holiday expectation (e.g. “employees must take at least 28 days”), so statutory entitlement is clearly met and documented.

Support flexibility with the right tools

Unlimited annual leave isn’t about handing your team free rein, it’s about building a culture of trust, performance and wellbeing. For UK SMEs, it can be a powerful way to modernise how you work, attract top talent and help your people feel supported to take time off when they genuinely need it.

The most successful unlimited holiday policies aren’t “rules-free”, they’re structured, fair and measurable. That’s where Employment Hero comes in. With Employment Hero’s all-in-one HR platform, you can:

• Automate leave tracking so you always know who’s off, who’s due to take time and who might be at risk of burnout.
  
• Set minimum leave expectations and alerts to ensure everyone is taking the rest they’re entitled to, without manual admin.
  
• Tie performance goals to outcomes (not hours) with integrated performance management tools.
  
• Keep approvals consistent with custom workflows that match how your business actually works.

Unlimited annual leave works best when it’s supported by clarity, visibility and consistency and that’s exactly what Employment Hero’s software helps you deliver. Instead of worrying about spreadsheets, back-and-forth emails or “who’s in, who’s out,” your team gets the freedom to take time off and you get the confidence that holiday compliance and performance standards are upheld.

Get the culture you want and the tools to support it. With Employment Hero, you’re not just offering unlimited leave, you’re empowering your people to thrive while keeping your business running smoothly.