The Case for Vacation Fund


I first came across Vacation Fund via a TravelTechTO event back in May which, unfortunately, I could not attend; however, I did watch the company's pitch on YouTube. More recently, I was able to participate in an online Canadian Demo Day hosted by The Founder Institute that included Erica Pearson, Co-founder & CEO of Vacation Fund.

I've been following Vacation Fund ever since that first TravelTechTO event. The idea behind the company is extremely appealing to me and I wanted to take a deeper look into Vacation Fund and the following highlights why I believe it makes sense in today's workplace. 



I like to think of Vacation Fund as a kind of RRSP for vacations. More specifically, it is an employee benefit that allows employees to direct a portion of their paycheque towards a separate account (the vacation fund) with employers matching a portion. Specifics around how much the employer matches, how long employees need to be with the company and whether the saved amount can be carried forward depends on individual employers. Erica mentioned most employers match up to $500 for employees that have been with the company at least 6-months-to-a-year and with no carry-forward, thereby ensuring employees are incentivized to take a yearly vacation. 

The idea for the company came to Erica while working in Capital Markets in downtown Toronto. While the pay was great and Erica could see a clear path to career growth, the job came with long hours, weekends and always being on-call with the added expectation of being reachable during vacations. It's unclear to me whether Erica quit her job to start Vacation Fund or because the job took its toll but regardless, Erica saw a way to help employees take a break from their busy work lives by helping them save for a vacation. The initial idea was a B2C play, but feedback from company CEOs that Erica pitched to suggested a B2B made more sense as employers wanted to offer this benefit to their employees. Vacation Fund launched its website in December of 2017 and has already secured an impressive pipeline of interested employers. The following are slides from Erica's pitch. 


Vacation Fund currently has 5 companies signed onto its pilot program, 13 with which it's having ongoing discussions and a further 46 on the wait list. The table below outlines the companies at their respective stages along with number of employees. Employee size was determined using either, LinkedIn or the company's website. While 46 companies are on the wait list, Vacation Fund's slides only outlined 15 out of the 46 companies.

Also included is a pie chart showing the breakdown of the interested companies by employee size. A majority (approximately 81%) of the interested companies fall in the under 200 employee count. Of course, companies like MNP, BDC and Indigo that might make up a smaller percentage of Vacation Fund's customer list will inevitably account for a larger share of revenue simply because of their employee counts. 


The need for Vacation Fund and the value it brings employers and employees can be summarized below. Vacation Fund helps:  

1. Increase employee satisfaction and productivity (by helping reduce employee burnout)
2. Clarify company messaging around vacations (by encouraging employees to take vacations)
3. Retain talent (by offering a benefit that is attractive to the modern workforce)
4. Give employees the gift of travel (by automating savings with employer contributions)

1. Increase employee satisfaction and productivity - The rationale here is that job stressors contribute to physical, psychological and behavioural strains, which in turn affect employee satisfaction. Unsatisfied employees are unhappy and therefore unproductive employees. A respite from workplace stressors (in the form of a vacation) should contribute to a reduction in the aforementioned strains, thereby leading to an increase in employee satisfaction and productivity. Straightforward, sure, but Vacation Fund cites its program as a research-backed benefit, so I decided to look at existing research on the effect between vacations and employee burnout.

I came across a study by Mina Westman and Dalia Etzion titled "The Impact of Vacation and Job Stress on Burnout and Absenteeism" published back in 2001. The research's main focus was on the effect that vacations have on burnout and absenteeism, the hypothesis being that "an organizational vacation, which affords employees the opportunity of distancing themselves from the job’s stressors, ought to bring relief, at least temporarily, from chronic job stress and, consequently, from psychological and behavioral strain." 

The study focused on 87 employees in a food company in Israel during the 10-day Passover vacation shutdown. The employees completed stress and burnout questionnaires on 3 separate occasions - 10 days before the vacation, 3 days after the vacation and 4 weeks after the vacation.  Absenteeism was measured objectively by accessing the organization's database and a distinction was made between absenteeism for health reasons and absenteeism for other reasons. 

The results are shown below. Plotted values are the mean recordings across the 3 occasions. We clearly see a drop in job stress, burnout and absenteeism (with the exception of absenteeism associated with health reasons) for the Postvacation 1 period which is defined as the 3 days after returning from vacation. 

Source : Etzion, D. and Westman, M. 2001. The impact of vacation and job stress on burnout and absenteeism.  Psychology and Healt  h , Vol.0, pp. 95-106

Source: Etzion, D. and Westman, M. 2001. The impact of vacation and job stress on burnout and absenteeism. Psychology and Health, Vol.0, pp. 95-106

The study concluded that:

  • Vacations alleviated perceived job stress and burnout as predicted, replicating findings that a respite from work diminishes levels of strain to lower than chronic, on-the-job levels, and 
  • Vacations contributed to a decline in burnout immediately after and a return to prevacation levels four weeks later, and a similar pattern with regard to absenteeism.

The benefits of taking a vacation in reducing stress and burnout are indeed backed by research.


2. Clarify company messaging around vacations - Speaking from personal experience, a barrier to taking vacations is the misconception that employees who take time off are not as dedicated to their work. Indeed, Project:Time Off's State of American Vacation 2018 found that "while Americans are increasingly realizing the value of vacation time, challenges remain particularly when it comes to workplace optics." A total of 52% of employees in America reported having unused vacation days at the end of the year. Of those with unused vacation days, 61% cited the fear of appearing less dedicated or even replaceable as a barrier to taking vacations. Employers with a dedicated benefit program that funds employee vacations will clear any misconceptions around vacation policy. 

Source : Project:Time Off,  State of American Vacation 2018

Source: Project:Time Off, State of American Vacation 2018

3. Retain talent - The premise here is that Millennials make up a larger portion of both the existing and available workforce. If travel and work-life balance are things Millennials value, it follows that a benefit like Vacation Fund will help employers attract and retain Millennial talent. 

The Pew Research Center found that Millennials are already the largest generation in the US labour force, overtaking Gen Xers in 2016. As of 2017, Millennials made up 35% of the workforce compared to Gen Xers at 33% and Boomers at 25%. 

Millennials became the largest generation in the labor force in 2016

On travel, a survey of 1,000 Millennials by Airbnb found that travel is deeply important to Millennials, more so than purchasing a home, paying off debt or purchasing a car. Millennials also feel that travel is core to their identity with 70% saying that "travel is an important part of who I am as a person," and over 65% saying that "regular travel is an important part of my life." 

In looking at what it takes to attract and retain Millennial professionals, Robert Walters, a recruitment agency, conducted a survey of 302 hiring managers and 228 working professionals. The study found that while Millennials place the lowest importance on improved work-life balance when considering a new job compared to other generations, it is not to say that Millennials do not value work-life balance. Indeed, 90% of the surveyed regard policies that encourage a good work-life balance as one of the best things about their jobs. The study concluded that while a good work-life balance is important to ensure job satisfaction among Millennials once they are employed, it is not an effective strategy to recruit them. 

Millennials prioritize travel, value work-life balance and already make up the largest workforce compared to other generations. An employee benefit like Vacation Fund directly aligns with what Millennials value.


4. Give employees the gift of travel - Much has been written about the financial state of Millennials. A 2017 GoBankingRates survey found 46% of Millennials had $0 in their savings account. Another survey of Millennials by Abacus Data found 40% who thought their generation is mostly or much worse off compared to their parents, 30% who said they didn't have any savings and 22% who had less than $5,000. Going back to the Project:Time Off study, 56% stated a lack of coverage at work as a hindrance to taking a vacation with another 53% citing the cost of travel as a barrier. 

I've read a lot of books on personal financial management and one of the most important lessons is the concept of paying yourself first which means directing a portion of your paycheque towards savings. The key is to automate this process so you're forced to live off what's leftover. RRSPs work this way where contributions are automatically deducted from your paycheque. Vacation Fund, too, automates the saving process with the added benefit of matched employer contributions, helping employees save towards their vacation goals. 



In her pitch, Erica mentioned a couple of direct competitors that have popped up recently, one in Toronto and another in Orlando. No names were mentioned and a Google search turned up empty, however, I did come across Adestinn and 401(play). The former is based in Minneapolis and the latter in Tucson. 



Founded in 2009, Adestinn is a wellness program that guarantees employees a 50% matched credit through its Vacation Savings Match Program. The credits can only be spent at Adestinn's partner hotels and resorts which include Hilton, Hyatt, DoubleTree etc. Employees can contribute a maximum of $400 a week with employers paying "as little as $1 per employee per month." I'm curious to know how Adestinn can offer to boost employee contributions by 50% while charging employers so little. My guess is that the company has cut a deal with its hotel and resort partners, even though its website states it does not charge hotels any commissions. Adestinn has also partnered with insurance companies and benefits brokers, so it could be that the employer, hotel and insurance company are all in part contributing to the 50% additional credit. 

The limitations with this program are that the accumulated credits can only be applied towards a limited number of hotel or resort (no plane tickets, for example). Destinations are also limited based on Adestinn's hotel partners (see map below). Finally, should employees want to withdraw their saved funds, any matched credits are non-refundable. 

Figure 4 : List of Available Destinations - Adestinn

Figure 4: List of Available Destinations - Adestinn


401(Play) was founded in 2013 as a program to encourage employees to save for their vacations by setting aside a portion of their paycheque. While I love the name, I fail to see the value this provides to either employer or employee; there is no employee matching - from what I can tell - so this seems like nothing more than a simple savings account with the only benefit being the ability to make automated payroll deductions.  

The following table highlights the differences between the 3 providers. I wouldn't classify either Adestinn or 401(Play) as direct competitors, although they both offer services claiming to help manage employee stress, burnout etc.  

Figure 5 : Table comparing the 3 Providers

Figure 5: Table comparing the 3 Providers


Vacation Fund aims to grow its users by the numbers shown in the figure below, fulfilling 1 million travel dreams by 2021 in the process. The company expects to expand to the US this year and be cash flow positive within 24 months. It also expects to grow its current team from 4 to between 8 and 12. Side note - If someone from Vacation Fund is reading this, I know a great guy who will be graduating right around the time you'll need to expand the team.

Figure 6 : Vacation Fund's Goals

Figure 6: Vacation Fund's Goals

Vacation Fund is an innovative benefit that helps increase employee satisfaction and productivity, clarify company messaging around vacations, retain talent and give employees the gift of travel. It will be interesting to see how successful the company can be in differentiating itself from other wellness programs. My previous employer, through our benefits provider, allowed employees a set amount of funds to spend on a predetermined list of wellness programs (golf clubs, yoga classes, gym memberships etc.) How much value a dedicated vacation fund brings to justify a separate program remains to be seen, but I believe there's a case. Erica also mentioned interest from travel companies on targeted, unpublished offers through Vacation Fund's platform, so I'm curious to see how the company monetizes all the data it collects as it onboards more users. Regardless, the company has an exciting future and I wish it all the best.