Floating Holiday Policies: Insights for SMBs

Quick look: A well-designed floating holiday policy can enhance employee satisfaction and improve recruitment efforts by showing a commitment to flexibility and respect for individual needs. Here, you’ll learn more about what a floating holiday policy involves, how it differs from traditional paid time off (PTO), and how a professional employer organization (PEO) can help implement and manage it effectively.

Today’s workforce is increasingly diverse and values flexibility more than ever before. As organizations seek to cultivate personalized, employee-centered cultures, floating holidays have emerged as a meaningful and cost-effective benefit.

Floating holidays can be a strategic advantage in attracting and retaining talent by allowing employees to take time off for the days that matter most to them personally, rather than following a fixed holiday calendar. But as with any workplace policy, success depends on thoughtful design and clear communication.

Below, we break down what floating holidays are, how they differ from PTO, their benefits to employers, and how a professional employer organization (PEO) can support you in developing a policy of your own.

What is a floating holiday?

A floating holiday is a paid day off that employees can use at a time of their choosing, often to observe cultural, religious, or personal occasions that may not be recognized in a company’s standard holiday schedule. Unlike fixed holidays such as Thanksgiving or New Year’s Day, floating holidays aren’t tied to a specific date and are used at the worker’s discretion.

Floating holiday vs. PTO: what’s the difference?

While both involve a day away from the office, a floating holiday and traditional PTO serve different purposes.

PTO generally includes vacation, sick time, and personal days. On the other hand, floating holidays are separate from PTO and are specifically intended for employees to take time off on days that aren’t a company-recognized holiday.

Unlike PTO, floating holidays are typically limited to a set number of days (usually 1–2 per year), may not carry over annually, and can have different policies regarding payout at termination.

The business-boosting benefits of a floating holiday policy

A floating holiday policy demonstrates that a company offers flexible, inclusive employee benefits. This can help small and midsized businesses (SMBs) stand out to top talent, especially considering that, per the Society for Human Resource Management (SHRM), less than half of employers offer floating holidays.

A floating holiday policy offers SMB employers the following advantages:

• Delivers a customized perk: Workers can take time off that aligns with their personal or cultural values.
• Enhances diversity, equity, and inclusion (DEI) efforts: Floating holidays support a diverse workforce by accommodating a wide range of observances.
• Strengthens recruitment and retention: Today’s talent values flexibility, and a floating holiday policy can give SMBs a competitive edge.
• Expands benefits in a cost-effective way: A floating holiday policy creates additional value for employees without incurring the cost of additional paid company-wide closures.

6 considerations when creating a floating holiday policy

Floating holidays can elevate a business’s total rewards offering. However, to develop an effective and compliant policy, employers must keep these six considerations in mind:

1. Eligibility criteria: Who qualifies for floating holidays, and when do they become eligible?
2. Number of days available: How many floating holidays will you offer?
3. Use-it-or-lose-it rules: Do the floating holidays expire at the end of the year, or can employees roll some over?
4. Request process: How should employees request time off? Can your human resources information system (HRIS) accommodate these requests?
5. Interaction with other leave: Clarify how floating holidays fit into your overall leave structure and specify the total available amounts of PTO in each category.
6. Final pay considerations: Be mindful of state laws that may require payout of unused floating holidays upon termination. For instance, in California, floating holidays must often be paid out to employees upon their departure. (Disclaimer: This is not an exhaustive list of employment laws. Please refer to your regional and industry-specific legal guidelines or consult your legal counsel for detailed and specific information.)

To drive understanding and avoid confusion, your company’s employee handbook should clearly document these details.

How a PEO can help you create a floating holiday policy with ease

Floating holidays can improve a small business’s benefits package, appeal to top candidates, and drive employee retention. However, managing a floating holiday policy requires careful planning, clear communication, compliance awareness, and the right technology.

That’s where a PEO like ExtensisHR comes in. As a leading HR solutions provider for SMBs, ExtensisHR offers:

• Policy development assistance: Our dedicated, SHRM-Certified HR Managers can help you create a floating holiday policy tailored to your workforce’s needs.
• Employee handbook updates: We ensure that the policy is clearly documented and distributed to your staff properly.
• Compliance expertise: Our specialists help you stay compliant with ever-changing employment laws, including those related to final pay rules and wage/hour regulations.
• Time-off tracking technology: Our proprietary Work Anywhere® platform makes it easy to manage floating holiday requests and monitor balances.
• Unparalleled employee-level support: When your team has questions about their benefits, including their PTO and floating holidays, our Employee Solution Center (ESC) is ready to assist. Known for their responsiveness and efficiency, the ESC proudly:
  • Answers phone calls in an average of 10 seconds
  • Replies to chat messages within 30 seconds
  • Responds to emails in an hour or less
  • Resolves 95% of cases the same day

A thoughtful floating holiday policy provides flexibility and reinforces your company’s commitment to fostering a culture that prioritizes employee needs. With support from ExtensisHR, your business can offer this benefit, without worrying about administrative complexity or compliance risk.

Looking to implement a floating holiday policy at your company? We’re here to help. Explore ExtensisHR’s PEO solution, or contact us today to learn more.