The Ultimate Guide to Paid Holidays: Building a Competitive PTO Policy for Your Business

In today’s highly competitive job market, offering a robust benefits package is essential for attracting and retaining top talent. As an employer or HR professional, you know how important time off is to celebrate and recharge, but managing holiday schedules requires careful planning and strategic thinking.

Today, we are breaking down everything you need to know about paid holidays—from the most commonly offered days to legal considerations and tips on crafting a policy that keeps your team happy and productive.

What Are Paid Holidays?

Paid holidays are designated workdays—often national, state, or religious holidays—that employers choose to give employees off while still paying them their regular wages.

Interestingly, there are no federal laws in the United States that mandate private-sector employers to provide paid time off for any holiday. The Fair Labor Standards Act (FLSA) also does not require employers to provide premium pay (like time-and-a-half) if an employee works their regular hours on a holiday. Because of this, offering paid holidays is entirely up to the employer’s discretion.

Why Offering Paid Holidays is Crucial

Even though they are not legally required, paid holidays play a massive role in work-life balance and overall employee satisfaction. In fact, 80 percent of workers are willing to accept a lower-paying job if it offers more vacation time, which includes paid holidays.

Here are the top reasons your business should prioritize a paid holiday schedule:

• Attracting Top Talent: Offering a more generous paid holiday schedule than your competitors can act as a powerful incentive for highly qualified candidates to join your team.
• Lowering Workplace Stress: Taking time off can be difficult for some employees, but paid holidays provide a guilt-free opportunity to unplug, celebrate, and recharge. This lowers stress, improves mental health, and increases overall productivity.
• Improving Attendance: By proactively scheduling common holidays off, you reduce the likelihood of unpredictable employee absences, allowing you to plan your business operations smoothly.

The Most Common Paid Holidays in the U.S.

On average, most civilian workers in the private sector receive about eight paid holidays per year, while federal employees typically receive eleven.

When building your schedule, HR experts generally agree that businesses should offer the “Big Six” holidays at a bare minimum to keep their teams happy:

1. New Year’s Day (January 1)
2. Memorial Day (Last Monday in May)
3. Independence Day (July 4)
4. Labor Day (First Monday in September)
5. Thanksgiving Day (Fourth Thursday in November)
6. Christmas Day (December 25)

To be more competitive, many companies expand their schedule to 9 or more days by including the day after Thanksgiving (Black Friday), Christmas Eve, New Year’s Eve, Presidents’ Day, Juneteenth, or MLK Day. If a recognized holiday falls on a weekend, it is standard practice to offer the closest weekday—usually the preceding Friday or the following Monday—as the paid day off.

Handling Holiday Pay: Hourly vs. Salaried Employees

When structuring your policy, it is important to clearly differentiate how holiday pay affects your salaried versus hourly workers:

• Salaried (Exempt) Employees: Salaried employees receive their normal, fixed weekly pay regardless of how many hours they work. If they are asked to work on a holiday, they typically do not receive extra compensation unless the employer chooses to offer a special bonus.
• Hourly (Non-Exempt) Employees: Hourly workers are paid based on the time they actually work. If they receive a paid day off, those unworked holiday hours do not count toward the 40-hour threshold for FLSA overtime calculations.
• Working on a Holiday: If an hourly employee works on a recognized holiday, it is a standard best practice to offer “time-and-a-half” premium pay as an incentive. However, Rhode Island is the only state in the U.S. that legally mandates a premium rate (1.5x) for working on Sundays or holidays.
• Part-Time Employees: Providing paid holidays to part-time workers is strictly at the employer’s discretion. Some companies choose to pay them based on the average number of hours they would typically work on a normal workday.

Advanced PTO Strategies: Floating Holidays and WFH

While offering the standard “Big Six” federal holidays is a great baseline, you can make your benefits package stand out by mixing and matching time-off options:

• Floating Holidays: Consider offering one or two floating holidays in addition to your standard schedule. These are paid days off that employees can use at their discretion to observe cultural events, religious holidays, birthdays, or simply to extend a weekend. This gives your team freedom over how they use their PTO and helps accommodate a diverse workforce.
• WFH-Optional Days: Another modern approach is turning certain minor holidays into Work From Home (WFH) or WFH-optional days. During these days, employees are expected to be online and working, but they are given the flexibility to do so from the comfort of their homes, reducing the stress of a commute.

Understanding “Holiday Pay” as an Alternative Model

Did you know that “holiday pay” can also refer to a specific type of compensation offered instead of a standard paid holiday schedule?.

In this model, instead of receiving designated days off, employees receive a lump sum or bonus in their paychecks to cover holiday time off. This alternative model offers several unique benefits:

• Less Administrative Burden: It is much easier for managers to administer because there is no need to track which employees are off on specific holidays.
• Business Continuity: For industries that require continuous, 24/7 operations, this model ensures that you maintain a sufficient workforce available on actual holidays.
• Flexibility and Fair Compensation: Employees have the flexibility to work on a holiday and receive extra pay, which can make them feel valued and appreciated for their dedication.

How to Create a Winning Holiday PTO Policy

Designing a policy that fits your company requires taking a 360-degree look at your operations. Follow these steps to implement a successful policy:

1. Evaluate Your Needs & Budget: Consider your company’s busiest seasons. For example, if you sell children’s toys, shutting down during the winter holidays might hurt profits; but if you sell insurance, closing makes perfect sense.
2. Ask Your Employees: Send out an anonymous survey or consult with employee resource groups to discover which holidays your team actually values and wants to observe.
3. Define Eligibility: Clearly specify who qualifies for paid holidays. Some companies implement a 90-day waiting period for new hires, while others require employees to work the day before and the day after the holiday to receive their holiday pay.
4. Outline Fair Scheduling: If your business remains open on holidays, outline how you will decide who works, such as using a rotating schedule or seniority system.
5. Be Consistent: Apply the policy equally across all departments. Giving paid holidays only to executives or select groups creates resentment and chaos among employees.
6. Communicate Clearly: Outline all recognized holidays and eligibility rules in your company handbook. It is highly recommended to have employees formally acknowledge the policy in writing to ensure everyone is on the same page and to mitigate legal risks.
7. Encourage Time Away: Leadership should set the example. A paid holiday shouldn’t mean staying home but continuing to work. Encourage your team to log off, spend time with loved ones, and truly enjoy the break.

Frequently Asked Questions (FAQs)

1. Are employers required by law to offer paid holidays?

No. There are no state or federal laws that mandate paid holiday time for private-sector employees. However, paying your employees for holidays is highly recommended as part of running a humane, sustainable, and competitive business.

2. Can employers require employees to work on paid holidays?

Yes. Because there is no federal law requiring paid holidays, employers can decide whether or not to require employees to come in on days that are typically considered holidays. Keep in mind that Rhode Island is the only state that legally requires employers to pay a premium rate (time-and-a-half) to employees working on Sundays or holidays.

3. What happens if a holiday falls on a weekend?

When a recognized holiday falls on a Saturday or Sunday, many companies will observe the holiday on the closest weekday. Typically, if the holiday is on a Saturday, the preceding Friday is given as the paid day off; if it falls on a Sunday, the following Monday is given off.

4. Do part-time employees get paid holidays?

Whether or not part-time employees receive holiday pay depends entirely on the employer. Most companies do not offer paid holidays to part-time hourly employees. However, some forward-thinking businesses choose to pay part-time staff based on the average number of hours they would typically work on a normal workday.

Conclusion

Crafting the perfect paid holiday schedule isn’t just about giving people time off; it is a strategic business decision that impacts your company culture, employee retention, and overall productivity. By evaluating your business’s busiest seasons, surveying your employees, and communicating your policies clearly, you can build a PTO package that works for your bottom line and keeps your team thriving.

(Disclaimer: This guide is intended for informational purposes and should not be taken as legal, tax, or HR advice. Since rules and regulations change over time and vary by location, always consult with a legal professional or HR expert for specific guidance.)