Which Holidays Should Your Business Offer Paid Time Off for?

Types of paid holidays

Before you can put a paid time off (PTO) policy on the books, you should understand which holidays are part of the American work culture to help you determine what’s right for your business. These are the primary holiday types: 

• Federal holidays
• State holidays
• Floating holidays

1. Federal holidays are designated by the federal government.

The federal government designates federal holidays. By law, all government agencies and banks must close for the day in observance. It’s not illegal for private-sector businesses to remain open on public holidays, and companies aren’t forced to offer employees paid time off. Still, the federal government expects that non-government businesses will also observe these holidays.

There are 10 federal holidays that government agencies and banks close their doors for each year:

• New Year’s Day
• Martin Luther King Jr. Day
• Presidents Day (Washington’s Birthday)
• Memorial Day
• Independence Day (Fourth of July)
• Labor Day
• Columbus Day
• Thanksgiving
• Christmas Day

“The federal government sets the standards for part of the workforce and certainly expectations for the rest,” said Karen Williams, district director for the Washington, D.C. SCORE district. “For anyone who works in the government or banking space, those holidays are set in stone.”

If a holiday falls on a weekend, organizations tend to give employees the Friday before or the following Monday off.

2. States can institute their own holidays.

In addition to those 10 public holidays, states have the right to institute their own holidays that local government agencies must honor. 

Like federal holidays, the private sector usually doesn’t have to abide by state holidays. However, according to the Employment Law Handbook, there are two exceptions: Massachusetts and Rhode Island require private employers to give employees the day off for a state-designated holiday.

State holidays vary from one state to the next. For example, California, Connecticut, Missouri and Illinois give workers time off for Lincoln’s Birthday on Feb. 12. In contrast, Indiana recognizes Lincoln’s Birthday as a holiday on the day after Thanksgiving, and in New York, Lincoln’s Birthday is a floating holiday for state workers (see below for more on floating holidays). 

“We [didn’t] observe state holidays at Zenefits as part of our paid time off policy,” said Tracy Cote, former chief people officer at Zenefits (Cote now holds the same role at StockX). “They are common in Canada, where each province observes different holidays.”

Did you know? Twenty states are on board with a two-day Thanksgiving holiday, designating the fourth Friday in November as a distinct state holiday. 

3. Floating holidays offer employees freedom and flexibility.

Floating holidays are extra paid days off that employees can take in addition to paid holidays. Workers can use floating holidays for religious holidays, special events, birthdays and personal reasons. Not every organization offers floating holidays, but this type of PTO can be a helpful way to avoid conversations about why one holiday is on the calendar and another isn’t.

“Everybody celebrates different things, and everybody wants to take time off for different reasons,” said Ali Fazal, VP of marketing at GRIN.

The most recent figures on floating holidays are from 2017. That year, the Society for Human Resources Management reported that less than three of every 10 employers offer floating holidays. With recent years’ push for workplace diversity and inclusion training, this figure has likely increased since 2017, though no researchers have reported on it yet.

Floating holidays may benefit employers in the following ways:

• Floating holidays acknowledge all cultures. Floating holidays give employees from all cultures the ability to take time off for holidays less commonly celebrated in the U.S. This cultural respect is a big part of the inclusive communication practices that can improve your work environment.
• Floating holidays keep your company running. Holidays that align with peak sales periods can lower your revenue. That changes when certain employees can work these holidays while others who celebrate take the day off.
• Floating holidays ease PTO policy creation. It’s not easy to incorporate every employee’s observed holidays into the calendar when creating your PTO policy. Offering floating holidays lets everyone create their own holiday calendar, removing this burden from your plate.
• Floating holidays enhance work-life balance. According to a Pew Research study, roughly 46% of U.S. employees take less paid time off than what they are given. Offering floating holidays shows your employees that you want them to take time off and improve their work-life balance.
• Floating holidays attract talent. Not every employer offers floating holidays. Job candidates comparing your company to others may be more likely to choose yours if you offer a significant perk like flexible paid holidays.

Most common paid holidays in the U.S.

With so many holidays to choose from, most small business owners select the ones that make the most sense for their employees. To make the selection process a little easier, here’s a list of the most typical paid holidays in the U.S. These holidays are listed from most commonly to least commonly observed with paid time off, as per 2022 Zippia statistics:

• Thanksgiving Day
• Christmas Day
• Independence Day
• Labor Day
• New Year’s Day
• Memorial Day
• MLK Day
• Christmas Eve
• New Year’s Eve
• Presidents Day

Small business owners don’t have to offer their workers all these holidays. Still, Williams said they should consider at least giving employees New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas off. 

Incorporating holidays into your PTO policy

Small business owners usually can’t afford to give employees every federal and state holiday off, but they need to offer a few to lure talent and remain competitive. That’s why creating an official holiday PTO policy that considers your business’s financial situation and workers’ desires is essential. 

Here are the steps business owners should take when creating a PTO policy.

1. Assess the business’s finances.

Before you can offer holidays with paid time off, you must determine how many days you can afford. If your benefits budget is big enough, you may be able to give them all 10 federal holidays. If money is tight, it may be just the primary six.

“If the worker won’t be there that day, is the business still generating enough revenue to be able to pay the employee?” Williams advises employers to ask themselves. “The business owner has to look at the cash situation versus how they are doing recruiting people.”

2. Measure the competition’s PTO practices.

Recruiting new employees and retaining them can be costly, which is why reducing employee turnover is crucial. Consider your competition’s holiday PTO practices when you’re putting your own together. If you don’t, you may find it harder to attract and retain top talent.

At the very least, you want to match what your rivals are doing. If you’re looking for an edge, you may want to add an extra holiday to the mix.

3. Poll your employees about their PTO wishes.

It may be easiest to select some of the most common federal holidays and leave it at that, but a better strategy is determining what your employees want. You may think giving staff the day off for Christmas is a no-brainer, but if most of your workers don’t celebrate the holiday (for cultural or religious reasons, for example), it’s a wasted day off.

“There are so many worthy holidays and observances, it can be hard to decide which ones to select,” said Cote. “As employers, you also have to consider the needs of the business.”

Conduct employee surveys about the holidays they’d prefer to observe with PTO. Your employees may prefer Martin Luther King Jr. Day off rather than Columbus Day, but you won’t know if you don’t ask. Additionally, some employees may have trouble getting to their polling stations on Election Day; if you make that a paid day off, you could build goodwill and loyalty among the ranks.

4. Consider current events when creating a PTO policy.

Your holiday PTO policy doesn’t have to be set in stone. It can be flexible and ever-changing to address the current social climate. For example, in response to the Black Lives Matter movement, Zenefits designated Juneteenth as a permanent paid company holiday starting in 2020. Cote said the company also offers civic and volunteer time off so employees can vote, volunteer or protest.

“As an employer, it’s about doing the right thing and making a difference,” Cote said. 

Leading up to Juneteenth 2022, Randstad USA surveyed 1,030 U.S. employees and found that 44% have the day off on Juneteenth. This figure represents an 11% increase from 2021, the first year that Juneteenth was designated an official federal holiday. Among employees who receive time off for the holiday, 49% receive paid time off.

5. Decide whether or not to stay open.

Just because you offer paid time off for a holiday doesn’t mean you can afford to close completely. Offices and banks may be shuttered in observance of Christmas, but a restaurant or bar may remain open. 

Before you put a holiday on the books, determine how many employees must work and how much you’ll pay them. If you make Christmas an official holiday but still need staff that day, paying time-and-a-half or double time is a great way to boost goodwill, if your business can afford it.

The benefits of offering paid holidays

Paid holidays benefit your employees and your business in the following ways:

• Paid holidays boost morale. When you give your team paid holidays, you show them respect. You’re giving them time off for their holidays without interrupting their cash flow. That respect is another way of telling your team you’re invested in their success. Sometimes that’s all they need to feel invested in their work – which can often lead to a boost in company morale and higher-quality work.
• Paid holidays foster better mental health. Employee breaks can boost productivity because an always-on brain is more prone to fizzling out and making errors. Paid holidays provide a much-needed reboot that can help stressed-out team members return to work with clear minds.
• Paid holidays give your company a better reputation. Paid time off is increasingly a hot topic, with more people advocating for it. When your company offers holiday PTO, you show employees and customers that you’re listening and acting. That means customers might choose you over another company known for less favorable labor conditions. It can also build employees’ trust in you.

Holiday PTO can be equally great for you and your team

Incorporating paid time off for holidays requires upfront work on the business owner’s part. You must determine how much PTO you can afford, its impact on productivity and the bottom line, and what your competitors are doing. 

It’s equally important to ensure you give employees the holidays off that they observe and offer floating holidays to add flexibility. If your team can choose their holidays and someone who doesn’t celebrate is able to work, you’re doing it right.

Max Freedman contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.