Floating Holiday: What It Means for Employers

What it means in practice

A floating holiday is a policy label, not a legal category. Policies call it a personal holiday, a personal day or a floating day, and many add one or two of them to a list of fixed company holidays so employees can mark a birthday, an anniversary or an occasion the fixed list leaves out. The fixed list is the employer's choice too: private employers are not bound by the federal calendar, which is covered in our entry on federal holidays. The Department of Labor states that the Fair Labor Standards Act (FLSA) does not require payment for time not worked, such as vacations or holidays, federal or otherwise, and that these benefits are generally a matter of agreement between an employer and an employee or the employee's representative. A floating holiday is therefore one form of paid time off (PTO), and its terms are the employer's promise.

Federal contracts are the exception. The Department of Labor notes two narrow cases where holiday benefits are required. On covered service contracts over $2,500, holiday and vacation requirements appear in the Service Contract Act wage determination, and under the Davis-Bacon Act holiday pay is required only if the contract's wage determination says so. The service contract rule is the closest thing in federal regulations to a floating holiday: a contractor may meet the duty to pay for a named holiday by giving another day off with pay under a plan communicated to the employees, and where a determination lists a number of holidays without naming them, the contractor may select the days under such a plan (29 CFR 4.174(a)(3)). An employee terminated before receiving holiday benefits due must get them as a final cash payment (29 CFR 4.174(c)(4)).

What the policy has to settle. Because federal law is silent, the written policy carries the weight, and the rules below make several of its choices matter: how many days and for whom; whether the day must be used on or near a triggering date such as a birthday, or at any time with approval; whether unused days carry over, are paid out or lapse; and what happens at separation. Whether the days are granted all at once or build up over the year is an accruals question. Writing these terms down in the employee handbook matters because, as the sections below show, state agencies read the policy's actual terms, not its label.

Floating holidays and overtime. Under 29 CFR 778.218, payments for occasional periods when an employee is not at work because of vacation, holiday, illness or a similar cause, in amounts roughly equal to normal earnings, are not compensation for hours of employment. They may be excluded from the regular rate, and for the same reason no part of them may be credited toward overtime due. Hours paid but not worked are not hours worked for the 40-hour test. The regulations do not mention floating holidays by name, and they read "holiday" in its ordinary sense: days customarily observed in the community to celebrate a historical or religious occasion (29 CFR 778.203(c) and 778.218(b)). That definition matters most for premiums paid for work on a holiday, discussed below.

Example: a floating holiday in an overtime week. Our illustration, applying 29 CFR 778.218: a non-exempt employee paid $20 an hour takes Monday as a floating holiday, paid at 8 hours ($160), then works 42 hours Tuesday through Saturday. Only the 42 hours worked count, so 2 are overtime. Straight time is $840 (42 x $20), the overtime premium is $20 (2 x $10), and the floating holiday pay is $160, for $1,020. The regular rate stays $20, and the $160 cannot be used to cover the $20 premium.

Example: cashing out an unused day. Under 29 CFR 778.219, when an employee forgoes paid leave and instead receives a payment roughly equal to normal earnings, on top of pay for hours worked, that payment may be excluded from the regular rate, whether paid in the same period or as a later lump sum, but it may not be credited toward overtime. The regulation's own example is a year-end payout of $480 for one unused week of PTO. Applying it to a single day: an $18-an-hour employee who works 45 hours in the week the employer pays $144 for an unused floating holiday is owed $810 straight time, a $45 overtime premium (5 x $9) and the $144 payout, for $999.

Working the holiday and taking a day later. Some policies give a floating day to employees who work a company holiday. A premium for work on a holiday of at least time and one-half can be credited toward overtime, but only for days that fit the regulation's ordinary meaning of a holiday (29 CFR 778.203). A day off later does not replace overtime earned now: each workweek stands alone and hours cannot be averaged (29 CFR 778.104), overtime is generally due on the regular payday for the period (29 CFR 778.106), and agreements to pay less for overtime are ineffective (29 CFR 778.316). Private employers cannot give time off in place of required overtime pay; see compensatory time off and overtime.

Exempt employees. Under 29 CFR 541.602, an exempt employee must receive the full salary for any week in which any work is performed, and deductions are not allowed for absences caused by the employer or the operating needs of the business. Deductions are allowed for absences of one or more full days for personal reasons other than sickness or disability, using the hourly or daily equivalent of the salary. As our illustration: an exempt employee earning $1,500 for a five-day week who has no floating holiday left and takes a full unpaid personal day may be paid $1,200 ($1,500 less the $300 daily equivalent); for a half-day absence the salary cannot be reduced. The regulation addresses salary deductions; it does not address charging a leave balance. See exempt vs. non-exempt employees.

Religious accommodation under Title VII. Title VII of the Civil Rights Act of 1964 applies to employers with 15 or more employees and requires reasonable accommodation of religious beliefs and practices unless it would cause undue hardship. The EEOC guidelines list "floating or optional holidays" among areas of flexible scheduling employers should consider, along with flexible arrival times, staggered hours and making up lost time (29 CFR 1605.2(d)(1)(ii)). The EEOC Compliance Manual, section 12, repeats that list, notes that some employers give each employee a certain number of floating holidays, and says such policies may not cover every case but can substantially reduce individual requests. It also describes voluntary shift swaps as a common accommodation.

Limits of a floating holiday policy. The Compliance Manual says an employer does not have to provide paid leave as an accommodation beyond what is otherwise available, but may have to allow unpaid leave if that would not be an undue hardship, and it quotes the Supreme Court in Ansonia that unpaid leave is not reasonable when paid leave is provided for all purposes except religious ones. Since Groff v. DeJoy (2023), undue hardship means a burden that is substantial in the overall context of the employer's business; the EEOC says Groff supersedes the older "more than de minimis" language in its guidance. An employee who has used up the floating days may still need an individual accommodation.

Contrast: federal employees. For federal employees, 5 U.S.C. 6103 lists 11 legal public holidays, with rules for holidays that fall on a non-workday, and OPM publishes the yearly dates. Federal employees whose religious beliefs require time off may also work extra hours to earn "religious compensatory time off" under 5 CFR part 550, subpart J. Neither rule applies to private employers.

Where states differ: California. As an example, the Division of Labor Standards Enforcement (DLSE) vacation FAQ says no law requires vacation, but vacation an employer provides is wages, vests as labor is performed and cannot be forfeited; caps are allowed, "use it or lose it" is not, and unused vacation is paid at the final rate at termination (Labor Code 227.3). The DLSE Enforcement Manual (section 15.1.12) says leave given without condition is presumed to be vacation whatever its name, unless the right to take it is tied to a specific event. In a 1986 opinion letter the DLSE said floating holidays would be considered vacation. In a 1992 letter on two "floating holidays" (birthday and employment anniversary) it said that days limited to the date of the event are not vacation, that a program allowing them within a week of the date is acceptable, and that days usable at another time are subject to vacation rules, so the unused pay was owed. See California labor laws.

Example: California final pay. Our illustration, applying the DLSE's pro rata approach: a policy grants two floating holidays (16 hours) a year, usable any time with approval, so the DLSE would treat them as vacation. An employee who leaves after half the year without using either has 8 hours vested; at a final rate of $25 that is $200 in final wages. If the employee already took both days, the DLSE vacation FAQ says the employer cannot deduct the advanced time from the final paycheck.

Where states differ: Illinois. As a second example, the Illinois Department of Labor says an employee is not entitled to holiday pay at separation unless the employer promised it by contract or agreement, but that final compensation includes the monetary equivalent of earned vacations and earned holidays owed (820 ILCS 115/2), due in full at separation if possible and no later than the next regularly scheduled payday. Other states differ; check your own state labor department.

Recordkeeping. FLSA payroll records must show hours worked each workday and workweek and the amount and nature of each payment excluded from the regular rate, which covers floating holiday pay (29 CFR 516.2(a)(6) and (7)). Payroll records are kept at least 3 years, and time cards at least 2 (29 CFR 516.5 and 516.6). Under 29 CFR 1602.14, employment records, including requests for reasonable accommodation, are kept for one year.

Questions employers ask. Must we offer floating holidays? Not under federal law (DOL). Do paid floating holiday hours count toward overtime? Not under the FLSA; they are not hours worked (29 CFR 778.218). Can an exempt employee lose pay for a half day? No (29 CFR 541.602). Can unused days expire? It depends on state law; California does not allow forfeiture of days it treats as vacation, while the Illinois Department of Labor says a policy may require vacation to be used by a certain date (56 Ill. Adm. Code 300.520).

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