Most small businesses have 6 or 7 holidays a year and 10 vacation days. In this guide, we’ll explain everything you need to know about setting up a holiday pay policy, including federal laws, how to pick holidays, managing requests, accruing paid time off (PTO), and how to use software to make all of this easier.
What’s A Typical Holiday Pay Policy For Small Businesses?
For small businesses with full time employees, a typical holiday pay policy is 10 days of paid vacation and 6 paid holidays per year, according to The Center for Economic and Policy Research.
Those 6 holidays are (in order of first to last):
- New Year’s Day (January 1st)
- Memorial Day (3rd Monday in May)
- Independence Day (July 4th)
- Labor Day (1st Monday in September)
- Thanksgiving Day (4th Thursday in November)
- Christmas Day (December 25th)
The other 10 days can be taken off whenever an employee chooses. They can be used back-to-back for a full 2 week vacation, or dispersed throughout the year.
Only Six Holidays?
If you want to be more generous with your holiday pay policy, many businesses will add an extra day off around Christmas, Thanksgiving or New Year’s Eve.
Although flexible vacation days means employees can take off as needed, there’s often still pressure to work. It’s actually uncommon for employees to use up all of their vacation days. Even when they do take off, many are still prone to answering emails or taking calls – in other words, they’re not actually taking a break.
This is why it can be beneficial to enact a longer break around Thanksgiving or the winter holidays. By “shutting down” for a few days, nobody feels pressure to work – or even could work if they wanted to. Cisco is one company that notably “shuts down” for a week at the end of the year. They found it helps their employees regenerate and get a lot more value out of their days off.
Alternatively, you may want to add more vacation days throughout the year. Since most holidays are clustered in the summer and early winter, adding some in the fall and spring can help even out breaks. Here’s some examples of additional holidays many businesses observe:
- Martin Luther King Jr Day (3rd Monday in Jan)
- President’s Day (3rd Monday in Feb)
- Columbus Day (2nd Monday in Oct)
- Veterans Day (Nov 11)
Using Software to Manage Holiday Pay
Keeping track of PTO and sick days is important. It ensures employees are getting the time off they deserve, and prevents any mix ups that may cause you to underpay (or overpay) your employees. Because tracking days off on paper or on a spreadsheet can get messy, we recommend using one of these payroll or scheduling programs to manage your holiday pay policy:
- Gusto is a simple payroll program that will also track vacation/sick days. It’s our recommended payroll system at Fit Small Business – in part for it’s low price and easy-to-use software, and also because they manage all payroll taxes on behalf of their clients.
- When I Work is an employee scheduling software that makes it easy for employers and employees to coordinate time off. Click here to try for free.
What Does The Law Say?
Unlike most developed countries, there’s no federal laws in the United States that require employers to give their employees time off for vacation or holidays. That said, there are some special circumstances where businesses are required to give employees paid or unpaid leave:
- The Family Medical Leave Act (FMLA) requires employers to allow up to 12 weeks of unpaid leave for special circumstances. This can include health emergencies, caring for a newly born child or caring for a sick family member.
- Employers are required to provide “reasonable accommodations” for religious holidays. This means employees should be allowed an exception, provided it will not conflict with their work obligations (i.e. if they can come in an extra day to make up for it). If there’s no way to accommodate the request without reducing efficiency or putting your workplace safety at risk, then you’re not obligated to allow time off.
Most holiday pay policies require employees to give 2 weeks notice when they want to take a day off. For longer breaks/vacations, you might require 2 or 3 months notice.
To figure out your own policy, just think about how you manage scheduling. How far in advance do you write employee schedules? If you can get requests to come in prior to writing your schedule, this will make it much easier to accommodate requests.
Using a PTO through your payroll provider like Gusto can also help you manage requests much more smoothly. Employees can simply log in to send a request. You can quickly view their vacation history and remaining PTO days, then accept or reject the request with a click.
Because Gusto can also integrate a clock-in / clock-out program, it’s a smooth transition to use it for PTO tracking as well.
Increasing Vacation Days Over Time
With seniority comes extra privileges. Most businesses reward employees who have been working for years with extra vacation days. A typical policy might go like this:
1 to 4 years at your business
2 weeks paid vacation
5 to 14 years at your business
3 weeks paid vacation
15+ years at your business
4 weeks paid vacation
A similar concept is to set up an accrued vacation policy. With this type of policy, employees earn their vacation days over time. For example, every 5 weeks an employee might earn 1 day off. They can use the break immediately, or wait until they have more days saved up.
Accrued policies help prevent cases of abuse – such as, a new employee using up all their paid time off, then leaving the company. On the flipside, it’s a bit more complicated to manage, since you have to keep tally of how many days each employee has accrued.
If you use Gusto Payroll Software you have the ability to set up an accrued vacation policy automatically. The program will track how many hours each employee has worked, and thus how many accrued hours they’ve earned.
Should I Give Part Time Employees Paid Holidays?
Most businesses do not give paid holidays to part time employees. While 90% of full time workers have some paid holidays, only 37% part time workers do in the private sector, according to the Bureau of Labor Statistics.
If most of your employees are part-time workers, holiday pay probably won’t be expected. On the other hand, if most of your team is full-time and you have, say, a part-time secretary, it might be unfair to exclude them from your holiday pay policy.
The Bottom Line
Before writing your holiday pay policy, be sure to get input from your employees. See if they would prefer more paid holidays vs. more flexible vacation days. Additionally, would they prefer to have a longer break at the end of the year, or more holidays dispersed throughout? Remember that not all employees will necessarily celebrate the same holidays as you, so you want to make sure your policy will work for everyone.