How do companies decide which holidays they will observe?

10/7/2015

For most employees today, their vacation schedule, and the vacation schedule of their families, is dictated by the time-off benefits offered by their workplaces. According to the Bureau of Labor Statistics, private industry provided paid holidays to 90 percent of full-time and 37 percent of part-time workers, while state and local government provided paid holidays to 74 percent of full-time workers and 30 percent of part-timers. But how do companies decide which holidays they observe? How many paid holidays do companies typically offer per year? What is the reason for giving time off on certain holidays, but not others? We reached out to Dr. Carla Patalano, professor and program chair for the Master of Business Administration degree program as well as for the Master of Human Resource Management program at New England College of Business. She offered some insight based on her own HR experience.

First, companies have to decide what kind of time-off policy they will offer: a traditional policy that segments days off into particularly categories (vacation, sick time, personal time, paid holidays) or a paid-time-off (PTO) bank which typically pools all possible types of time off into one central group that employees can pull from. According to World at Work, a nonprofit human resources association specializing in compensation and benefits, the use of PTO bank systems increased from 2002 to 2010.

There are advantages and disadvantages to both systems. First and foremost, it's important to consider the laws that accompany paying out time when an employee leaves a company, as well as how the time is carried (as an accrued expense) on the company's financial statements.

Traditional systems

Advantages:

For employees: The more rigid traditional systems are typically a bit more generous in the number of total days offered, based on the assumption that not every employee will use their full complement of sick days in a year.
For companies: Employees are only legally entitled to be compensated when they leave the company for unused vacation time but not for any remaining sick or personal days.

Disadvantages:

For employees: This system requires them to specify the purpose of each day they're taking off.
For companies: Employees may call in “sick” when in fact, they have some personal business to attend to like closing on a house or dropping their kids off at college. The employee still gets the day off, but now the employer has lost the advance notice that they would otherwise have of the absence.

PTO bank system

Advantages:

For employees: Employees feel empowered to decide how to use their time off in whatever manner best suits them.
For companies: Companies are applauded for treating their employees like “adults,” allowing them to determine their vacation time as they see fit.

Disadvantages

For employees: Employees will likely receive less total paid time off in exchange for that flexibility. It can be tough on companies as well, because of laws that classify these benefits as part of “wages” paid to an employee.
For companies: When employees leave a company with a PTO-bank system, these laws typically require the company to compensate employees for all their unused PTO days, according to World at Work.

In addition to careful consideration of the financial impact, it's on employers to develop paid-time-off policies that align with the needs and values of their employees. Maybe an employee would like to work on Christmas Day and take off Rosh Hashanah instead? Or perhaps the business operates on a 24/7 schedule, like a hospital, and a paid-time-off bank is a better fit than traditional policies given that not everyone can take the same days off.

In addition to examining the culture and structure of their workplaces, companies typically will use federal and state holidays as reference points when determining which paid holidays they will provide to their employees. The most common days off given in the United States include New Year's Day, Memorial Day, July 3 and Independence Day, Labor Day, Thanksgiving and Christmas.

Whatever policy your company uses, make sure you take the time to meet with your HR department and understand how it works, and how the system benefits you. Your feedback will be valuable for your company as it continues to refine its time-off policies, and as you request time off.

What time-off policy does your company subscribe to — PTO or a more traditional system? Do you have any “unique” holidays that your company offers? Follow New England College of Business on Facebook, network with us on LinkedIn or join the conversation on Twitter!