Holiday policy best practices: A small business guide to time off, pay, and scheduling

Every year, as the calendar fills up, employees start asking questions: Is the office closed? Is that day paid? Do I get extra if I work the holiday? If you find yourself answering those questions from scratch each time, a clear, written holiday policy can save you a lot of back-and-forth.

For small businesses, getting your policy right matters more than you might think. A well-defined holiday policy sets clear expectations, reduces scheduling problems, and shows your team that you've thought carefully about how they'll be treated.

This guide explains what a holiday policy is, what it should include, how to handle holiday pay, and how to build a policy that's fair, consistent, and easy for employees to understand.

What is a holiday policy?

A company holiday policy is a written document that specifies which holidays your business observes, how employees are scheduled on those days, and how they're paid for those days.

The policy covers a range of topics employees commonly want clarity on:

• Which holidays the business observes (and which are paid vs. unpaid)
• Who is eligible for holiday benefits
• How holiday pay works
• Whether employees can be required to work on a holiday
• How floating holidays are handled
• How employees request time off and how scheduling conflicts are resolved

A holiday policy is different from a broader PTO policy, which typically covers vacation, sick leave, and personal days. Your holiday policy focuses specifically on fixed dates and company-observed days.

Also, federal holidays don’t automatically require private businesses to close or pay employees. Federal holiday protections apply to federal government workers, not to private-sector employees. Private employers may choose to observe those holidays, but the rules are largely up to you, as long as you follow applicable wage and hour laws.

Are employers required to offer paid holidays?

In most cases, no. Private employers in the U.S. are generally not required to provide paid holidays.

Under the Fair Labor Standards Act (FLSA), there are no federal laws or regulations mandating that private-sector employers provide paid or unpaid time off for holidays. The FLSA also doesn’t require premium pay simply because an employee works on a holiday.

That said, other rules can create obligations. Any of the following may change what you owe:

• State or local laws: Rhode Island, for example, requires that employees who work on Sundays and holidays be paid at least 1.5 times their regular rate, subject to specified employer exemptions. Other states may have their own requirements.
• Employment contracts: If your offer letters or employment agreements promise holiday benefits, those commitments may be enforceable.
• Collective bargaining agreements: Unionized workplaces may have negotiated holiday pay as part of their contract.
• Your written policy: Once you put a holiday policy in writing and distribute it to employees, you’re generally expected to apply it consistently.

Federal employees operate under entirely different rules. They’re entitled to paid time off on all 11 federal holidays under Title 5 of the U.S. Code, with "in lieu of" holidays when a holiday falls on a non-workday. Those rules don’t apply to private employers.

Because requirements vary by state and locality, verify the rules in every location where you employ workers before finalizing your policy.

What to include in a holiday policy

A strong policy answers the questions employees are most likely to ask. Cover the sections below, and use specific language so there's little room for confusion.

Observed holidays

List the specific dates your business will observe each year, or explain where employees can find the annual calendar. Address what happens when a holiday falls on a weekend. For example, many employers observe the preceding Friday or following Monday when July 4 lands on a Saturday or Sunday.

Also, clarify whether the business closes fully on observed holidays or maintains limited staffing.

Employee eligibility

Explain who the policy applies to. Many businesses define holiday benefits differently for full-time, part-time, temporary, seasonal, and newly hired employees. If there's a waiting period before someone qualifies, explain that clearly.

Before you set eligibility rules or classify workers, confirm your approach with a qualified professional, since misclassification can create pay and tax problems.

Paid and unpaid holidays

Under your paid holidays policy, state clearly which holidays are paid and which, if any, are unpaid. If your policy requires employees to work the scheduled day before and after a holiday to qualify for holiday pay, include that condition. Also, explain how unpaid holidays are handled, whether employees may use PTO to cover those days or simply receive no pay.

Working on a holiday

Some businesses have to stay open. Explain whether employees may be required or allowed to work, and how those shifts are assigned. Then spell out what a working employee receives. Common options include:

• Regular pay for the hours worked
• Optional premium pay, if your policy offers it
• An alternate paid day off
• Another arrangement your policy defines

Premium pay for holiday work is a choice, not a federal requirement, so don't present it as automatic unless a state law or contract requires it. Be clear about how premium pay interacts with overtime, and remind employees that overtime is still based on total hours worked in the workweek.

Floating holiday policy

A floating holiday is a paid day off that employees can take at their own discretion, separate from fixed observed holidays. Your floating holiday policy should specify how many floating days each employee receives, when they may be used, whether manager approval is required, and whether unused days carry over to the following year or expire.

Floating holidays are a practical way to give employees flexibility while keeping your fixed holiday calendar manageable.

Holiday requests and time-off tracking

Explain how employees submit a request and how far in advance you need it. When more people want the same day off than you can approve, describe how you'll decide, whether that's seniority, rotating popular dates, or first-come, first-served.

Using a time-off tracking tool makes it easier to manage requests, track balances, and maintain consistent records across your team.

Interaction with PTO

When your business stays open on a day that's not an observed holiday, employees may want to use PTO to take the day off. Clarify whether that's allowed and how the request process works.

Employees may also want to use PTO to extend a holiday break, for example, taking the Tuesday after a Monday holiday. Your PTO policy and holiday policy should align, so employees understand which policy applies in different situations and how each type of time off is requested and approved.

Holiday policy best practices

A well-written holiday policy doesn't need to be complicated. Keeping it clear, consistent, and accessible is what matters most.

1. Put it in writing and include it in your employee handbook: Verbal assurances aren't enough. Employees should be able to find and reference the policy at any time.
2. Publish your annual holiday calendar early: Share upcoming observed dates before the new year begins so employees can plan ahead.
3. Use clear, plain language: Avoid vague phrases. If a holiday falls on a weekend, say exactly what happens. Don't leave it open to interpretation.
4. Apply the policy consistently to employees in similar roles: Inconsistent application can create legal exposure and erode trust.
5. Plan for essential staffing and customer coverage: Decide in advance which roles need coverage on holidays and how you'll fill them.
6. Establish a fair process for competing time-off requests: Document the process so employees understand how decisions are made.
7. Communicate schedule and pay expectations before each holiday: A short reminder helps prevent misunderstandings.
8. Review your policy annually: Business needs change, and so do laws. Schedule a yearly review before publishing the next holiday calendar.
9. Check it against current federal, state, and local requirements: What's optional under federal law may be required in your state.
10. Keep accurate payroll and time-off records: Good documentation protects you and ensures employees are paid correctly.

Where helpful, include practical examples. For instance, note what an employee can expect if a holiday falls during a scheduled vacation, or how a mid-week holiday interacts with overtime calculations.

How to handle holiday pay

Holiday pay can mean two different things, so your policy should define both:

• Pay for a holiday not worked, such as a paid day off when the business closes
• Extra pay for working on a holiday, such as an optional premium rate

One thing worth knowing: paid holiday hours that employees don't work are generally not counted as hours worked when calculating federal overtime under the FLSA. However, overtime rules depend on applicable federal, state, and local law and the specifics of each employee's situation. Consult a payroll or employment professional to verify how the rules apply in your state.

The distinction between hourly and salaried employees also matters. Exempt salaried employees typically receive their full salary regardless of whether a holiday falls in their workweek, unless you have a specific policy that adjusts their pay. Non-exempt hourly employees are generally only paid for hours worked, unless your policy provides holiday pay as a benefit.

The table below shows common scenarios and how a policy might address each. Use it as a starting point, then confirm the details for your state.

Building an inclusive holiday policy

Your team may observe different religious, cultural, or personal holidays, and not everyone celebrates the same days. An inclusive policy plans for that instead of assuming one calendar fits all.

A few steps can help:

• Offer floating holidays so employees can use paid time for the days that matter most to them.
• Keep the request process neutral and consistent for everyone, no matter which holiday they observe.
• Consider remote and multistate employees, whose local holidays and laws may differ from your headquarters.

Under Title VII of the Civil Rights Act of 1964, covered employers, generally those with 15 or more employees, must reasonably accommodate employees’ sincerely held religious beliefs and practices unless doing so would create an undue hardship on the business. State and local laws may provide additional protections or apply to smaller employers. Check with a qualified employment law professional before setting or updating your policy.

How QuickBooks can help

Managing holidays gets easier when your time-off and pay tools work together. With QuickBooks Workforce, you can:

• Set up time-off policies and track balances for your team
• Let employees request time off and view their paid and unpaid balances in the QuickBooks Workforce app
• Keep schedules and approvals organized so you can plan coverage
• Maintain consistent time-off and payroll records
• Sync approved time off to payroll to help with accurate pay runs

QuickBooks tools support your process, but compliance with the laws that apply to your business is still your responsibility, and these tools aren't a substitute for legal or tax advice.

Ready to get organized before the next holiday? Explore the QuickBooks PTO tracker to see how time-off tracking and payroll can work together.