By: Ruth Evans, Owner, Evans HR Group
A policy that uses “floating holidays” that cannot carry over to the next year is illegal.
If you provide your employees with a Floating Holiday to be used at a specific time, i.e. the employee’s birthday or an anniversary, then that is considered a bona fide holiday and is treated as such. It is not subject to payout at time of termination.
A floating holiday, though, that is not tied to a specific event but is time an employee can take off at any time for any personal reason, is treated as vacation according to the Division of Labor Standards Enforcement. It accrues as the employee works, and if not taken prior to termination, is paid out with all other accrued, unused vacation.
If you offer floating holidays to employees, it is important to define: a) who is eligible, b) the accrual rate, c) any restrictions as to time (cannot use during busy season), and d) any policy relating to the use of the holiday.
You may have a policy that states that employees may carry over a specific number of floating holidays each year, i.e. 1 day, 2 days. And, you may cap the accrual of floating holidays so employees who don’t use them by the end of the specified year will not earn any additional floating holidays in the new year until s/he reduces one or more days accrued. Capping the number of days that accrue is important in order to control your costs.
Just like vacation, a floating holiday is earned at the employee’s rate of pay in effect at time of accrual; however, when an employee takes the floating holiday or is terminated, s/he is paid at the employee’s rate of pay in effect at that time.
If you don’t want to be exposed to additional “vacation liability” because you offer floating holidays, you may want to consider specifying that floating holidays must be used for a specific event, i.e. employee’s birthday.
Ruth Evans is the Owner of The Evans HR GROUP, a full-service human resource management and payroll administration company.