differences between floating holidays and pto

Floating Holidays vs. PTO: 3 Best Practices for Diverse Teams

Time Off • Retention | May 16, 2024 by Iliana Deligiorgi, 6 min read

With companies struggling to retain talent, some HR professionals are looking to level up their retention rates by offering well-designed paid leave policies. Besides Paid Time Off (PTO), one practical strategy companies can offer are floating holidays.

While both floating holidays and PTO refer to paid time away from work, they serve different purposes. PTO typically applies to vacation days, sick leave, and fixed holidays that the whole company observes on a certain calendar day. In addition to this, a floating holiday policy gives people the opportunity to take a specific paid day off to attend, for instance, a specific religious or cultural event. The floating approach is especially convenient when the workforce is diverse and can’t be squeezed into a stiff system of federal holidays.

Understanding the subtleties of floating holidays and PTO is a necessary step for making good leave policies, keeping employees happy, and supporting a friendly environment, especially if the workforce has become diverse. This article explores best practices for implementing these leave options, floating holidays or PTO, in a way that aligns with the needs of a particular workforce.

What is a Floating Holiday?

A floating holiday is a paid day off that employees can choose to use on any day throughout the year. Unlike traditional PTO (Paid Time Off), which often comes with pre-designated holidays, many companies offer floating holidays that offer more flexibility for employees to celebrate special occasions or observe a religious holiday or a cultural event that isn't included in the company's official holiday calendar.

How Floating Holidays Differ from Traditional PTO

Here's a clearer breakdown of the key differences between a floating holiday and PTO:

Purpose

Floating holiday: Used at employee’s discretion for religious holidays or cultural events.

PTO: Covers a wider range of absences including vacations, sick days, personal days, and sometimes even public holidays (depending on company policy).

Flexibility

Floating holiday: More flexible in terms of choosing the specific day to take off.

PTO: May have blackout dates or restrictions on when it can be used (e.g., peak seasons or the week before a fiscal year ends). Also, national holidays are fixed (this is a given and no-one will dispute this).

Accrual and Carryover

Floating holiday: Typically awarded as a set number of days per year, and unused floating holidays don't usually roll over to the next year.

PTO: May be accrued over time, and often allows unused days to be carried over to the following year (depending on company policy and particular state laws).

Understanding Paid Time Off (PTO)

PTO (Paid Time Off) is a company benefit that provides employees with a set amount of paid time away from work each calendar year. Unlike existing policies—especially in European markets—that separate vacation days, sick days, and personal days, PTO lumps them all into one bucket.

General Usage and Norms Around PTO

Accrual: PTO can be accrued over time (meaning employees earn days as they work), given as a set number of days at the beginning (PTO Bank) of each year or even be unlimited.

Rollover: Some companies let you roll your unused vacation time over to next year, while others say you have to use it or lose it.

Amount: The specific number of PTO days offered can vary depending on factors like company size, industry, and employee tenure.

Paid Time Off (PTO) vs. Vacation: Understanding the Differences →

3 Best Practices for PTO or Floating Holiday Implementation

These are some best practices that help set up both PTO or floating holiday systems, or that, in any case, hint at which case a company should decide on.

1. Designing an Inclusive Floating Holidays Policy

Floating holidays are rightfully considered an inclusive policy, because they connect with a workforce that's not necessarily bound to a rigid calendar. When offering floating holidays, inclusivity should be at the forefront, and this is how to do it:

Clarify the purpose: Clearly explain what a floating holiday is meant for, such as religious or cultural observances, birthdays, or a certain public holiday.
Determine eligibility: Decide who can use a floating holiday, whether it's all employees or specific groups such as full-time employees, and clarify any waiting periods for new hires. You’ll want to avoid the awkward moment of a part-time employee trying to claim their flexible day off only to realize they can’t.
Set clear rules and keep it simple: Define when employees can take a floating holiday—hint: it’s usually whenever they want—and whether unused days carry over to the next year. If you’ll be limiting the flexibility of the flexible holidays, make sure the restrictions are effortless to understand.
Set a request process: Establish a process for employees to request a floating holiday in advance, including getting approval from their supervisor and stating the reason for the time off. If you can automate this process, then everyone’s better off.

2. Managing PTO Requests Fairly in Diverse Teams

Managing PTO requests equitably is also vital for developing an effective leave policy. Pay attention to these strategies:

Create a transparent system: Establish a clear and accessible system for requesting PTO. This could be a web app, a dashboard, or a standardized form.
Ensure fair scheduling: Implement a first-come, first-served system or a rotating schedule for high-demand periods to avoid scheduling bias.
Keep up with cultural needs: Be mindful of cultural norms around vacation time, especially if your workforce is now multinational or if you have some relocated employees. Some cultures, for instance, prioritize extended family time during the Easter season but, surprisingly, pay less attention to Thanksgiving as a whole. This should be reflected in PTO policies.

3. Implement of Flexible Leave Management Tools

Consider implementing software solutions to manage leave requests, track those, and allow employees to take time off. Using technology tools for leave management offers significant advantages, such as:

Allowing employees to check their available days
Facilitating access through a cloud-based platform
Staying compliant
Letting employees request their days with a “self-service” system

Decision Factors: Choosing Between Offering Floating Holidays or PTO

Deciding between floating holidays or PTO (or potentially both) depends on several factors specific to your company.

The key takeaway is that you can combine both practices. For example, a company can have a PTO policy and add a floating holiday design.

There is a downside: Applying so many specs and crannies to a time-off policy can render it confusing. That’s why adding a floating holiday policy is a matter of fit: If your workforce is fit for it, then add it all the way. But don’t force it if your company is likely to find it disorienting. One good way to understand if your policy is clear and works well enough is with people analytics. You can test a policy and, if it doesn’t work, walk away from it, considering you have the right tech stack.

Now, for the sake of comparison, here are some key considerations when deciding on floating holidays and PTO:

Workforce Diversity

Religious and cultural observances: A diverse workforce may have various religious observances and cultural celebrations throughout the year—not to mention national holidays. A floating holiday policy offers more flexibility for employees to attend these occasions—or to wind down with their circle of friends in their home countries.
Needs of part-time employees: A floating holiday policy can be particularly beneficial for part-time employees who may not accrue a lot of PTO.

Company Culture

Focus on work-life balance: Companies prioritizing work-life balance might find PTO, with its broader range of uses, to be a better fit. It allows workers to take time off for various reasons, promoting employee satisfaction.
Transparency and trust: If your company culture emphasizes transparency and trust, consider offering a limited number of “no-questions-asked” floating holidays. This is a good way of offering floating holidays with a feasibility study.
Administrative advantage: Offering PTO simplifies administration compared to managing numerous holiday requests tied to specific events.
Possible misunderstandings: Opting for PTO is more practical because it’s more widespread. Adding too many layers to the “paid leave” strategy could backfire, especially if you label something as “floating” and then start restricting it.

Floating Holiday vs. PTO: Final Considerations

With retention being put on the line, a sound paid leave policy can be the difference between having employees stay for long years or having a workforce that behaves like a revolving door. But the paid leave policy should always be clear and scalable—easy to administer on the go. A floating holiday policy is excellent for a diverse workforce, but it’s even better if built around an obvious PTO framework.

Key Takeaways

Floating holiday policies and PTO both offer paid time off, but serve different purposes.
For a well-designed leave system, consider factors like workforce diversity, company culture, and administrative efficiency.
Best practices include clear policies, fair scheduling, and open communication. Consider leave management tools to speed up processes and improve compliance.
Make sure you have the tools in place to measure how your policy is doing. If an individual takes a floating day off, you should be able to check how it impacted their performance.

Implement an HR Software for Time Off Tracking

The quickest way to set up a PTO and floating holiday strategy is with a tool that enables it—and that allows employees to independently request their days and paid holidays off. TalentHR is a comprehensive all-in-one platform that allows HR professionals to manage people and simplify tasks like time-off management. It also offers metrics and analytics to check out how a certain policy has fared, so that HR teams can make informed decisions.

To learn more about PTO solutions that help HR Teams manage it, visit TalentHR.