Seyfarth Synopsis: Some California employers offer floating holidays for employees to use for events like the upcoming St. Patrick’s Day holiday. Floating holidays, while offering additional unrestricted days off that promote employee satisfaction and work-life balance, can also bring a sinking feeling to employers who learn, too late, of their possible ballast.

Many California businesses provide 11 paid holidays to employees. In addition, some employers provide floating holidays, which bob along on the sea of workdays until an employee grabs one to serve as a personal life preserver. All good, right? Not necessarily. Granting floating holidays can raise questions that, if not answered correctly, can lead to unexpected liability despite the good intent.

What is a floating holiday anyway?

“Floating holidays” allow employees, with advance notice, to take off any work day, for any reason they choose. These extra days off may enable employees to attend to personal business such as a parent-teacher conference, to observe religious holidays such as Yom Kippur, Rosh Hashanah, or Christmas Eve, to take a “mental health” day, or to celebrate other significant days such as a birthday, a spouse’s birthday, or an anniversary.

Are floating holidays mandatory?

Although no law requires employers to provide floating paid holidays, some employers use them to promote employee satisfaction and work-life balance.

Do floating holidays affect final pay?

That’s where things can get tricky. In California, employers can let floating holidays truly float with the wind or tether them to other events. Depending on the employer’s approach, unused floating holidays may need to be included in an employee’s final pay.

One approach is for the employer to treat floating holidays as unrestricted. This allows employees to take a day off any time they chose, regardless of the occurrence of any other event. With this approach, courts are likely to treat floating holidays as simply vacation by another name. As such, any unused floating holiday must be paid out at the time of the employee’s termination, along with any other wages owed.

The other approach is for the employer to tie floating holidays to the occurrence of a specific event. This approach requires that floating holidays be used on or near specific days (such as on or near the employee’s birthday). The right to take the day off does not arise until the occurrence of the event to which it is tethered; that is, if the employee is no longer employed upon reaching a birthday (in this example), the right to take the associated floating holiday never springs into being. In that case, the floating holiday would be treated like a regular paid holiday (which is not owed until the event (e.g., Thanksgiving, July 4th) occurs. Consequently, pay for the unused holiday pay would not due upon termination.

Can we cap the number of floating holidays?

Yes. An employer may cap the number of floating holidays that an employee can take. But employers must remember that California law on vacation does not allow a “use it or lose it” policy. As we’ve just learned, if use of a buoyant holiday is unrestricted, it will be considered a vacation equivalent. Because California equates earned vacation pay with wages, it vests as it is earned. As we detailed in an earlier piece, an employer may not have a policy that makes employees forego “vacation” pay that is not used by a specific date. Likewise with those unrestricted floating holidays.

What must our written policy include?

Because employers can treat floating holidays in different ways, it’s important to have your policy clearly reflect when floating holidays may be taken and what happens if the floating holidays are not taken. If floating holidays can be taken at any time, then it is important to track the employee’s accrued and unused floating holidays. Those must be paid out at the time of termination.

Workplace Solution: By making sure that the written policy is clearly drafted, California employers can avoid many of the pinpricks and burst bubbles of good intent that can come along with providing floating paid holidays. If you would like assistance with ensuring compliance with California rules regarding floating holidays, please contact the authors or another attorney from Seyfarth’s Labor and Employment Group.