For weeks with national holidays, such as Labor Day, the Time Reporting Compliance app should default to a requirement of 32 hours for the week when the standard is set at 40 hours.
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We report holidays so the compliance app's data is accurate. But I do suspect the app takes into consideration the blocked days in the user's calendar - give it a try. If not, I believe this can be achieved.
Since not all companies celebrate the same holidays a rule has to be set to for the compliance hours.