If you are using company mandatory holidays then you will need to set the time off type that you want these to deduct from so that they can be reflected correctly within your employee time off balance display. To do this there is an option within the time off type Edit page, under the Deduction Settings, called 'Default deducting type'. To utilise this you should edit the type you wish to use and set Default deducting type to 'Yes'.
Please note: this option will only appear if you have set 'Company Holidays Mandatory' to 'Yes' via:
Administration -> Company -> Settings -> Time off Settings (Global)
Additionally, you can only have one type set to yes for Default deducting type and as soon as you have one set to yes the option will no longer appear for the other types.
For more help in setting up mandatory company holidays click here.