Executive Summary:
- Holiday pay is any compensation paid to employees on employer recognized holidays.
- Although a common practice, there are no holiday pay laws, meaning it is not legally required and left entirely to employer discretion.
- The two primary holiday pay rates are paid time off and hourly wage premiums (time and a half and double time).
- Employers should include which holidays they recognize, which pay rate will be used, and which employees are eligible in their holiday pay policy.
As we make it through quarter four, the holiday season acts as the light at the end of the tunnel. Thanksgiving, Hanukkah, Christmas, New Years - our beacons of family, festivity, and gathering. For many, however, the holidays come with some added stress. Beyond wondering which gifts to get and parties to attend, anyone in the workforce has a few big questions on their mind: How much is holiday pay? Do employers have to pay for holidays? What is my job's holiday pay policy?
At Payday HCM, we feel that the last thing you should be worried about during the festive season is your paycheck. For employees, we want to ensure you know exactly how many days you can take off and how you will be compensated; for employers, we want to make sure you know which holidays are generally recognized and the best way to disseminate holiday pay information to your workforce. When you’re sitting down for Thanksgiving dinner or decorating the Chiristmas tree, you should have peace of mind that all things business related are taken care of. The real holiday present is your undivided presence.
So, to make sure you have all the information you need about holiday pay, we are going to go over:
- Holiday Pay: The Basics
- How to Calculate Holiday Pay
- Which Holidays Get Paid Time and a Half?
- Holiday Pay by Job Classification
- How to Write a Holiday Pay Policy
Holiday Pay: The Basics
Before we jump into the nitty gritty, you may be wondering…
What is Holiday Pay?
Holiday pay is defined as the compensation paid to employees for recognized holidays. If the employer chooses to close the business for the day, this compensation would take the form of paid time off (PTO). An office that recognizes Christmas day may still pay their employees despite their absence or the office’s closure.
The other primary type of holiday pay is seen as premium rates. For employees that work on the holiday, their regular rate may be upped to time and a half or double time pay. Choosing to use a premium for holiday compensation is a great way to keep employee morale up and incentivize working otherwise undesirable shifts.
Is Holiday Pay Required?
Although holiday pay is common in most modern workplaces, it is not federally mandated. While the Fair Labor Standards Act (FLSA) details almost every aspect of basic employee standards, it does not lay out specific mandates for PTO, holiday, or premium rates for holiday work.
Because there is no legal writing and no federal watchdogs, individual employers have decision making power when it comes to which holidays are recognized, which employees qualify for holiday pay, and what that rate will be. One business may decide that full-time, hourly employees qualify for time and a half holiday pay on select holidays, while another may forgo holiday pay entirely. Both are entirely legal in the eyes of the federal government.
State Specific Holiday Pay Requirements
While most states follow the federal suit, deferring to employers to create and maintain holiday pay policies, there are a few that have more concrete requirements. Rhode Island has a stipulation that non-exempt employees are entitled to premium pay if they work on Sundays or on legal holidays. Providing this time and a half rate keeps engagement up and compensates workers for taking time away from their families.
Massachusetts, another state with holiday pay regulations, has the “blue laws”: a complex series of laws that impact holiday and Sunday work for retail and manufacturing roles. Under the “blue laws”, retail and liquor stores are prohibited from opening on Thanksgiving and Christmas Day. Additionally, some holidays are classified as voluntary work holidays (meaning employers are legally not allowed to force employees to work), while others are restricted morning holidays (meaning they cannot open before a certain time without a police permit). Knowing any and all holiday pay related laws for states you operate in will be key to compensating your employees fairly and staying compliant.
How to Calculate Holiday Pay
Whether your business chooses to do PTO or premium compensation, knowing exactly how to calculate employee holiday wages is crucial.
Paid Time Off (PTO)
PTO is one of the most common holiday pay types for hourly workforces. To calculate this, you would multiply an employee's average daily hours by their hourly wage. So, an individual who typically works an 8 hour shift at a rate of $17 per hour would make $136 in a day. Instead of adding additional compensation, PTO gives employees the normal amount of money they would make for any day not worked.
As an example, an employer that recognizes Thanksgiving day and the following Friday would apply two PTO days to cover their employees' lack of work. If they were working at a rate of $17 per hour for 8 hour shifts, they would still receive $272 for the two days not worked. For employers who don’t have the budget for widespread premium pay but still want to offer holiday pay, electing for a PTO policy is a great solution.
Time and a Half Holiday Pay
Time and a half is one of the most commonly used premiums for padding compensation and incentivising undesirable shifts. Instead of taking the holiday off, an employee would be paid 1.5 times their regular rate of pay. If we continue using our example of a $17 per hour rate applied to an average 8 hour shift, this calculation would look like 8 x $17 x 1.5, resulting in an end pay of $204.
Say you run a bar that doesn’t close for New Years Eve and you don’t offer PTO. You need a strong staff for the busy night, but you’re struggling to keep employees from calling out. Offering time and a half for the evening makes the shift more attractive and ensures you will be able to operate smoothly all night long.
Double Time Pay
Like time and a half, double time pay is a premium applied to an employee's regular hourly rate and hours worked. Incredibly generous, double time is a high incentive for holidays no one wants to work. Again, using our $17 per hour on an 8 hour shift, the double time calculation would look like 8 x $17 x 2, for a total of $272.
The dreaded Christmas day shift that no one wants to work, and as much as you want to, you can’t blame them. Working on such a major holiday when they could be opening gifts with family is a tough sell. However, providing a double time holiday pay premium is an easy way to turn “no’s” into “yes’s”. If you worry about being understaffed on major holidays and have the budget for it, consider using double time as your preferred holiday pay rate.
Which Holidays Get Paid Time and a Half?
Again, because the FLSA does not legally require holiday pay, all paid holidays are left up to employer discretion. By and large, though, most employers do choose to recognize federal holidays by closing for the day and providing PTO, or by paying a time and a half or double time holiday pay premium.
Federal Holidays
Federal holidays are any holiday that is officially observed by the US government, meaning government offices are closed and affected employees receive PTO. Although it isn’t required, many banks, schools, and private sector businesses choose to recognize federal holidays as well, either through PTO or pay rate premiums. Currently there are 11 federally recognized holidays:
- New Years Day (January 1st)
- Martin Luther King Jr. Day (third Monday in January)
- Presidents’ Day (third Monday in February)
- Memorial Day (last Monday in May)
- Juneteenth (June 19th)
- Independence Day (July 4th)
- Labor Day (first Monday in September)
- Columbus Day (second Monday in September)
- Veterans Day (November 11th)
- Thanksgiving Day (fourth Thursday in November)
- Christmas Day (December 25th)
Any time a federal holiday falls on a Saturday, government employees (and private sector employees whose employers choose to follow suit) observe it on the preceding Friday. If it falls on a Sunday, this observation occurs on the following Monday.
Additional Holidays to Be Observed
Because holiday observation is left to employers to decide, they are not limited to federal holidays. Depending on your workforce demographic or unique circumstances, you may choose to recognize additional holidays if you so please. Some common additions are:
- Good Friday
- Easter Monday
- Black Friday (fourth Friday in November)
- Christmas Eve (December 24th)
- The day after Christmas (December 26th)
- New Years Eve (December 31st)
Again, observation and compensation are entirely up to employers. When choosing, keep in mind days you anticipate a high number of call outs, as well as the personal lives of your employees.
Holiday Pay by Job Classification
Understanding the primary classification of your workforce will make holiday pay decisions much easier.
Holiday Pay for Hourly Employees
For hourly employees, their time is quite literally their money, making it incredibly important for you to have clear holiday pay policies. If you offer it, be sure to communicate if you’re following a PTO structure or issuing premium pay. As aforementioned, those premiums can either be time and a half (1.5 times their regular rate and shift length), or double time (two times their regular rate and shift length). For employees, just remember, there is no one universal hourly holiday pay rate, only the one your specific employer has decided upon.
Similarly, holiday pay for full-time and part-time hourly employees is dependent on employer discretion. Generally, company policies do include some sort of full-time threshold and accompanying holiday compensation. For example, full-time employees would be any individuals working over 30 hours per workweek, and thus eligible to receive the holiday pay rate outlined in the company policy. More often than not, part-time employees are not eligible for holiday pay rates, but again, because there are no official requirements, this varies employer to employer.
Exempt vs. Non-Exempt Employees
According to the FLSA, exempt employees are salaried workers who are exempt from overtime pay. Because exempt employees are not directly tied to hours worked, they must receive their full salary amount for any week they performed work, regardless of holidays or business closure. This means that holiday pay for salaried employees is relatively uneventful, as they are paid for every week where at least one day of work occurred. Some employers may require exempt employees to use their accrued PTO for holidays, but said employers are still responsible for their employees full salary if no more PTO remains.
Non-exempt employees, on the other hand, are those hourly workers who are legally entitled to overtime pay and minimum wage protections under the FLSA. Federal law does not require pay for days where work isn’t performed, even if that day is a holiday. Here is where the PTO and premium pay policies we’ve been talking about come into play.
How to Write a Holiday Pay Policy
When approaching a holiday pay policy for your business, having clear language and easy employee access will be life savers for any miscommunication down the line.
Tenure Threshold and Other Requirements
While not a steadfast rule, many businesses opt to add certain employee eligibility requirements to make their holiday pay policy more impartial. One of the most commonly seen is a minimum tenure threshold, which states that an employee must work for a certain number of days before they are eligible for holiday pay. Typically, these minimum thresholds are 30, 60, or 90 days.
For restaurants and businesses composed primarily of hourly workers, you may also consider an hours threshold and a no call/no show rule. The hours threshold states that employees must work a minimum number of hours per week in order to qualify. In these instances, part-time employees may not be eligible for holiday pay. The no call/no show rule says that if an employee misses a shift before or after the holiday without proper notice, they must forfeit their holiday pay for that day. None of these are required of employers, but they provide a strong foundation for holiday pay policies.
Holiday Pay Policy Outline
As you begin policy construction, there are a few important steps you should follow:
- Specify which holidays your business will recognize: because this is entirely up to your discretion, it is paramount that you clearly state in your policy which days will be observed and which will not. Federal holidays - specifically New Years Day, Memorial Day, Labor Day, Thanksgiving, and Christmas Day - are the most widely recognized, your decisions depend on what will work best for you and your employees.
- Identify your pay structure: paid time off, time and a half, or double time, be sure to weigh your budget and workforce size before making any decisions.
- Determine employee eligibility: will you have a tenure or hour threshold? Will holiday pay be offered to full-time and part-time employees? Clear detailing of who qualifies will save you time and energy in the long run.
- Include it in the employee handbook: share all information clearly and in a timely fashion.
Payday HCM: Putting the Bow on Your Holiday Pay Policy
Figuring out holiday pay can be tricky. With no formal FLSA regulations and minimal state holiday pay laws, having everything left to employer discretion can feel strange, especially in comparison to how strict normal payroll and benefits compliance tends to be. Holidays observed, the holiday pay rate, employee eligibility: these are all decisions each employer has to make for their company. Whether you choose to recognize federal holidays and offer PTO or feel that holiday pay doesn’t fit into your business plan - there is no right way to approach holiday pay for employees.
However, it is highly recommended that whatever you decide is written out clearly as a holiday pay policy in your employee handbook. This is where Payday HCM can help: our payroll team can help you weigh the pros and cons of holiday pay, ensuring business budget stability no matter what you decide. Our knowledgeable HR team is here to walk you through employee handbook construction, ensuring that all holiday pay information is direct and accessible. So, why wait for the holiday season to be in full swing? Reach out and see how Payday HCM can make this winter one to remember.
Frequently Asked Questions (FAQs):
Q: Do employers have to pay for holidays?
No, employers have to legal obligation to compensate their employees with holiday pay. Many employers to choose to provide this pay, however, as a way to keep employee morale up and incentivize otherwise undesirable holiday shifts.
Q: Do exempt employees get holiday pay?
Because exempt employees are salaried, they must be payed their full salary for every week where work was performed, holiday or not. Some employers may require them to use accrued PTO for holidays not worked, but, at the end of the day, employers are responsible for paying their exempt employees total salary.
Q: Do part-time employees get holiday pay?
Since there are no FLSA regulations surrounding holiday pay, a part-time employee's eligibility is left entirely to employer discretion. More often than not, holiday pay policies will include some sort of hours threshold, meaning you must work a certain amount of hours every week in order to qualify. Because of this, many part-time employees are not eligible for their business's holiday pay.
Topics: