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What Is Holiday Pay?

Kiely Kuligowski
Kiely Kuligowski
Staff Writer

While you don't have to offer holiday pay, it's a great way to show employees that you care.

  • Holiday pay is any compensation an employee receives for working during a holiday.
  • The U.S. does not have any laws stating that employees have to be paid on holidays, though the FLSA does regulate overtime pay.
  • Benefits of offering holiday pay include increased motivation, higher engagement and an incentive for employees to come in on holidays.
  • This article is for small business owners and human resources professionals who want to learn what holiday pay is and how they can implement a holiday pay policy.

While some businesses have the luxury of closing on days like Christmas and Labor Day, others don't. When you do have to remain open on holidays, the question becomes whether the employees who don't work should be paid for those days and whether those who have to work on holidays should be given any extra compensation for it.

Since holiday pay is typically at the discretion of the employer, it can look different for everyone. When deciding how much, if anything, to pay employees who work or don't work on holidays, it is important to understand what holiday pay is, how it's calculated, and how to develop a holiday pay policy.

What is holiday pay?

Holiday pay, despite having a special name, is simply whatever compensation employees receive for working or not working during any holiday. Holiday pay can often serve as a "gift" to employees so that they can take time off during the holidays without losing pay.

In the United States, holiday pay is most often expressed as time-and-a-half pay, which is where an employee is paid their regular rate plus one half of their regular rate for each hour that they work on a holiday. It may also be a holiday bonus check or paid time off on the day of a holiday.

The United States does not have any laws requiring that employees be paid on holidays, but it is common to give the following holidays off, with pay:

  • New Year's Day
  • Easter
  • Christmas Eve
  • Christmas Day
  • Labor Day
  • Thanksgiving Day
  • The day after Thanksgiving (Black Friday)
  • Memorial Day
  • Independence Day

Some companies may also offer another federal holiday, such as Martin Luther King Jr. Day, Presidents Day or Veterans Day off with pay to their employees. A 2019 report from the Society for Human Resource Management found that 96% of private employers offer holiday pay to their employees.

Note that public employers are required to observe all 10 federal holidays:

  1. New Year's Day
  2. Martin Luther King Jr. Day
  3. George Washington's birthday
  4. Memorial Day
  5. Independence Day
  6. Labor Day
  7. Columbus Day
  8. Veterans Day
  9. Thanksgiving Day
  10. Christmas Day

Who is eligible for holiday pay?

Anyone who works on an annual holiday is eligible for holiday pay, though that pay does not have to be more than the eligible employee's normal pay rate. Employers may offer higher pay rates on certain holidays as a benefit and incentive to employees.

What religious accommodations do you need to make?

Title VII of the Civil Rights Act of 1964 stipulates that employers with 15 or more employees must accommodate employees' "sincerely held religious beliefs or practices" unless doing so would cause "undue hardship or difficulty." For example, you can offer your employees floating holidays to use at their discretion, or paid or unpaid time off for religious holidays. [Read related article: How to Create a PTO Policy]

Key takeaway: Holiday pay is any compensation that an employee receives for working or not working during a designated holiday.

How does holiday pay work?

Holiday pay generally does not work any differently from employees' regular pay, with three general exceptions:

  • Overtime: If you have nonexempt employees working more hours than normal during the holiday season (but not on the holiday itself), they are entitled to overtime pay for any hours over 40 each week "at a rate not less than time and one-half their regular rates of pay," according to the Fair Labor Standards Act.

  • Time and a half: Though it is not legally required, as the employer, you may choose to offer time-and-a-half pay on certain holidays to incentivize employees to work on those days or to boost morale.

  • Bonuses: You may choose to offer a bonus, which is essentially a gift to your employees around the holidays. Holiday bonuses may be determined based on years of service, base salary, or performance and are at the discretion of the company.

There are no special rules or laws regarding holiday pay – you are only required to follow all state and federal employment laws, which do not dictate any special considerations for paying employees during holidays, outside of overtime for nonexempt employees.

Key takeaway: Though it's not mandatory, employers often choose to give employees paid time off for holidays or special wages for working on holidays.

How do you calculate holiday pay?

If you offer time-and-a-half pay for working on a holiday, you simply take the employee's regular hourly rate and add half of that rate. For example, if an employee's regular pay rate is $12 per hour, their holiday pay would be $18 per hour. If you use online payroll software, it will typically handle all of the calculations for you.

Note that overtime is calculated weekly under federal law, which means if you offer overtime pay to nonexempt employees, they are entitled to time-and-a-half pay for any hours worked over 40 per week.

Key takeaway: Time-and-a-half pay is calculated by taking the employee's regular hourly rate of pay and adding half of that hourly rate.  

What are the benefits of providing holiday pay to employees?

There are several benefits of providing holiday pay, in any form, to employees:

It can increase productivity.

Compensating employees with holiday pay can make them feel more valued, which tends to increase engagement. Also, overtime pay can incentivize employees to work more, which boosts productivity for your entire business.

It can boost motivation.

Paid holidays off can be a major motivator to employees, since they know that they will be given days to rest without losing out on wages. Paid time off has been proven to lower stress levels, improve mental health and increase productivity, all of which are good for employees and your business.

"Holiday pay and automatic time off is a fairly low-cost, sensible fringe benefit," Jim Pendergast, senior vice president of altLine, told Business News Daily. "It shows goodwill and, in most cases, is pretty financially reasonable to take on, especially compared to other fringe benefit types out there."

It's an incentive to work on holidays.

It's no secret that few employees are eager to work on holidays, so offering special pay for holidays, like time-and-a-half or overtime pay, is a great way to make it worth your employees' time. This is especially important if you have to be open or do most of your business on holidays, which is likely the case if your business is retail.

"The promise of extra money will get people to work days most would choose not to work," said Ravi Parikh, CEO of RoverPass. "It's a good motivator, and many of your employees may find it preferable to taking that holiday off."

It can attract top talent.

"Top talent will always look for an organization with excellent benefits," said Daniel Cooper, managing director of Lolly Co.

These excellent benefits often include time off, especially around the holidays. Providing holiday pay shows that you value and care about your employees and their personal time, which helps you attract strong job applicants.

Key takeaway: Among other benefits, holiday pay can increase productivity, motivation and your ability to attract top talent.

How to develop a company policy on holiday pay

When you create a holiday pay policy, the most important thing is to be clear and specific about what is allowed, what is not, and how any holiday pay is calculated. This helps you avoid disgruntled employees and potential legal action. You should include these four elements in your holiday policy:

1. Define floating holidays.

If you choose to offer floating holidays to employees to cover any religious or cultural holidays, clearly define how and when they accrue (e.g., three days at the start of every calendar year) and whether any unused floating holidays can be carried over into the next year or cashed out when an employee leaves the company.

2. Be clear as to who is eligible.

Your policy should state which employees are eligible and which conditions make employees eligible or ineligible for holiday pay. For example, you could stipulate that employees must be scheduled for at least 20 hours per week are eligible for holiday pay and that employees must be in good standing with the company to receive holiday pay. [Read related article: How to Craft Company Policies for Your Small Business]

3. Describe how time-and-a-half pay is calculated.

If you have hourly employees who are eligible for time-and-a-half pay, describe in detail how that pay is calculated and determined. By law, hours worked on holidays must be paid at no less than the regular rate of pay. The FLSA does not require overtime, time-and-a-half or double-time pay for hours worked on holidays, but it does require time-and-a-half pay for any hours worked over 40 in a given workweek. 

4. Describe holiday pay for exempt employees.

If your business only has salaried, exempt employees, describe how holiday pay will work in detail. For example, if your business closes for the week between Christmas and New Year's, state in the policy whether those days will be paid or unpaid. The FLSA mandates that any exempt employee must receive their full salary for any workweek in which they do any work, and any business closure (including holidays) is not an approved FLSA deduction, meaning exempt employees must get their full salary if the business closes for a holiday. [Read related article: Difference Between Exempt and Nonexempt Employees]

Key takeaway: When creating your company's holiday pay policy, be clear and detailed, define eligibility requirements, and explain how holiday pay is calculated.

Image Credit: Prostock-Studio
Kiely Kuligowski
Kiely Kuligowski
Business News Daily Staff
See Kiely Kuligowski's Profile
Kiely Kuligowski is a business.com and Business News Daily writer and has written more than 200 B2B-related articles on topics designed to help small businesses market and grow their companies. Kiely spent hundreds of hours researching, analyzing and writing about the best marketing services for small businesses, including email marketing and text message marketing software. Additionally, Kiely writes on topics that help small business owners and entrepreneurs boost their social media engagement on platforms like Facebook, Twitter and Instagram.