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Mastering Holiday Pay: Essential Insights for Employers and Employees

Mastering Holiday Pay: Essential Insights for Employers and Employees

From Legal Requirements to Practical Calculations: Navigating Holiday Pay with Confidence
Holiday Pay

“Everybody’s working for the weekend.” 

That’s what Loverboy had everyone singing in 1982 via its smash hit of the same name. And, while many employees can relate to that refrain (81.3% of employees work weekdays only), unfortunately, those who have weekends off generally aren’t paid for that time. 

Perhaps Loverboy should have sang, “Everybody’s working for the holidays,” as the majority of employees not only get to enjoy time off on holidays, but they’re compensated for it. 

Whether it's a long weekend getaway or a festive season spent with loved ones, holidays generally allow employees to separate themselves from their professional demands. 

Holiday pay is a vital aspect of employment law that ensures workers are fairly compensated when they take time off for holidays. However, navigating the complexities of holiday pay entitlements can be a daunting task for both employees and employers alike.

This article will examine the legal requirements that dictate such benefits, common misconceptions regarding holiday pay, and much more. 

There's much to unravel when it comes to holiday pay, so let’s get started! …And, my apologies if that song is now stuck in your head! 

What Is Holiday Pay?

Holiday pay refers to the compensation employees receive for taking time off of work during designated time periods. It’s a form of remuneration provided to employees to ensure they're not financially disadvantaged when they take time off to celebrate public holidays, spend time with family, or simply enjoy a break from work.

Per the Fair Labor Standards Act (FLSA), holiday pay is not federally required. If and when holiday pay is dispersed is contingent upon each individual employer. That said, most workers do receive some form of holiday pay. 

According to the U.S. Bureau of Labor Statistics, more than 75% of civilian workers receive paid holidays. Of those eligible for holiday pay, the average number of paid days falls between six and eight with the national average landing at 7.6. The most popular holidays include Memorial Day (90% of workers), Independence Day (89%), Labor Day (88%), Thanksgiving (86%), and Christmas (82%).

Tip: Use a PTO tracking system to easily keep track of holidays and personal days. This helps everyone stay organized and aware of upcoming time off.

How Does Holiday Pay Work?

The specifics of holiday pay can vary depending on factors such as the employer's policies, the terms of the employment contract, applicable labor laws or regulations, and the specific industry/sector represented. However, in many jurisdictions, there are common principles that govern holiday pay entitlements. Typically, holiday pay includes the employee's regular rate of pay for the hours he or she would have worked on the holiday. In some cases, employees may also be entitled to additional compensation, such as premium pay or overtime rates, if they are required to work on a holiday.

Not all employees are eligible for holiday pay. Eligibility criteria may include factors, such as full- or part-time status, tenure, whether an employee is classified as exempt or nonexempt, etc. Additionally, certain industries or sectors may have specific rules or agreements regarding holiday pay. For example, retail workers may be asked to work on peak shopping days, such as Black Friday. The health care industry operates 24/7, and some employees may be asked to rotate their schedules so that the care facility is adequately staffed on specific holidays. The hospitality industry may experience an increase in demand during the holidays and peak travel seasons. Finally, government employees often have specific holiday provisions outlined in their employment contracts. These provisions may include extra pay or compensatory time off for working these dates, as defined in an employment contract. 

National & State Holidays

In the U.S., there are several days that are recognized as national holidays, including: 

  • New Year's Day (Jan. 1): Celebrates the beginning of the New Year.
  • Martin Luther King Jr. Day (Third Monday in January): Honors the civil rights leader Martin Luther King Jr. and his contributions to the civil rights movement.
  • Presidents' Day (Third Monday in February): Originally established to honor George Washington's birthday, it now also honors all U.S. presidents.
  • Memorial Day (Last Monday in May): Recognizes the men and women who have died while serving in the U.S. military.
  • Independence Day (July 4th): Celebrates the adoption of the Declaration of Independence on July 4, 1776, marking the independence of the U.S. from British rule.
  • Labor Day (First Monday in September): Celebrates the contributions of American workers and the labor movement.
  • Columbus Day (Second Monday in October): Commemorates the arrival of Christopher Columbus in the Americas.
  • Veterans Day (Nov. 11): Honors military veterans who have served in the U.S. armed forces.
  • Thanksgiving Day (Fourth Thursday in November): Traditionally a day of giving thanks and feasting, often spent with family and friends.
  • Christmas Day (Dec. 25th): Celebrates the birth of Jesus Christ and is observed as a religious and cultural holiday by millions of people around the world.

Additionally, many states and local jurisdictions may observe additional holidays or variations of these holidays. Here are a few examples:

  • Lincoln's Birthday (Feb. 12): Celebrated in several states, including Illinois, California, and Connecticut, to honor the birthday of President Abraham Lincoln.
  • Confederate Memorial Day: Observed in some southern states, such as Alabama, Mississippi, and Georgia, to honor Confederate soldiers who died during the American Civil War. The date varies by state.
  • Emancipation Day: Recognized in several states, including Texas; Florida; and Washington, D.C.; to commemorate the emancipation of enslaved African Americans. The date varies by state.
  • Pioneer Day: (July 24): Celebrated in Utah to honor the Mormon pioneers who settled in the Salt Lake Valley in 1847.
  • Admission Day (Sept. 9): Observed in California to commemorate the anniversary of California's admission to the Union as the 31st state in 1850.
  • Alaska Day (Oct. 18): Celebrated in Alaska to commemorate the transfer of Alaska from Russia to the U.S. in 1867.
  • Native American Day: Recognized in several states, including South Dakota and California, to honor the contributions and cultures of Native Americans. The date varies by state.
  • Veterans Day (Nov. 11): Some states, such as Wisconsin and Rhode Island, observe Veterans Day on a different date than the federal holiday on Nov. 11.

Calculating Holiday Pay for Hourly Employees

Calculating holiday pay for hourly employees can depend on various factors. Generally, the calculation will look something like this:

Determine the Pay Rate: An employee’s pay rate could be his or her typical hourly rate or it may differ as specified in the employee’s contract or company policy. Some comanies may offer a premium rate for hours worked on a holiday. 

How Many Hours?: If an employee works on a holiday, calculate the number of hours worked. If an employee didn’t work but he or she is still eligible for holiday pay, determine the number of hours the individual would have worked based on his or her regular schedule. 

Calculate Gross Pay: Multiply the holiday pay rate by the number of hours paid for the holiday. For example, if Joe is paid $30 per hour and receives eight hours of pay for a holiday day, the calculation is 30 x 8 = $240. 

Deduct Taxes and Withholdings: Just like regular compensation, holiday pay is subject to taxes and other withholdings. Subtract any applicable deductions – such as federal and state income taxes; Social Security; Medicare; and any voluntary deductions, like retirement contributions or health insurance premiums – from the gross holiday pay amount to determine the net amount. 

Calculating Holiday Pay for Salaried Employees

Calculating holiday pay for salaried employees is fairly straightforward, considering salaried employees receive a fixed salary regardless of the number of hours worked or the occurrence of holidays.

  • Determine the Daily Salary: Divide the employee's annual salary by the number of working days in a year. This gives you the employee's daily salary. For example, Joe – an employee who works 240 days a year – earns $100,000 annually. So, divide $100,000 by 240 to get his daily salary of $416.67. 
  • How Many Holidays?: Determine the number of holidays the employee is entitled to be paid for according to company policy or labor laws. Joe is entitled to seven paid holidays.
  • Calculate Holiday Pay: Multiply the employee's daily salary by the number of holidays. Total holiday pay = (daily salary) x (number of holidays). Using the above example: $416.67 x 7 = $2,916.69.

Part-Time vs. Full-Time Employees 

Now that we’ve examined hourly and salaried workers, let’s take a look at how hourly and salaried employees’ compensation rates may differ when it comes to holiday pay.

Part-Time Employees

  • Part-time employees typically work fewer hours than full-time employees, often defined as working less than a certain number of hours per week or month, as outlined in their employment contract or company policy.
  • Holiday pay for part-time employees is usually calculated based on the number of hours they would have worked on the holiday if it fell on a regularly scheduled workday. This calculation is often prorated based on their average hours worked per week or month.
  • The holiday pay rate for part-time employees may be the same as their regular hourly rate or a different rate specified by company policy or labor regulations.
  • Some companies may have minimum eligibility criteria for part-time employees to receive holiday pay, such as having worked a certain number of hours or being employed for a specific duration.

Federal employees follow unique rules when it comes to holiday pay. To be entitled to a paid holiday or holiday premium pay, a federal employee must be regularly scheduled (i.e., work hours that are scheduled in advance of the week in which they are worked). Intermittent federal employees, or part-time employees who do not have regularly scheduled work hours, are not entitled to a paid holiday off or holiday premium pay. When these employees work on a holiday, they are only entitled to their basic rate for the number of hours worked up to eight, and to their overtime rate for any hours in excess of eight. 

Full-Time Employees

  • Full-time employees typically work a standard number of hours per week or month, as defined by their employment contract or company policy.
  • Holiday pay for full-time employees may be calculated similarly to part-time employees, based on the number of hours they would have worked on the holiday if it fell on a regularly scheduled workday (see the example in the section above).
  • The holiday pay rate for full-time employees may also be the same as their regular hourly rate or a different rate specified by company policy or labor regulations.
  • Some companies may offer additional benefits or premiums for full-time employees who work on holidays, such as double pay or extra paid time off.

Full-time federal employees are legally entitled to an “in lieu of” holiday when a holiday falls on a non-workday, such as a Saturday or Sunday. Often, the holiday will be acknowledged on the closest workday before or after the non-workday, such as a Friday or Monday, for example. Private employers may also provide these holidays but aren’t required to. 

Developing a Comprehensive Holiday Pay Policy

Every company should have a clearly defined, comprehensive holiday pay policy that meets legal requirements, promotes fairness and transparency, and helps to attract and retain talent. Some aspects that you may want to consider include:

Define/Identify Holidays: Decide which holidays your company is going to observe. This may (or may not) include national holidays, like New Year’s Day, Independence Day, Thanksgiving, Christmas, etc. Ensure any and all potential holiday dates are included in your policy. 

Who’s Eligible?: Determine who is eligible for holiday pay. This may include full-time employees, part-time employees, temporary workers, and contract employees. Establish guidelines and expectations based on tenure and employment status. 

Pay Day: Identify how holiday pay will be disbursed. This may include paying employees their regular rate for hours worked on a holiday, providing a flat-rate holiday bonus to eligible employees, offering additional paid time off (PTO) for holidays worked, etc. 

Pay Rate: Specify whether holiday pay will be provided at the employee’s regular rate or an enhanced amount. Ensure consistency and fairness when applying these rates. 

Pay Schedule: When will employees be paid holiday compensation? Clearly define a pay schedule that dictates compensation when a pay cycle includes a holiday. 

Holiday Work: If employees are scheduled to work on a holiday, will they receive any bonuses or incentives? Clearly define the company’s expectations as well as the proper procedures for requesting time off or swapping shifts. 

Holiday Carryover: Determine whether unused holiday pay or holiday hours can be carried over to the next year or paid out to employees upon termination. 

Legal Compliance Review: Once your policy has been written, ensure your policy aligns with federal, state, and local labor laws by completing a legal review. This will help your company avoid any potential litigation. 

Speaking of legal compliance, companies must ensure their holiday pay policies comply with federal, state, and local laws. Here are some key legal considerations to keep in mind: 

FLSA: The FLSA is a federal law that establishes minimum wage, overtime pay eligibility, recordkeeping, and child labor standards for employees in the private sector and in federal, state, and local governments. While the FLSA does not require employers to provide holiday pay, it does govern how holiday pay is calculated for non-exempt employees (those eligible for overtime pay).

State and Local Laws: Many states and local jurisdictions have their own labor laws governing holiday pay. These laws may vary in terms of which holidays are recognized, eligibility criteria for holiday pay, and calculation methods. It's important to understand the specific requirements in each location where your company operates.

Employee Classification: Holiday pay considerations may differ depending on whether an employee is classified as exempt or non-exempt under the FLSA. Exempt employees are generally not entitled to overtime pay or additional compensation for working holidays, while non-exempt employees may be eligible for overtime pay or premium holiday pay rates.

Union Contracts: If your company has unionized employees, holiday pay may be governed by collective bargaining agreements negotiated between the employer and the union. These agreements may specify holiday pay rates, eligibility criteria, and other terms related to holiday compensation.

PTO Accrual: Some states require employers to allow employees to accrue PTO, which can be used for holidays or other purposes. If your company offers PTO, be aware of any legal requirements regarding accrual rates, carryover of unused PTO, and payout of accrued PTO upon termination of employment.

Recordkeeping Requirements: Employers are typically required to maintain accurate records of hours worked, including any hours worked on holidays as well as any holiday pay provided to employees. These records may be subject to inspection by government agencies responsible for enforcing labor laws.

Equal Treatment: When providing holiday pay, employers must ensure their policies are applied consistently and do not discriminate against employees based on protected characteristics, such as race, gender, religion, or national origin.

Notice Requirements: Some states may require employers to provide advance notice to employees regarding holiday pay policies, including which holidays are recognized, eligibility criteria, and calculation methods.

How Time Tracking Can Simplify Holiday Pay 

An adequate time tracking program can simplify holiday pay. OnTheClock, a cloud-based time tracking platform, boasts numerous features designed to help your company keep better track of its workforce. These include automatic calculation of holiday hours worked, customizable holiday pay rates, and easy reporting. Employers can set up holiday pay rules in the system, specifying which holidays are recognized and how employees should be compensated for working on those days. The software can then automatically calculate holiday pay based on these rules, taking into account factors like regular pay rates, overtime rates, and any additional premiums for holiday work. This helps ensure accurate and consistent payment of holiday wages while also saving time and reducing the risk of errors associated with manual calculations. Additionally, OnTheClock's reporting capabilities allow employers to easily track holiday pay expenses and generate reports for payroll processing and compliance purposes.

Try OnTheClock for free, for 30 days, and discover why 155,000 employees are using the platform to optimize their workforces. 

OnTheClock Employee Time Tracking

Written by

Herb Woerpel

Herb Woerpel is a copywriter with OnTheClock. He has 17-plus years of professional journalism experience working for community and national media outlets.

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