Managing Holiday Pay for Employees

Under the FLSA, paid holiday time off does not count in overtime calculations because the employee must work more than 40 hours to receive overtime pay…

The Fair Labor Standards Act does not require holiday pay, deeming it a matter between the employer and employee. And like the FLSA, state laws generally do not require private employers to pay employees for time off on legal holidays. However, certain employers in Massachusetts and Rhode Island must abide by “blue laws,” which mandate premium pay for hours worked on Sundays and some legal holidays.

If company policy or an employment contract promises holiday pay, the employer must honor the agreement. Many states allow employees to file a wage claim for earned, unpaid holidays.

How should holiday pay be handled for nonexempt employees?

Generally, nonexempt employees only need to be paid for hours worked. When holiday pay is offered, best practices suggest paying the time off at the employee’s regular hourly rate.

Many companies offer double time or time and a half for hours worked on holidays. Employers in blue-law states must pay hours worked on holidays at no less than 1.5 times the regular hourly rate.

Does holiday pay factor into overtime?

Under the FLSA, paid holiday time off does not count in overtime calculations because the employee must work more than 40 hours to receive overtime pay. For example, the employee takes eight hours of paid holiday time on Monday and works 40 hours from Tuesday through Friday. All 48 hours should be paid at the employee’s regular hourly rate because the extra eight hours were not actually worked. Note that some states require daily, rather than weekly, overtime for work hours exceeding a certain number for the day.

How should holiday pay be handled for exempt employees?

Per the FLSA, exempt employees must receive their full salary for any workweek in which they do any work — unless a permitted deduction applies. Business closures are not a permitted deduction. So, if you do not provide holiday pay and your business closes during the holiday, you must pay your exempt employees their full weekly salary if they did any work during that week.

If your business closes for the full holiday week, you do not have to pay exempt employees any salary for that week because no work was performed.

What happens when payday falls on a holiday?

HR best practices recommend paying employees on the business day that precedes the holiday. Employees will appreciate the early payment instead of having to wait until after the holiday.

How can employers simplify and improve holiday pay administration?

• Use leading-edge payroll software to manage all facets of holiday pay, including premium pay calculations.
• Include holiday pay as a separate line item on employees’ pay stubs.
• Run reports on holiday pay to verify compliance with wage and hour standards and company policy.
• Design nontraditional holiday policies — such as floating holidays — to align with applicable state laws.

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