Holiday Pay FAQs

ADP HR411 tackled a list of questions to help businesses deal with various holiday issues that might come up. The article brings up some good points, so we wanted to share it with you here.

With the holiday season underway, you may have a few pay-related questions. Answers to many of these questions generally depend on whether an employee is exempt or non-exempt under the Fair Labor Standards Act (FLSA). Under the FLSA, non-exempt (or "hourly") employees must be paid for all time spent working. Exempt employees, on the other hand, are generally paid a set salary regardless of the number of hours worked each week.

The following are answers to common holiday pay questions:

Q: Is my company required to observe certain holidays?

A: Under federal law, employers in the private sector can choose whether or not to observe holidays. Some of the most common company recognized holidays include: New Years Day, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and Christmas. It is a best practice to include a list of company observed holidays within a written policy on holidays, and to also notify employees near the beginning of the year of the holiday schedule; consider posting this information on bulletin boards, in common areas and on the company intranet.

Q: Am I required to pay non-exempt (hourly) employees when our company is closed for a holiday?

A: In general, there is no federal or state requirement for employers in the private sector to pay non-exempt employees for days not worked. Thus, employers may give non-exempt employees time off from work on a holiday with or without pay. Note: This is not the case for exempt employees (see below).

Q: How do company closures on holidays affect exempt employees?

A: Under the FLSA, exempt employees must generally receive their full salary in any workweek in which they perform any work. This means that if you are closed on a holiday, exempt employees must still receive their full salary, as long they worked any portion of the workweek. However, under federal law, you may require the substitution of paid leave (e.g. vacation) for the time not worked. In such cases, exempt employees would still receive their full salary but their paid-leave bank would be reduced for the time off. If the exempt employee has no paid time off available, no salary deduction would be permitted.

Q: Is holiday pay required at the same rate as a non-exempt employee's regular rate of pay or can we pay a lower rate?

A: The FLSA permits employers to provide non-exempt employees' holiday pay at a lower rate, but it is a best practice to offer paid holidays at employees' regular rate of pay.

Q: We want to require employees to work for us for 90 days before they are eligible for paid holidays. Is this permitted?

A: This type of policy is generally permitted for non-exempt employees only. As mentioned above, if the company is closed on a holiday, an exempt employee must still receive her full salary if he or she worked any part of the workweek.

Q: How much do I pay employees if their regular shift is more than 8 hours on a company observed holiday?

A. Since pay for non-exempt employees' time off on a holiday is at the discretion of the employer, you may generally treat the time off however you'd like. However, best practice is to pay the employee for the number of hours they would have worked that day.

Q: Do part-time hourly employees receive pay when they are given time off for a holiday?

A: Again, this is up to you. Some employers offer paid holidays to part-time hourly employees, usually for the number of hours they would have been scheduled to work that day.

Q: Since both Christmas and New Year's fall on a Tuesday this year, I am concerned that there will be a higher number of unscheduled absences around each holiday. Can I require employees to work the day before and after in order to receive holiday pay?

A. Under federal law, employers are permitted to require non-exempt employees to work the day before and after a company holiday in order to receive pay for the holiday time off, unless the employee schedules the additional time off in advance. Note: This practice may not be applied to exempt employees. To ensure adequate staffing, it is a best practice to require employees to request time off at least one month in advance whenever possible and remind employees of this policy regularly.

Q: Can I require employees to work on a holiday?

A. In general, you may require employees to work on a holiday but remember that reasonable accommodations for employees' religious beliefs and practices may be required. Under Title VII of the Civil Rights Act, employers with 15 or more employees are required to provide reasonable accommodations for employees' sincerely held religious beliefs and practices, unless it would impose an undue hardship. The Equal Employment Opportunity Commission's Compliance Manual has a number of best practices for providing religious accommodations, such as encouraging and facilitating voluntary shift swaps and permitting flexible scheduling.

Q: If non-exempt employees work on a company holiday, do I have to pay them a premium, such as double pay?

A: No federal law mandates premium pay in addition to the employee's regular rate for work performed on holidays (other than the overtime premium required for work in excess of 40 hours in a workweek). While the vast majority of states don't require premium pay for work on a holiday, there are exceptions under certain circumstances, such as in Massachusetts and Rhode Island. Be sure to check your state law. Some employers voluntarily offer premium pay for working on a holiday as an incentive to employees, typically either 1.5 times or 2 times an employee's normal pay rate.

Q: How does offering a paid holiday affect overtime?

A: Under the FLSA, non-exempt employees are entitled to overtime for "hours worked" in excess of 40 in a workweek. Paid time off, including holidays, is not considered "hours worked" under federal law. Some employers, however, choose to voluntarily count paid holiday time off as hours worked.

Example: An employee works 30 hours during the workweek of Christmas and receives December 24 and December 25 off as paid holidays. The employee is paid for 46 hours. Under federal law, the employee would not be entitled to overtime pay because his or her actual hours worked is 30.

Q: How does offering premium pay for working a holiday affect overtime calculations?

A: For overtime calculations under federal law, premium pay for working a holiday may be excluded when determining an employee's regular rate of pay. In addition, premium pay for working a holiday can be credited toward overtime pay due as long as the premium pay is at least 1.5 times the employee's normal pay rate (See 29 USC Section 207 (H) (2)).

Q: What options do I have if a holiday falls on an employee's regularly scheduled day off?

A: Though not required to do so, some employers allow employees to take another day off around the holiday if the holiday falls on an employee's day off. For example, let's say an employee regularly has Mondays and Tuesdays off and your company offers Christmas (which falls on a Tuesday this year) as a paid holiday. You may choose to provide the employee with another paid day off (e.g., the day after Christmas) since the employee's schedule would have had him off for Christmas anyway.

Q: Am I required to have a written policy on holiday-related pay issues?

A: There is no federal requirement to have a written policy, but it is always a best practice to put policies in writing. The policy must comply with applicable law and should address many of the issues discussed above. Consider including a list of company observed holidays and who is eligible for holiday pay, at what rate employees will receive holiday pay, whether some employees may be required to work a holiday, and whether paid time off for holidays will be included in overtime calculations.