According to the FLSA, private employers are not required to offer any form of payment to employees for time they don’t spend working. This includes vacation, PTO, and holiday pay. Despite this lack of legislation, many businesses still offer holiday pay and other forms of paid time off. This is because it can be a great way to enhance your employer brand and attract and retain talent. It’s also a great incentive for boosting employee morale and nurturing a happy, motivated, and productive workforce.
But what is holiday pay, exactly? And how much is holiday pay in general?
This employer’s guide will explain everything you need to know about holiday pay, including related examples, laws, and requirements.
Table of Contents
Table of Contents
What is holiday pay?
Let’s start with the basics: What is holiday pay?
Holiday pay is a form of compensation that you can offer employees during federally observed holidays. This might be in the form of fully or partially paid time off if an employee chooses to take the day off, or a bonus or increased hourly rate if they choose to work instead of observing the holiday.
Offering holiday pay is not a federal requirement. However, many companies offer this perk in addition to personal time off, voluntary time off, vacation pay, or flexible time off. This is because offering perks like these can enhance your benefits package and help you attract and retain top talent. It can also help you build and maintain a satisfied and productive workforce. Plus, offering time and a half can be a great way to incentivize employees to work on federal holidays.
How does holiday pay work? Is it mandatory?
Although Federal law states that you must provide reasonable accommodation to employees for the celebration of religious holidays, you are not required to pay them for this time off. You are also not legally required to offer additional compensation for work performed during holidays (provided you comply with FLSA overtime requirements). However, despite it not being mandatory, many businesses these days choose to offer holiday pay in one form or another.
Those that do usually offer it for federally recognized holidays. This might be in the form of a paid day off or by offering employees time and a half for working on an observed holiday.
This might include:
- New Year’s Day
- Christmas Eve
- Christmas Day
- Labor Day
- Thanksgiving Day
- Memorial Day
- Independence Day
Some companies also choose to offer holiday pay for Martin Luther King Jr. Day, Presidents Day, or Veterans Day. The holidays you choose to observe must be clearly detailed in your employment contracts and employee handbook.
The law is different for federal employees, however. In this case, employees are protected by law and public employers must offer 11 paid holidays per year:
- New Year’s Day (January 1)
- Birthday of Martin Luther King, Jr. (Third Monday in January)
- Washington’s Birthday (Third Monday in February)
- Memorial Day (Last Monday in May)
- Juneteenth National Independence Day (June 19)
- Independence Day (July 4)
- Labor Day (First Monday in September)
- Columbus Day (Second Monday in October)
- Veterans Day (November 11)
- Thanksgiving Day (Fourth Thursday in November)
- Christmas Day (December 25)
Laws and requirements
The Fair Labor Standards Act (FLSA) only requires you to pay employees for the time they have worked. This includes overtime pay in the case of non-exempt employees. The only exception, as we mentioned above, is in the case of federal employees who are entitled to receive holiday pay for all 11 federally recognized holidays.
You also need to consider Title VII of the Civil Rights Act of 1964 which states that employers with 15 or more employees must accommodate “sincerely held religious beliefs or practices” unless doing so would cause “undue hardship or difficulty”. In this case, you can offer your employees floating holidays to use at their discretion or paid or unpaid time off for religious holidays.
Aside from the above, there are also a couple of state-regulated exceptions for employees working at private organizations. These paid time off laws apply to businesses operating in Rhode Island and Massachusetts.
For example, in 2023, Rhode Island became the first state to require private employers to pay additional compensation to employees working on Sundays and federal holidays. And the “Blue Laws” in Massachusetts, which require non-retail and manufacturing businesses to acquire a permit to operate on certain holidays, also state that employers cannot force employees to work on these days. (The law originally also extended to retail businesses, but this has recently changed)
Regardless of whether any of the above applies to your business, if you choose to offer holiday pay then you must create a clearly defined time off policy explaining how holiday pay works in your business. This includes which holidays employees can take off, whether you will pay them, and if you offer any additional compensation to employees who choose to work on these days, such as time and a half.
Holiday pay California
There’s one other legal consideration to keep in mind in terms of holiday pay. This law applies if you operate in the state of California.
According to the Golden State, California employers are not legally required to offer holiday pay. They are also not required to pay extra hours for time worked on a holiday. The only exception here is if the company chooses to offer holiday pay as part of its benefits policy or a collective bargaining agreement, or if an employee has already worked over their contracted hours that week. In the event of the latter, you must pay your employees according to FSLA overtime requirements.
There are also no legal requirements for businesses in California to:
- Close their premises on a holiday
- Give employees a day off for a holiday
- Allow employees to accrue time off (paid or unpaid) if they choose to work on a holiday
The only exception to this applies to federal employees working in the Executive branch.
- Government departments in the Executive branch,
- Corporations controlled or owned by the federal government
- Independent establishments or agencies within the Executive branch, such as the Government Accountability Office (GAO)
In these examples, employees would be entitled to holiday pay. Moreover, in the case of covered workers, any hours worked on a holiday must be paid at twice an employee’s regular rate of pay. This includes part-time employees, regardless of whatever is stated in their employment contracts.
How much is holiday pay (typically)?
So, how much is holiday pay?
Generally speaking, there are four options when it comes to handling federal holidays:
- Time off with holiday pay: Your employees can take a day off work without any deductions to their paycheck. In other words, holiday pay equates to the same rate of pay that they would receive by working any other working day.
- Time off without pay: Employees can take time off for federal holidays if they want, but it must be taken as unpaid leave (provided you comply with overtime requirements where applicable). Alternatively, employees can use a floating holiday or their regular PTO allowance to cover their time off.
- Work and receive the same pay: Employees work as normal and receive their regular rate of pay. You do not offer them additional compensation for working a federal holiday.
- Work and receive extra pay: You observe federal holidays, but employees can work them if they choose to do so. To compensate them for not taking time off, you can offer them a bonus or a higher rate of pay for that day (usually time and a half). You do not have to compensate employees for their time (other than ensuring that you pay them their standard rate plus overtime if applicable). However, offering extra pay can be a great way to incentivize your workforce and avoid potential scheduling issues during popular holidays.
Let’s take a look at a couple of examples of well-known companies that offer holiday pay to see how they handle federal holidays.
Amazon holiday pay
Amazon is one of the top employers in the US, employing approximately 1.1 million full and part-time employees. In fact, the e-commerce giant has employees in 47 out of 50 states, and an impressive 170,000 of these are based in California.
With such an extensive US workforce in place, Amazon has created an Amazon holiday pay policy to ensure that all workers are treated fairly. With this policy, full-time employees are offered 7 paid federal holidays per year:
- Memorial Day
- New Year’s Day
- Independence Day
- Christmas Day
- Thanksgiving Day
- Martin Luther King Jr. Day
- Labor Day
The holiday pay that each employee receives depends on the terms of their employment contract (the holiday pay rate is the same as an employee’s standard rate of income). Moreover, full-time Amazon employees receive 1.5 x their regular hourly rate if they choose to work on one of these federal holidays.
The only exception to this relates to the 170,000 workers located in California. In this case, corporate employees receive nine paid holidays (the above list plus the day after Thanksgiving and an extra day for Christmas).
Traditionally, the most common form of holiday pay in the US is time and a half. However, more recently some companies have started experimenting with alternatives such as unlimited PTO. Unlimited PTO is when salaried employees can take an unrestrictive number of days off and still receive full pay. This includes vacations, sick days, personal days, and time off for federal holidays. The only condition is that the time an employee takes off does not impact their performance or productivity in any way.
Although this form of employee benefit has grown in popularity recently, Netflix has actually been offering the perk since 2010. Ranked by Forbes as “one of the best employers in the world”, Netflix decided that it wanted to focus more on output and less on tracking employee hours worked. Instead of creating a vacation policy, a PTO policy, a sick leave policy, and a holiday pay policy, Netflix trusts its employees to manage their own time off and performance levels. As a result, provided employees notify their managers in advance, employees can take time off for federal holidays without impacting their take-home pay.
Considering Netflix has been offering this benefit for 3 years now, it’s safe to say that the policy is working well for them.
Should you offer part-time employees holiday pay?
As with full-time employees, there is no federal law governing holiday pay for part-time workers. According to the federal government, holiday pay is a “matter of agreement between employer and employee”. As a result, it is up to your business whether or not you choose to offer it to your part-time staff. Moreover, you can choose to restrict holiday pay to your full-time workers if you prefer. Just make sure you clearly define the terms of your holiday pay policy for both categories of workers.
How do you calculate holiday pay?
Let’s take a look now at what you need to keep in mind if you offer your employees this type of benefit. This includes how you calculate holiday pay and what information you need to include in your holiday pay policy.
Define your pay criteria for holidays
The first step is defining your criteria for calculating holiday pay. Will you offer employees their regular rate of pay for time off during federal holidays? If employees choose to work, will you offer them compensation on top of their regular salary to incentivize them to work? Will this be in the form of a bonus, or will you pay time and a half?
For example, if you offer employees time and a half for working during a federal holiday, then you simply need to include 1.5x their daily rate for each holiday worked in their paycheck. You also need to adjust for any overtime that an employee might put in over the holidays. Most payroll software solutions can automate the process for you.
Remember, outside of any obligations relating to overtime, there are no legal requirements relating to holiday pay. What you offer depends 100% on your internal policies. Keep in mind though that this, together with any other employee benefits that you offer, will impact your employer brand. The more appealing your benefits package is, the more likely that you will attract and retain top talent.
Conduct market research if you’re not sure how best to calculate holiday pay to see what your competitors are offering. This can help you define the right criteria that helps you stand out in the job market.
Create a policy
Once you’ve defined your criteria, it’s essential that you document everything in a holiday pay policy. This policy should then be included in all your employee contracts. You should also include a copy in your employee handbook together with your other policies for time off requests, such as your policies for unpaid time off, time in lieu, or stress leave, for example.
Make sure you cover the following topics in your holiday pay policy:
- Which employees are eligible (salaried, hourly, full time, part time, etc.)
- Which federal holidays you will designate as paid holidays.
- How you calculate holiday pay.
- If you offer bonuses or time and a half (for example) to employees who work on designated paid holidays.
- If you offer any floating holidays.
- The process for requesting time off. This includes how much notice employees must give.
- What happens if an observed paid holiday falls on a weekend.
- What happens if an employee accrues overtime whilst working on a designated paid holiday.
- How the process works for exempt employees.
Above all, make sure your policy is clear and specific and that all employees have easy access to it at all times. That way, your employees will understand how it works and what their rights and obligations are.
Setting up holiday pay with Factorial
As we just explained, one of the most important aspects of managing paid time off is having clear guidelines in place in the form of a shared policy. The more detailed your policy is, the easier it will be to manage time off requests. However, it’s equally important to have access to the right tools to handle these requests. That way, there is no confusion, your processes will run smoothly, and there is no risk of unexpected staff shortages during busy holidays.
For example, you can use Factorial’s time-off management software to create and share your holiday pay policy so that your workforce always has access to it. You can also use Factorial’s leave management tools to create a process for sending and approving time off requests directly through an employee portal. Plus, our handy scheduling calendar makes it much easier for your managers to understand staffing levels before they approve an employee’s request.
Best of all, you can integrate Factorial’s time-off management tools with your payroll interface. That way, you can automatically generate payslips at the end of each payment period in line with holiday pay calculations and overtime.