Although there is no hard and fast regulation that stipulates employers must compensate workers for holiday, the situation is often more nuanced than that. You might think of holiday pay as a reward for your hardworking staff, allowing them to take time off without worrying about money. If an employee works on a holiday, they may be eligible for overtime pay equal to their regular hourly rate plus 50%. Read further to get to understand how to calculate holiday pay for employees. Let’s dive in!
What Is Holiday Pay?
Pay for time off on federally recognized holidays, such as New Year’s Day, Christmas Eve, Labor Day, Thanksgiving Day, and Independence Day in the United States, is known as holiday pay. It’s a perk that makes sure workers don’t miss out on pay when they don’t show up for work on holidays.
If an employee works on a holiday, they may be eligible for overtime pay equal to their regular hourly rate plus 50%. This is commonly referred to as “time and a half.” However, the particulars may differ substantially based on factors including state and federal regulations, internal company guidelines, and the terms of your employees’ contracts.
How Does Holiday Pay Work?
With three exceptions, employees’ holiday pay functions exactly like their regular pay. Here is how it works:
#1. Overtime
The Fair Labor Standards Act states that nonexempt workers who work more than 40 hours in a workweek “at a rate not less than time and one-half their regular rates of pay” must be compensated for their extra time “at a rate not less than time and one-half their regular rates of pay.”
#2. Time and a Half
While it’s not required by law, some employers choose to compensate their staff with double hours on holidays in order to increase productivity or employee morale.
#3. Bonuses
You could decide to give your staff members a bonus around the holidays, which is effectively present. The employer has complete discretion over holiday bonuses, which may be based on factors such as length of service, wage level, or employee success. You must comply with all applicable state and federal employment regulations, which do not include any provisions for compensating employees on holidays other than overtime for nonexempt employees.
Who’s Eligible for Holiday Pay?
The Fair Labor Standards Act (FLSA) states that employees should not be compensated for time off, such as holidays. You and your employees will need to come to an understanding of this, which is typically spelled out in an employment contract or business policy. Full-time workers, whether salaried or hourly, are typically entitled to holiday pay. While some companies may wait until an employee has put in a particular number of hours of part-time work before providing this perk, others may provide it from day one. Giving hourly workers a holiday bonus has been shown to increase retention.
How Do You Calculate Holiday Pay for Employees?
The way you calculate holiday pay for hourly and salaried staff varies depending on your small business policy. Here is how to calculate holiday pay for employees:
#1. How to calculate holiday pay for salaried employees
Workers who are paid on a salary basis receive a yearly salary regardless of the number of hours they work. They get paid as usual during holiday times regardless of whether or not they work, as holiday pay is typically included in their annual wage. Here is an example of how to calculate holiday pay for salaried employees:
Let’s pretend a worker is paid $52,000 per year. If this is paid every two weeks, then there are fifty-two weeks in a year. Their annualized salary is $52,000, which is divided by 26 pay periods to yield $2,000. As a result, the worker will still earn $2,000, even if one of the pay periods falls on a holiday.
Salary workers who volunteer to come in on a holiday may receive extra pay or other perks from their employers.
#2. How to calculate holiday pay for hourly employees
Depending on the company’s holiday pay policy and whether or not the employee worked on the holiday, to calculate holiday pay for hourly workers might be a bit more complicated.
Here are a few case studies:
Method 1 on how to calculate holiday pay for hourly workers
- If an hourly worker is eligible for paid holidays but chooses not to work on a holiday, the following formula applies:
Calculate Holiday Pay: Average Daily Hours x Hourly Wage
Consider a worker who makes $15 per hour for their typical 8-hour shift. Eight hours times fifteen dollars per hour is one hundred twenty dollars, which is their holiday compensation. They would still get $120 in holiday pay even though they didn’t work on the holiday.
- If a salaried worker is required to work on a holiday and is compensated at their regular rate for doing so, the employee is expected to do so
Calculate Holiday Pay: Hours Worked x Hourly Rate
If their hourly income was $15, and they worked for six hours over the holiday, they would receive $90. Here, the worker would be compensated in the same manner as usual, although working on a holiday. Therefore, they would earn $90 for working 6 hours on the holiday.
- if an hourly worker is needed on the holiday and the business pays a premium for holiday work (for example, “time and a half”), the worker should be paid the higher rate.
You can do the math using one of two distinct, but equivalent, formulas.
Holiday compensation is calculated as follows: (Hours worked x Hourly Wage) + [(Hours worked x Hourly Wage) x 0.5]
The first calculation takes into account the fact that your employer pays time and a half for holidays and that the employee worked for 6 hours on the holiday at their regular hourly rate of $15. In this case, their holiday compensation would be $135 (6 hours x $15/hour) plus [(6 hours x $15/hour) x 0.5] = $135.
Method 2
Holiday pay =(Hours worked x hourly wage x 1.5)
Applying the second formula, using the same data as before, you would obtain:
If you work for 6 hours at $15 an hour, multiply that by 1.5 to get $135. Therefore, you would essentially be paying the worker 50% more than their regular hourly rate for each holiday hour worked.
How Do I Set up a Holiday Pay Policy?
Establishing a holiday pay policy where you specify the parameters and set expectations for both the business and the personnel is necessary, whether you manage salaried, hourly, or a combination of the two.
The foundation of your holiday pay policy should be the following:
#1. Criteria for Eligibility
Full-time and part-time workers who meet certain criteria are included, while temporary workers and independent contractors are likely not.
#2. Process for Requesting Time Off
Define your policy for dealing with requests for time off that overlap, and set any applicable deadlines. For instance, if you’re utilizing it to schedule your staff, explain how it works and why certain requests may be denied. This aids in keeping holiday scheduling fair and transparent.
#3. Dates for the Holidays
Specify which holidays will result in paid time off for employees. Standard federal holidays are included; however, regional, organizational, and professional considerations may necessitate the addition of other days.
#4. Estimating Compensation
Lay out the steps you’ll take to calculate holiday pay. Using software you can easily transform your employees’ timesheet data into payroll-ready hours and salaries.
#5. Working on a Holiday
Describe your company’s policy on employee attendance on federal holidays. Is there a final shutdown of operations? Do you anticipate the need for labor? Who will pick them, and how much will they get paid?
#6. Pay for Time Off That Was Not Used
Define the consequences for employees who fail to use their accumulated vacation days. Is there a chance it might be carried over to the following year, or would they lose it?
#7. Unused Holiday Pay
Specify the conditions under which holiday pay will not be issued. This may involve mandatory orientation periods for new hires or special guidelines for those who work irregular hours.
#8. Policy Exceptions
Explain in detail how time and a half is decided and paid for if your company has hourly workers who qualify for it. Holiday pay can’t be less than the regular rate of pay, under the law. Time and a half are due for any hours worked in excess of 40 in a workweek, but the FLSA does not mandate overtime, time and a half, or double time for hours worked on holidays.
#9. Describe How Holiday Pay Is Calculated
Specify how holiday pay will be distributed if your company only employs salaried, exempt personnel. You should specify in the policy whether or not the week between Christmas and New Year’s will be paid vacation time for employees. Since company closures (including holidays) are not a permitted FLSA deduction, exempt employees are entitled to their entire wage regardless of whether or not they actually work during the workweek in question.
What Are the Benefits of Providing Holiday Pay to Employees?
Holiday pay, in whatever shape it takes, is beneficial for a number of reasons. Here are some of the reasons:
#1. It Has the Potential to Boost the Output
Employees who receive holiday pay tend to be more invested in their work, as it makes them feel appreciated. In addition, offering overtime pay might encourage workers to put in more hours, which is good for business overall.
#2. It Can Boost Motivation
Employees’ morale can be significantly boosted by the provision of paid vacation days around big holidays. Benefiting both employees and employers, paid vacation time has been shown to reduce stress, boost morale, and raise output.
#3. Increased Employee Happiness and Retention Rates
Consideration for workers’ happiness is a surefire way to boost morale. By providing holiday pay, you can ensure that your employees can take time off without worrying about losing their salary. Employees are more committed to the company as a whole when they feel safe and valued in their roles. When employees are appreciated for their efforts, they are more likely to remain with the company for the long haul, saving money and minimizing operational disruptions caused by employee turnover.
#4. It’s an Incentive to Work on Holidays
It’s common knowledge that few workers look forward to working on holidays, therefore, it’s a good idea to compensate them more for their efforts by giving them time and a half or overtime rates. If you’re in retail, for example, you probably need to be open or do the bulk of your business on holidays, so this is crucial.
#5. Supports Multiculturalism
Your PTO policy has the potential to play a major role in advancing diversity, equality, and inclusion (DEI), which are all vital components of today’s workplace cultures. Diwali, Hanukkah, and Juneteenth are just a few examples of holidays that may not be included in standard holiday schedules but are extremely important to certain workforce populations and should be recognized as such.
#6. It Can Attract Top Talent
Time off is a common perk of these great benefits, especially around the holidays. Paying employees throughout the holidays sends a message that you respect their time off and value their contributions, both of which are attractive to prospective recruits.
Is Holiday Pay Mandatory in the U.S.?
There is no federal law in the United States that mandates private firms compensate their workers for time worked on federal holidays. Paying for holidays is not mandated by the FLSA. However, Rhode Island has its own regulations concerning holiday pay rates for private enterprises. Some government contractors must adhere to the same holiday pay regulations as federal and state government agencies. Holiday pay provisions may be negotiated as part of union labor contracts. Holiday pay is discretionary outside of the aforementioned situations. However, many employers provide it as a perk even if it’s not mandated by law.
What Is the Method to Calculate Holiday Pay?
To calculate holiday pay, double the employee’s regular hourly rate on the holiday in question. A worker who earns $12 per hour during the usual work week would receive $18 per hour over the holiday season.
What Happens When a Holiday Falls on Your Day Off?
When a legal holiday falls on a day that is not a typical workday for an employee (other than Sunday), the holiday is observed on the preceding workday. If a legal holiday falls on a weekend day, the following Monday is considered a holiday for the worker.
What Is the Difference Between Time Off and Holiday?
The term “leave” refers to time off from work for reasons such as illness or other personal matters. A holiday is a day off from work that has been officially declared by your employer or the government.
Do You Have to Work the Day Before to Get Paid for the Holiday?
Yes. To get holiday pay, a business may have strict attendance or leave policies, such as requiring employees to work the day before and after a holiday. Employee eligibility for holiday compensation may also be contingent upon having worked for the company for a minimum number of years.
Is Holiday Pay Deducted?
No pay deductions will be made if one of your employees needs to take a day off. holiday pay is equivalent to the rate of income someone would earn by working any other working day.
Final Thoughts
The ability to close for holidays like Christmas and Labor Day is a luxury not many businesses can afford. If you must keep your business open on a holiday, you may be wondering if you should pay your workers as usual or if you should give those who have to work holidays a bonus. Due to the fact that holiday compensation is often left up to the employer’s discretion, it can take several forms. Understanding holiday pay, how it is calculated, and how to establish a holiday pay policy is crucial when considering whether or not to provide payment to workers who work on holidays.
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