What Is Holiday Pay?

While you don’t have to offer holiday pay, it’s a great way to show employees that you care.

  • Any payment an employee receives in exchange for working on a holiday is known as holiday pay.
  • Although the FLSA governs overtime compensation, there are no rules in the US requiring that employees get pay on holidays.
  • Increased motivation, greater engagement, and an inducement for workers to report for work on holidays are all advantages of granting holiday pay.
  • This article explains holiday pay and explains how to develop a policy for it for small business owners and human resources specialists.

Some companies can afford to close for holidays like Christmas and Labor Day, but not all of them can. When you must stay open on holidays, the issue is whether or not the staff members who don’t work should be compensated for those days and whether or not the staff members who do work should receive any additional remuneration.

Holiday compensation might vary from person to person because it is normally determined by the company. Understanding holiday pay, how it’s calculated, and how to create a holiday pay policy are crucial when choosing how much, if anything, to pay workers who work or don’t work on holidays.

What is holiday pay?

Despite having a unique moniker, holiday pay simply refers to the remuneration that employees receive for working or not working on any holiday. Employees can frequently use holiday pay as a “gift” so that they can take time off during the holidays without losing money.

Holiday pay is most frequently described in the United States as time-and-a-half pay, which pays an employee their usual rate plus one-half of their regular rate for each hour worked on a holiday. It might also be paid time off on a holiday or a bonus check for the holiday.

Although there are no rules in the US requiring that workers be paid on holidays, the following holidays are frequently given off with pay:

  • Christmas Day
  • Easter
  • Eve of Christmas
  • Thanksgiving Day Labor Day
  • Day of Thanksgiving
  • after Thanksgiving Day (Black Friday)
  • Veterans Day
  • Day of Independence

Other federal holidays like Martin Luther King Jr. Day, Presidents Day, or Veterans Day may also be observed by some businesses as paid time off for their staff. According to 2019 research from the Society for Human Resource Management, 96% of private firms provide their staff vacation compensation.

Keep in mind that all 10 federal holidays must be observed by public employers:

  1. New Year’s Day
  2. Martin Luther King Jr. Day
  3. George Washington’s birthday
  4. Memorial Day
  5. Independence Day
  6. Labor Day
  7. Columbus Day
  8. Veterans Day
  9. Thanksgiving Day
  10. Christmas Day

Who is eligible for holiday pay?

Anyone who works on an annual holiday is entitled to holiday pay, which need not exceed the qualified employee’s regular hourly rate of pay. As a perk and incentive to employees, employers may pay more on specific holidays.

What religious accommodations do you need to make?

Employers with 15 or more workers are required under Title VII of the Civil Rights Act of 1964 to respect their employees’ “sincerely held religious views or practices” unless doing so would result in “undue hardship or inconvenience.” For instance, you may provide your staff with optional floating holidays or paid or unpaid time off for religious holidays. How to Create a PTO Policy is a related article.

How does holiday pay work?

With the following three common exceptions, holiday pay normally functions the same as regular pay for employees:


The Fair Labor Standards Act states that nonexempt workers who work overtime during the holiday season (but not on the actual holiday) are entitled to compensation “at a rate not less than time and one-half their usual rates of pay” for any hours exceeding 40 per week.

Time and a half:

Although it is not required by law, as the employer, you may decide to give time-and-a-half compensation on specific holidays to encourage staff to work or to raise morale.


Around the holidays, you can decide to give your staff a bonus, which is effectively a present. Holiday bonuses are up to the company’s discretion and may be based on performance, basic pay, or service years.

You are merely obligated to abide by all applicable state and federal employment regulations, which do not specify any unique considerations for paying employees during holidays, with the exception of overtime for nonexempt employees. There are no specific rules or laws governing holiday pay.

How do you calculate holiday pay?

If you provide an employee time-and-a-half compensation for working on a holiday, you simply double that amount by half. As an illustration, if an employee’s usual hourly wage is $12, their holiday compensation would be $18. All of the computations will normally be taken care of for you if you utilize online payroll software.

Under federal law, overtime is determined weekly; therefore, if you provide nonexempt workers extra compensation, they are entitled to time-and-a-half pay for any hours worked beyond 40 each week.

What are the benefits of providing holiday pay to employees?

Giving staff vacation compensation in whatever form has a number of advantages:

It can increase productivity.

Giving workers vacation pay may raise their sense of worth, which generally boosts engagement. Additionally, paying overtime might encourage workers to put in longer hours, increasing productivity throughout your whole company.

It can boost motivation.

Employees might be greatly motivated by paid holidays off since they know they will be granted time off without losing pay. Paid time off has been shown to reduce stress, enhance mental health, and boost productivity, all of which are advantageous for both your employees and your company.

According to Jim Pendergast, senior vice president of Alline, “Holiday pay and automated time off is a really low-cost, logical fringe perk,” he told Business News Daily. In most circumstances, it is financially manageable to accept and exhibits goodwill, especially when compared to other sorts of fringe benefits that are available.

It’s an incentive to work on holidays.

Offering special holiday compensation, such as time-and-a-half or overtime pay, is a terrific approach to make it worthwhile for your employees’ time since few workers are keen to work on holidays. This is crucial if you have to operate or conduct the majority of your business on holidays, which is often the case if your company is in the retail industry.

According to Overpass CEO Ravi Parikh, “the lure of additional money would induce individuals to work days most would prefer not to work.” “Many of your employees could find it more motivating than taking that day off,” you say.

It can attract top talent.

According to Daniel Cooper, managing director of Lolly Co., “top people will always go for an employer with outstanding perks.”

Time off is frequently included in these wonderful advantages, especially during the Christmas season. Giving employees holiday compensation demonstrates your appreciation for them and your concern for their time off, which can help you draw in quality job candidates.

How to develop a company policy on holiday pay

The most crucial aspect of creating a holiday pay policy is being explicit and detailed about what is permitted, what is not, and how any holiday pay is computed. This aids in preventing irate workers and probable legal action. These four components must to be a part of your vacation policy:

1. Define floating holidays.

If you decide to provide your staff with floating holidays to cover any religious or cultural holidays, be sure to specify how and when they accrue (for instance, three days at the beginning of each calendar year) and whether any unused floating holidays can be carried over to the following year or cashed out when an employee quits.

2. Be clear as to who is eligible.

It should be clear from your policy which employees are eligible and under what circumstances they are. For instance, you may specify that in order to get holiday compensation, employees must be scheduled for at least 20 hours per week and be in good standing with the organization. [Read related article: Startup Employee Handbooks]

3. Describe how time-and-a-half pay is calculated.

Describe in detail how time-and-a-half compensation is computed and decided if you have hourly workers that qualify. The legal minimum wage must be paid for all hours performed on holidays. For hours worked on holidays, the FLSA does not mandate overtime, time-and-a-half, or double pay; but it does mandate time-and-a-half compensation for any hours over 40 in a given workweek.

4. Describe holiday pay for exempt employees.

If your company just employs salaried, exempt workers, be sure to spell out how holiday compensation will operate. Specify in the policy whether such days will be paid or unpaid, for instance, if your company closes for the week between Christmas and New Year’s. According to the FLSA, exempt workers must get their full pay for each workweek during which they perform any labour. Since company closures, including holidays, are not permitted FLSA deductions, exempt workers must still receive their full pay on holidays. The distinction between exempt and nonexempt employees may be found in a linked article.

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