With the holiday season approaching, employers may be considering whether they have to provide employees with paid time off for holidays, or extra pay when they work on a holiday. Here we answer these and other frequently asked questions about holiday pay.
Q: Do I have to offer paid holidays to employees?
A: Unless you are required by contract or agreement, private employers are generally not required to provide paid holidays to non-exempt employees (those entitled to minimum wage and overtime). However, if your company closes on a holiday, employees classified as exempt from overtime (those who meet specific salary and duties requirements) must generally still receive their full pay, as long as they work any part of the workweek.
Note: Under federal and many state laws, employers are generally required to provide reasonable accommodations for employees' sincerely held religious beliefs and practices, unless doing so would impose an undue hardship on the business. This may include providing paid or unpaid time off for religious observances. The Equal Employment Opportunity Commission suggests best practices for providing religious accommodations, such as facilitating voluntary shift swaps and permitting flexible scheduling.
Q: If my company offers paid holidays to non-exempt employees, are there certain holidays I must observe?
A: No, employers may generally choose which holidays to observe as paid holidays. While some states have laws that restrict certain types of businesses from opening on a holiday, these laws don't require employees to be paid for this time off.
The most common paid holidays are:
- New Year's Day
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving Day
Some employers also provide paid holidays for Martin Luther King, Jr. Day, President's Day, Juneteenth, Columbus Day, and Veterans Day.
Note: Some states, including Iowa, Massachusetts, New Hampshire, and Oregon, require employers to provide veterans with time off on Veterans Day. In Massachusetts, veterans are also entitled to sufficient time off so they can participate in an exercise, parade, or service in their community on Memorial Day. In each of these states, employers may generally choose whether the time off is paid or unpaid. However, if the employer closes, exempt employees would be entitled to their full salary if they worked any part of the workweek.
Q: To reduce absenteeism around the holidays, can I require employees to work the day before and after a company holiday to be eligible for pay for the time off on a holiday?
A: Employers are generally permitted to require non-exempt employees to work the day before and after a company holiday in order to receive holiday pay. Typically, employers don't apply this policy to employees who scheduled the time off in advance. Note: Employers are prohibited from applying this type of policy to employees classified as exempt from overtime. That's because exempt employees must generally receive their full salary in any workweek in which they perform any work.
Q: Can I require employees to work on a holiday?
A: Check your state law, which may have restrictions. For example, Massachusetts prohibits certain employers from requiring employees to work on designated holidays.
Q: If I am allowed to require non-exempt employees to work on a holiday, do I have to offer premium pay (such as 1.5 or 2 times their regular pay)?
A: Under federal law, absent a contract or agreement, there is generally no requirement for private employers to pay non-exempt employees a premium for working on a holiday, unless it results in the employee working more than 40 hours in the workweek. Keep in mind that in some states, like Massachusetts and Rhode Island, employers may be required to provide premium pay for work performed by certain employees on designated holidays (and Sundays). Absent a state requirement, many employers still choose to offer premium pay to employees as an incentive to work on a holiday.
Q: In one workweek, I had a non-exempt employee who had a paid holiday on Monday and then worked 40 hours from Tuesday through Friday. Would this employee be entitled to overtime for the workweek?
A: Paid time off doesn't count towards hours worked when determining whether overtime is due. Therefore, unless you promised otherwise, the employee wouldn't be entitled to overtime under federal law. Keep in mind that some states, including California, require daily overtime for hours worked over eight in workday. In these states, the employee may be entitled to overtime under state law. Check your state law to ensure compliance.
Q: We offer employees two times their normal pay rate to work on a holiday. Do I have to include this holiday premium pay when determining an employee's regular rate of pay for the purposes of calculating overtime?
A: Under federal law, the overtime rate is 1.5 times the employee's "regular rate of pay." An employee's regular rate of pay includes their hourly rate plus the value of nondiscretionary bonuses, shift differentials, and certain other forms of compensation. However, premium pay for work on a holiday may be excluded from the regular rate of pay determination if it is at least 1.5 times what the employee receives for work performed in non-overtime hours on other days.
Q: We observe Christmas and New Year's Day as paid holidays, both of which fall on a Saturday this year. What should we do?
A: If a holiday falls on a Saturday, the federal government and many employers will observe it on the preceding Friday. If a holiday falls on a Sunday, the federal government and many employers will observe it on the following Monday.
Q: What if a holiday falls on a payday?
A: If a scheduled payday falls on a holiday, some states require payment on the preceding business day. Absent such a requirement, employers generally have the option of paying employees on the day before or after the holiday. If your check date falls on a bank holiday and you wish to pay employees the day before, adjust your check date to avoid delaying payroll delivery.
Make sure you understand the rules that apply to your business and clearly communicate, and consistently apply, your policy on holiday pay.