Posted on September 28, 2022 | Pay

When it comes to time off, employers must consider what holidays to observe and how to handle various pay issues. To help you plan your 2023 holiday calendar, here are answers to frequently asked questions about holidays and 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. When deciding which holidays to observe, many employers follow the federal government's schedule or a subset of it. Some add certain state-specific holidays.

The holidays observed by the federal government are:

Note: Some states, including Iowa, Massachusetts, New Hampshire, Oregon and Tennessee, require employers to provide veterans with time off on Veterans Day. In Massachusetts, veterans are also entitled to sufficient time off to 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, can I require employees to work the day before and after a company holiday to be eligible for paid 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 shouldn't apply 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 we remain open on a holiday, am I required to pay non-exempt employees a premium for working that day?

A: Under federal law, there's generally no requirement 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. However, there are exceptions in some states where some employers may be required to provide premium pay regardless of how many hours the employee worked. For example, Massachusetts requires retail establishments with seven or more employees (including the owner) to pay a premium of 1.1 times the employee's regular rate for work on Juneteenth, Sundays, and certain other legal holidays in 2022 (this premium-pay requirement will end in 2023). Absent a state requirement, some employers choose to offer premium pay to employees as an incentive to work on a holiday.

Q: If a holiday falls on a weekend, when will it be observed by employers?

A: If a holiday falls on a Saturday, the federal government and many employers will observe it on the preceding Friday. If the holiday falls on a Sunday, the federal government and many employers will observe it on the following Monday.

Q: What if a holiday is also our payday?

A: The Federal Reserve and banks will be closed on federal holidays, so direct deposits generally won't be posted to employees' accounts on that day. Keep in mind that some states require payment on the preceding business day if a scheduled payday falls on a holiday. Absent such a requirement, employers generally have the option of paying employees on the business day before or after the holiday. When 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.

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 toward 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 hours in a 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.

Conclusion:

Make sure you understand the rules that apply to your business and clearly communicate, and consistently apply, your policies on holidays.