The season may be festive, but for small business owners and employees, holiday pay policy can be confusing. Here’s a brief refresher on what’s legal for holiday, overtime, and vacation pay.
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What are federal holidays in the U.S.?
Federal holidays are holidays observed by the U.S. government. While a majority of government offices are closed on these days, small business owners and other private employers have the option of staying open. Businesses that close on federal holidays are not required to pay their employees for the day off, and those that stay open are not obligated to pay employees extra for normal work hours. In general, holidays are considered regular workdays and employees receive their normal pay for time worked. If the federal holiday falls on a weekend, it is generally observed on the closest weekday.
The U.S. government lists these days as federal holidays:
- New Year’s Day
- Birthday of Martin Luther King, Jr.
- Washington’s Birthday (also known as Presidents Day)
- Memorial Day
- Juneteenth National Independence Day
- Independence Day
- Labor Day
- Columbus Day (or Indigenous Peoples’ Day)
- Veterans Day
- Thanksgiving Day
- Christmas Day
What are paid holidays?
Paid holidays are not required in the United States, however some employers may decide to provide compensation to their employees as a matter of policy, as laid out in an employment contract or employee handbook. In addition to the federal holidays listed above, other paid holidays might also include:
- Good Friday
- The Friday after Thanksgiving
- Christmas Eve
- The day after Christmas (also known as Boxing Day)
- New Year’s Eve
- Other commemorative holidays like César Chávez Day
Ultimately, paid holidays are up to each employer to define. If you have questions about documenting your holiday policy, ask a lawyer.
Do I have to allow time off for religious holidays?
If multiple employees request time off in observance of a religious holiday, an employer must accommodate such requests in a consistent and nondiscriminatory fashion. As stated by the Equal Employment Opportunity Commision (EEOC), an employer is not required to accommodate all requests if the requests will bring hardships to the company.
What is holiday pay?
Under federal law, a holiday doesn’t have a special designation for overtime pay, nor is working on a holiday considered overtime. Federal law views holidays as just another business day. That said, both federal and state law requires most employers, but not all, to pay overtime to employees whose hours meet the criteria. This is important if you hold special extended hours during the holiday season, or if you rely on employees to cover additional shifts.
How much is holiday pay?
If your employees are entitled to overtime, calculating pay can be a bit tricky. The important thing to know is that under federal law, overtime is calculated weekly. This means if your employee works over 40 hours during the week of typical paid holidays like Thanksgiving, Christmas, or New Year’s Day, they are entitled to “time and a half” for the hours worked over 40 hours.
In California and a few other states, there’s also a daily overtime standard. If your employee works over eight hours on any given day, they are entitled to “time and a half” for every hour worked over eight hours. Let’s say you are a California business and your employee worked 10 hours on Christmas Day. State law requires you pay your employee overtime for 2 hours.
As an incentive, some employers may opt to offer double-time to employees working on holidays, meaning that their regular rate is multiplied by 2. While there is no federal requirement around double-time, there are double-time rules in California, which come into play if an employee works more than 12 hours in any workday or if an employee works more than seven consecutive workdays.
What is time and a half?
Time and a half pay is 50 percent more than an employee’s regular pay rate. This means for every hour of overtime an employee works, you must give them their regular pay plus half of that.
What is double-time?
Double-time pay is twice the employee’s regular rate. This means for every hour of overtime, you pay two times what the employee normally earns.
How do I calculate time and a half?
To calculate an employee’s overtime pay for time and a half, multiply their regular rate by 1.5.
Here is a sample overtime pay calculation. In this example, the employee earns $20 per hour and has worked 4 hours of overtime for the week.
|Regular hourly wage||$20 per hour|
|Time and a half hourly wage||1.5 x $20 = $30 per hour|
|Hours of overtime for the week||4 hours|
|Regular weekly pay||$20 x 40 hours = $800|
|Time and a half pay||$30 x 4 hours = $120|
|Weekly pay including time and a half||$800 + $120 = $920|
Note that the sample calculations above are pre-tax and are examples only. Please ask a lawyer or your payroll administrator for details specific to your situation.
What about vacation pay during a holiday?
Under the Fair Labor Standards Act (FLSA), you are not obligated to pay employees for time not worked–This includes vacation days in addition to holidays. Therefore, if your employee takes a vacation day on Christmas or New Year’s Day, there is no law requiring you to pay them for the time off.
If your employee is entitled to vacation pay, it will be based on an agreement between you and the employee. Sometimes, prior to hiring, an employee will negotiate for a certain number of paid vacation days. While individual agreements should be recorded in an employment contract, the best place to document your company’s rules is your employee handbook or in a separate vacation policy.