Holiday Pay Rules: What Business Owners Need to Know About Time-and-a-Half

This confusion can lead to payroll errors, employee misunderstandings, and even legal complaints. Some employers offer time-and-a-half as a company policy or as part of a union agreement, but those decisions are optional under federal law. The real risk comes when what you actually do doesn’t match what your policies—or paychecks—say.

Let’s break down what you are required to do, where holiday pay rules really apply, and what to double-check before your next payroll run.

When Time-and-a-Half Is Actually Required

Under the Fair Labor Standards Act (FLSA), employers must pay time-and-a-half only when an employee works more than 40 hours in a workweek—not just for working on a holiday. This rule applies to non-exempt employees, which covers most hourly workers.

So, if you’re open on a federal holiday like July 4 or Thanksgiving, and an hourly employee works that day—but hasn’t gone over 40 hours that week—you’re not legally required to pay extra. However, if their holiday shift pushes them past 40 hours, then overtime kicks in.

🔎 Federal holidays and overtime law are not the same thing. Just because a day is nationally observed doesn’t mean extra pay is required.

But here’s where it gets more complicated:

• State laws may differ. Some states, like Massachusetts and Rhode Island, have specific holiday pay rules for certain industries or types of businesses.
• Company policy matters. If your handbook, offer letter, or past practice says employees get time-and-a-half on holidays, that may count as a binding promise—even if not legally required.
• Misclassification can create problems. Accidentally treating a non-exempt worker as salaried (exempt) can lead to underpaying overtime or holiday pay.

Questions You Should Be Asking About Holiday Pay

Before you make any decisions about holiday shifts or overtime, ask yourself a few key questions to avoid surprises and protect your business:

• Am I legally required to pay extra on holidays? Check both state rules and your local labor laws.
• What have I promised in writing (or in practice)? Could employees expect time-and-a-half based on past years or policy wording?
• Does my payroll system flag overtime correctly? Is it set up to calculate time-and-a-half only after 40 hours, not just on certain days?
• Am I treating all employees the same way? Have I clearly defined who is eligible for overtime and who is not?

What You Can Do Next

Here are a few smart steps to help you stay compliant and avoid pay-related disputes:

• Review the holiday pay laws in your state, county and city—especially if you’re in an area with “premium pay” rules.
• Check your handbook and offer letters for any promises about holiday pay or incentives. Update them if they’re unclear.
• Talk to your payroll provider to make sure time tracking and overtime are calculated accurately.
• Ask Rocket Copilot for a quick review of your employer policies if you’re unsure what you’ve committed to—or ask a question about your situation on whether you’re handling holiday pay correctly.

Clear policies and accurate payroll help protect your business—and your relationships with your team. A little planning now can save you from bigger problems later.