Most private employers observe six holidays per year: New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. When each one rolls around, employers must be ready to pay their employees according to company policy.

Holiday Pay & The Law

As a private employer, you’re not required by law to give holiday pay or holiday time off. But if you choose to provide them, it’s important to have appropriate procedures in place.

Holiday Pay & Nonexempt Employees

Generally, you’re required to pay nonexempt employees only for hours worked. Unless company policy says otherwise, you don’t have to pay nonexempt employees for hours not worked on holidays.

In some states, employers must give “reporting time pay” to nonexempt employees who arrive to work as scheduled but are sent home early. So, as a precautionary measure, make sure you inform your employees in advance about holiday closures.

If you provide holiday pay, it’s best practice to pay the allotted hours at the employee’s regular rate. But if you require that employees work on a holiday, the time worked must be paid at no less than the regular rate. (Many employers offer premium pay—such as double-time—for hours worked on a holiday.)

Holiday Pay & Exempt Employees

Per the Fair Labor Standards Act (FLSA), you can dock the salary of an exempt employee if the deduction is permissible under the FLSA. However, holiday pay is not a permissible deduction. Therefore, salaried-exempt employees must receive their full salary for business closures caused by a holiday.

Holiday Pay & Overtime

Overtime consists of work hours that exceed 40 for the week. Therefore, you should not include holiday pay when calculating overtime.

For example, if an employee works 40 hours for the week and receives 8 hours of holiday pay, 48 hours should be paid at the regular rate because the employee actually worked only 40 hours.

But, if the employee works 48 hours for the week and receives 8 hours of holiday pay, 48 hours should be paid at the regular rate and 8 hours at the overtime rate.

Holiday Pay & Shift Differentials

Shift differentials are usually found in jobs where employees work “undesirable” shifts, such as manufacturing, healthcare, customer support, and information technology.

The shift differential is an extra amount the employee receives for hours worked outside of normal business hours—such as evening or night shifts or on weekends or holidays. Typically, this extra amount is a specific percentage of the employee’s regular rate.

Because shift differential is not regulated by the government, employers are responsible for establishing their own policies. If applicable, make sure your policy explains how shift differential is handled for employees who work on holidays.

Holiday Pay & Your Company Handbook

Your stance on holidays should be clearly outlined in your company handbook. Be sure to state the holidays your company observes, whether holiday time off is paid or unpaid, and how payment (if any) is allocated. Also, clarify the policy for when payday falls on a company or bank holiday. To avoid disgruntled employees, you may want to pay on the business day prior to the holiday.

Holiday Pay & Your Payroll System

Your payroll system should make it easy for you to process all types of employee leave, including holiday time off. The right software:

  • Compensates nonexempt and exempt employees for holidays based on your established standards
  • Calculates holiday pay and overtime wages
  • Computes holiday pay and premium wages such as double-time or shift differentials
  • Produces pay stubs that reflect holiday pay
  • Allows you to manually enter holiday data or override auto-generated information
  • Schedules direct deposit and paydays to ensure timely payment during holidays
  • Generates reports relating to holiday pay

If your payroll is not holiday-ready, contact Payentry immediately for the ideal solution.