Payroll

What Is Holiday Pay?

Whether it comes at Christmas or on the Fourth of July, holiday pay is a gift from employers that makes it possible for employees to take time off and still earn their standard wage. That’s because the Fair Labor Standards Act (FLSA) does not require employers to pay for time not worked.

Still, many employers recognize the value of their employees’ contributions and reward them with paid time off on federal holidays and sometimes also other days of their choosing. This is on top of providing other time off, like vacation time and sick days.

Holiday pay

Similarly, some employers choose to pay employees who work on holidays time-and-a-half or even double time, although no law requires them to do so.

Here’s an example of holiday pay: Let’s say your employee Seth usually earns $300 a day. If your company has a holiday pay policy and designates Thanksgiving as a paid holiday, then Seth would still make $300 on Thanksgiving even though he didn’t work that day.

How do I set up a holiday pay policy?

You’re the boss, so since there are no legal requirements for you to offer holiday pay, you can pick and choose which days qualify for holiday pay. Many employers follow the federal holidays list.

Nail down the specifics of your policy, and make sure to communicate the details clearly to your company. One good practice is to put it in writing in your employee handbook.

Here are some potential details to include:

  • Which employees are eligible (e.g. salaried exempt? hourly?);
  • Which dates are designated as paid holidays;
  • If there are any special pay rates or bonuses for employees who have to work on designated paid holidays; and
  • How paid holidays are observed if they fall on a weekend.

Finally, keep in mind that employees who qualify for overtime pay still need to be paid that overtime rate if they work overtime hours during your company’s designated paid holidays, regardless of whether or not you institute a special holiday pay rate.

This article provides general information and shouldn’t be construed as tax advice. Since tax rules may change over time and can vary by location and industry, please consult a CPA or tax advisor for advice specific to your business.