How to Calculate Holiday Pay

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Every day should be a holiday. Yet, at work, only certain days are. At the end of the year, many employees look forward to extra wages, or paid time off, around the holidays. Let’s discuss how employers calculate holiday pay accurately so they can compensate you fairly.

Every Day Should Be a Holiday

In the United States, employees are not required to be paid during holidays. However, according to the Bureau of Labor Statistics (BLS), employers as a whole provide compensation to their employees for an average of 8 holidays per year:

  • New Year’s Day
  • Easter
  • Memorial Day
  • Independence Day
  • Labor Day
  • Thanksgiving Day
  • The Day After Thanksgiving
  • Christmas Day

In addition to these commonly paid holidays, some employers consider federal holidays and other special days as paid time off for their employees. These include:

  • Martin Luther King, Jr. Birthday
  • President’s Day
  • Veterans’ Day
  • Floating holidays (i.e., some companies offer a handful of days per year for employees to use at their convenience)
  • Employee’s birthday (e.g., KPMG and Virgin Media offer this unique benefit)
  • Christmas Eve
  • New Year’s Eve
  • Mondays (totally kidding)

According to the BLS, 97% of all workers in the manufacturing and information industries had access to paid holidays, versus 77% of private industry workers, and 37% of workers in leisure and hospitality. How did all these employees get their holiday pay?

What Is Holiday Pay, and How Is It Calculated?

Holiday pay is any form of pay you receive for working, or not working, during a holiday. Holiday pay comes in three flavors:

  • Take the day (or week) off – Some companies pay what you would normally receive to work while giving you the day off. Some companies, like Buffer, even close during the final week of the year so that employees can rest up and be more productive upon their return without even needing to use up any paid time off! Calculation: Normal pay per day not worked x 1 = Holiday Pay.
  • Work and get paid more – Some companies pay time-and-a-half or double-time for working on a holiday. This isn’t legally required, but can incent more employees to work over a holiday, and is also a nicety that can help make working on a holiday more bearable, profitable, or inviting. Plus, it can improve morale. Calculation: Normal pay per day worked x 1.5 (for time-and-a-half), or x 2 (for double-time) = Holiday Pay.
  • Work like normal – Federal law does not require you to pay your employees extra, or above normal pay, for working on a holiday. Legally, it’s just another day where you earn the same as any other day. Calculation: Normal pay per day worked x 1 = Ordinary Pay.

Exempt vs. non-Exempt Employees in Holiday Pay

Federal law view holidays as just another business day, but both federal (e.g., the FLSA) and state laws require most employers, but not all, to pay overtime to non-exempt employees. On the other hand, exempt employees are not entitled to overtime pay.

If you opt to take a day off over a holiday (e.g., sick or vacation time), employers are not obligated to pay you for that day. The Fair Labor Standards Act (FLSA) requires employers to pay only for time worked. This means that if you choose to take off Christmas Day and New Year’s Day (both federal holidays), your employer is not required to give you any amount of pay for those days at all.

If you are a non-exempt employee in retail or hospitality where there are a high proportion of hourly workers, holidays are typically considered regular workdays and you will likely receive normal pay for time worked.

For religious observances in general, employers must accommodate such requests in a consistent and nondiscriminatory fashion, but aren’t forced to accommodate all requests if doing so will bring hardships to the company as stated by the Equal Employment Opportunity Commission (EEOC).

Holiday Pay Standards Most Companies Follow

Under federal law, a holiday doesn’t have a special designation for overtime pay, nor is working on a holiday considered overtime.

In practice, many employers provide holidays off or extra pay for working on a holiday. These arrangements are considered employee benefits and are typically included in an Employment Policy. This means that if your employer has agreed to provide paid holidays to you in the employment policy, you will be paid for those holidays.

If you are entitled to overtime pay, federal law stipulates it must be calculated weekly. This means if you work over 40 hours during the week of typical paid holidays like Christmas or New Year’s Day, you are entitled to time-and-a-half. In other words, the overtime hours are paid at your hourly wage plus 50% for the hours worked over 40 hours.

Holiday Pay Is NOT a Holiday Bonus

Holiday bonuses are discretionary, and generally described as a gift expressing gratitude, given equally to all employees. Holiday bonuses could be a small recognition (e.g., $100 or a company gift) or something more substantial (e.g., a week’s pay).

Also, holiday bonuses are not the same as year-end bonuses, which are much more closely aligned to performance, and vary by employee.

Double-Trouble: The State of California

While there is no FLSA 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.

In California and a few other states, there’s also a daily overtime standard. Overtime is calculated based on the day. If you work over eight hours on any given day, you are entitled to “time and a half” for every hour worked over eight hours. If you worked 10 hours on Christmas Day at a California business, State law requires that business to pay you overtime for 2 hours.

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Download White Paper – Total Compensation Package Example

Holiday pay is seasonal. How are you being paid the rest of the year? Download a sample compensation package statement to see how best-in-class organizations are presenting the total value of their rewards packages to their employees.

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