Holiday Pay Rules: What the Law Requires and How to Set Your Policy

No federal law requires private employers to give paid holidays or to pay extra for working on one. Holiday pay is a matter of policy, contract and state law, and the FLSA applies only to the hours an employee actually works. If you decide to offer it, you can set the terms, as long as you apply them consistently and do not discriminate.

This article covers what the law requires, how to build a holiday policy, how holiday pay interacts with overtime and the regular rate, and what to record.

What federal law says about holidays

The FLSA does not require pay for holidays not worked, premium pay for working on a holiday, or time off. A restaurant open on Thanksgiving can pay the normal rate. Premium holiday pay is a benefit employers choose to offer, not a legal obligation, unless an employment contract, union agreement or state law says otherwise.

Federal holidays matter only for public employees and for government contracts. For private employers, there is no such thing as a legal holiday that forces you to close or pay more.

Employers often confuse holidays with days of religious observance, bereavement or jury duty. These are different benefits with their own rules, and some states require unpaid or paid time off for specific reasons, so keep each one in its own policy section.

State and local rules

Most states follow the federal approach. A few states restrict work or require premium pay on specific days in certain industries, such as retail on certain holidays, and some regulate how holiday pay is treated in the final paycheck. Because the details are narrow and change, check your state labor department or counsel before relying on a general rule.

Collective bargaining agreements often include paid holidays and premiums. When a contract exists, the contract is the rule, and a missed premium can become a breach claim.

Some employers choose to offer a floating holiday so staff can observe religious or cultural dates that are not on the company calendar. It is optional, but a floating day gives you a neutral way to handle requests and may help avoid discrimination claims.

Write a holiday policy that works

A good policy lists the paid holidays, says who is eligible (full-time only, or everyone after 90 days), and states how pay is calculated: the scheduled hours, a flat 8 hours, or the average of recent weeks. It should also explain what happens when a holiday falls on a weekend, and whether an employee must work the days before and after the holiday to be paid.

Eligibility rules must be applied the same way to everyone. A policy that excludes part-time staff is lawful, but one that is applied unevenly can support a discrimination claim.

Holiday pay and overtime math

Paid holiday hours not worked are not hours worked, so they do not count toward the 40-hour overtime threshold. Take an employee earning $20.00 per hour who gets 8 paid holiday hours and works 40 other hours in the same week. Pay is 8 x $20.00 = $160.00 for the holiday plus 40 x $20.00 = $800.00 for worked time, or $960.00, with no overtime because worked hours did not pass 40.

If that employee works 44 hours in a week with the holiday, the 4 extra hours are paid at 1.5 x $20.00 = $30.00, or $120.00. Premium pay for actually working the holiday, paid at a rate that meets the FLSA rules, can often be credited against overtime, but the treatment depends on the exact wording, so review it with payroll. See how to calculate the regular rate and overtime.

If your employees are paid weekly and the holiday falls on Monday, add the holiday hours to that week's pay before closing payroll, and record them in a separate pay code. This keeps the overtime check clean and makes the premium visible if the employee also worked.

Premium pay and the regular rate

Say you offer 1.5 times the normal rate for hours worked on a holiday. The extra pay can often be left out of the regular rate calculation under FLSA exclusions, but a bonus that is not tied to a legitimate holiday premium, or a flat holiday stipend paid on a nondiscretionary basis, may need to be included.

If you are unsure, ask your payroll provider or counsel to review the policy wording before the next holiday season. Mistakes in the regular rate are among the most common wage claims.

Document any rule that a holiday is paid only if the employee works the scheduled days before and after it. Such rules are generally lawful if applied equally, but they are a frequent source of complaints when not written down.

Records and consistent treatment

Record holiday hours separately from worked hours, so a payroll audit can see why a week did not trigger overtime. Keep the holiday calendar, eligibility rules and any exceptions, and apply them in writing and the same way each year.

For employees on PTO or sick leave around a holiday, document which bank was charged. The guide on PTO policy and accrual tracking covers how to keep these balances clean.

Exempt staff, part-time staff and scheduling

Exempt employees on salary are paid for the full week even when the office is closed for a holiday, since deductions can threaten the exemption. Nonexempt part-timers are different, and your policy decides whether they receive holiday pay, a prorated amount, or nothing.

Whether you close or stay open, announce the holiday calendar at the start of the year. For businesses that stay open, set clear rules for who works: seniority, rotation, volunteers first or a sign-up sheet. A written method prevents the complaint that the same people always work.

Religious accommodation is a separate duty. Title VII may require you to try to accommodate an employee who asks for time off for a religious observance, unless it would cause undue hardship. Document the request and the answer.

How SimpleWorkshift Helps Manage Holiday Pay

SimpleWorkshift gives you work schedules per employee, so holiday coverage is planned in advance, and it records hours worked on holidays with GPS location on each clock-in and clock-out. Automatic overtime calculations separate worked hours from paid time off, including night shift differentials.

PTO and absence tracking keep holiday time distinct from vacation and sick leave, and custom reports show holiday hours by employee and period for payroll closing. Try it free for 30 days, with no contracts and cancel anytime, at simpleworkshift.com.