How to Build a Successful Holiday Pay Policy

What you need to know about holiday pay policies, best practices, and how to stay compliant

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Although federal law does not require private employers to provide holiday pay, 96% choose to do so, according to a 2019 report by SHRM.

But it’s one thing to offer holiday pay and another to administer it. Without a strong policy in place, you’ll likely find it difficult to successfully navigate holiday pay.

The policy is vital to setting expectations regarding holiday pay, maintaining consistent payroll practices, staying in compliance with related laws, and minimizing employee lawsuits. Achieving these outcomes is essential, even if your business has only a few employees.

So, how do build a policy that will enable you to appropriately tackle holiday pay? It all comes down to knowing what the policy should entail — and this tends to vary by employer.

To give you a general idea, below we share some common elements of a well-crafted holiday pay policy.

Purpose

For example, you might say that the goal of the policy is to provide eligible employees with paid holidays and to develop procedures for managing holiday pay.

Paid holidays offered

Most often, employers observe:

  • New Year’s Day
  • Memorial Day
  • Independence Day
  • Labor Day
  • Thanksgiving Day
  • The day after Thanksgiving
  • Christmas Eve
  • Christmas Day

Paid holidays that fall on a Saturday are typically recognized on the preceding Friday. Those that occur on a Sunday are usually observed on the following Monday.

Religious accommodation

Per Title VII of the Civil Rights Act of 1964, employers with 15 or more employees must accommodate employees’ “sincerely held religious beliefs or practices” — unless doing so would cause undue hardship. You can, for example, offer unpaid time off for religious holidays, or floating holidays.

Floating holidays are paid time off, usually 1 or 2 days per year, that employees can use for personal reasons. They are normally taken by employees who wish to celebrate religious or cultural holidays or other types of personal days not observed by their employer.

If you decide to provide floating holidays, be clear about:

  • How and when they accrue, such as 2 days at the start of each calendar year
  • Whether unused days can be carried over into the next year or cashed out upon termination

Ordinarily, floating holidays cannot be carried over or cashed out.

Eligibility requirements

Describe the conditions under which employees are eligible and ineligible for paid holidays.

For example:

  • Employees scheduled to work at least 20 hours per week are eligible for holiday pay
  • Nonexempt employees must work their full scheduled shift the day before the holiday and the day after the holiday to qualify for holiday pay
  • Employees must be in good standing with the company to be eligible for holiday pay

Allotted paid holiday hours

Define how paid holiday hours are allocated.

For example, 8 hours per holiday for full-time employees; and a lesser, prorated amount for part-time employees.

Holiday pay for nonexempt employees

Explain how pay for holiday work is calculated for nonexempt employees. Generally, hours worked on holidays must be paid at no less than the regular rate of pay — which cannot be lower than the required federal or state minimum wage.

Include overtime, double-time, or premium pay (if applicable). Some points to remember:

  • The Fair Labor Standards Act (FLSA) does not require overtime or double-time pay for hours worked on holidays. However, many employers choose to provide extra compensation — sometimes in the form of double-time pay — for holiday work
  • Under the FLSA, nonexempt employees must receive overtime pay at 1.5 times their regular pay rate for hours worked over 40 in a workweek. You do not have to include paid holidays in hours worked when calculating overtime

For instance, a nonexempt employee works 42 hours for the week and receives 8 hours of paid holiday. Pay 48 hours at the regular hourly rate and 2 hours at the overtime rate.

  • Some states have their own laws that mandate overtime and double-time pay for hours worked over a certain amount for the day or on the seventh consecutive day of the workweek
  • A few states have “Blue Laws,” which require specific businesses to offer premium pay for hours worked on Sundays or legal holidays. For example, in Massachusetts, some retail employers must provide premium pay at 1.5 times the regular rate of pay for hours worked on certain holidays

Holiday pay for exempt employees

State the terms of holiday pay for exempt employees.

Salaried employees who are exempt from the FLSA’s overtime provisions must receive their full salary for any workweek in which they do any work. You can dock their salary only if allowed by the FLSA or state law.

Business closures — including for holidays — aren’t on the list of FLSA-allowed deductions. Therefore, exempt-salaried employees normally must get their full salary when the business closes on holidays.

Payday considerations

Your holiday pay policy should say when employees will receive holiday wages, such as on the next regularly scheduled payday.

When payday falls on a company, legal or bank holiday, best practices dictate paying employees on the preceding business day. Your employees will appreciate the early payment during the holidays.

Final wages

Don’t forget to say what happens to earned holiday wages upon termination. In some states, employees can file a wage claim for earned holiday wages that are owed under an employment agreement.

Let’s recap

When building your holiday pay policy, keep the following in mind:

  • Purpose of the policy
  • Paid holidays offered, including those that fall on a Saturday or Sunday
  • Eligibility requirements for full-time and part-time employees
  • Allotted paid holiday hours for full-time and part-employees
  • Religious accommodations, including floating holidays
  • Holiday pay for nonexempt employees, including overtime pay
  • Holiday pay for exempt employees
  • Final wages, including for earned holidays not yet paid out
  • Payday considerations, including what happens when payday falls on a holiday

As noted earlier, this guide is designed to give you a general example of an effective holiday pay policy. The ideal policy for your small business will depend on more targeted information, including your employees’ classification and your business culture and location. Other variables to consider might include how to handle holiday pay for employees on paid vacation leave or on unpaid leave taken under the Family and Medical Leave Act (FMLA).

Ultimately, the intent is to establish a holiday pay policy that is legally sound and conducive to your business objectives.

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