How to calculate holiday pay: a 2026 guide

Holiday pay isn't a federal requirement. Under the Fair Labor Standards Act (FLSA), employers have full discretion over whether to offer it, which holidays to observe, and what rates to pay.

That flexibility is useful — until your payroll system can't keep up with the policies you've set. Here's what payroll teams need to know heading into 2026.

Is holiday pay required by law?

The 2026 federal holiday calendar

Most employers use federal holidays as the baseline for their paid time off policies. Here's the official lineup for 2026:

With Greenshades, you can configure your holiday schedule directly in the platform. Employees can check holiday details on the shared HR calendar or submit PTO requests through the employee self-service portal.

Religious holidays and accommodation

Under Title VII of the Civil Rights Act of 1964, employers with 15 or more employees must make reasonable accommodations for religious observances unless doing so creates undue hardship. There's no federal requirement to pay for religious holidays, but offering flexibility reduces compliance exposure and supports retention. Greenshades supports custom time codes for religious holidays so your records stay accurate.

State-specific holiday pay rules

A few states go further than federal law on holiday pay:

• Massachusetts. Massachusetts Blue Laws require premium pay on certain holidays for specific industries and retail operations.
• Rhode Island. RI General Law 25-3 mandates time-and-a-half on Sundays and designated legal holidays.

If you operate across multiple states, your payroll system needs to apply different rules by location. Greenshades supports multi-state payroll configuration so state-specific requirements don't require manual workarounds.

Other organizational holidays

Beyond the federal calendar, many employers offer additional paid time off as a benefit:

• Personal holidays. Paid days employees can use for birthdays, anniversaries, or personal milestones.
• Floating holidays. A set number of days employees can take according to their own schedule.
• Company-specific holidays. Days the organization designates to mark milestones or encourage team time.
• Volunteer or community service days. Paid time for employees to participate in community activities.

Types of holiday pay

When employees work on a holiday, employers typically choose from a few pay structures:

• Time and a half. 1.5x the employee's regular rate for holiday shifts — the most common premium.
• Shift differentials. Custom rates for holiday work, set by the employer's policy.
• Regular pay. The holiday is treated as a standard workday.
• Paid time off. The employee has the day off with pay, without drawing from their PTO balance.

None of these structures is federally required. What matters for compliance is applying your policy consistently and accurately across your workforce.

When holiday pay and overtime overlap

This is where payroll teams most often run into calculation errors. Under the FLSA, employees must receive overtime pay for hours worked beyond 40 in a workweek at a rate of at least 1.5x their regular pay. But the FLSA does not require overtime pay simply because work falls on a weekend or holiday — overtime is triggered by hours worked, not the day.

Two rules to keep in mind:

• Employers are not required to count holiday hours toward the 40-hour threshold unless the employee actually worked those hours.
• PTO hours taken for a holiday do not count as hours "worked" and typically do not factor into overtime calculations.

Example: overtime and holiday pay in the same workweek

An employee works on a holiday and also logs more than 40 hours that week. The holiday pay rate — whatever your policy sets — is factored into total wages. Overtime is then calculated on all hours worked beyond 40, including the holiday hours. The two calculations run in parallel; neither cancels the other out.

Greenshades automatically applies FLSA-compliant rules to calculate overtime accurately, including when holiday pay and overtime intersect in the same workweek.

How Greenshades handles holiday pay configuration

Holiday pay gets complicated fast — especially across multiple locations, pay structures, or states. Greenshades gives payroll teams the tools to configure rules once and apply them consistently:

• Configurable holiday pay and OT rules. Set whether holiday hours count toward overtime thresholds, by employee group or location.
• Real-time adjustments. Update policies mid-cycle and recalculate without rebuilding your setup from scratch.
• Detailed reporting. Clear breakdowns of holiday pay, overtime, and regular hours for audit readiness and visibility.

Frequently asked questions about holiday pay

How do you calculate holiday pay?

Holiday pay calculations depend on your policy. If you offer time and a half, multiply the employee's regular hourly rate by 1.5 for each hour worked on the holiday. If you offer paid time off, the employee receives standard pay for the day without working. The FLSA doesn't require a specific premium — your policy sets the rate.

Is holiday pay time and a half?

Not by federal law. Time and a half is the most common holiday pay premium, but the FLSA doesn't require it. Employers set their own rates. Some state laws — Massachusetts and Rhode Island, for example — do require premium pay on certain holidays.

Do holiday hours count toward overtime?

Only if the employee actually works those hours. The FLSA bases overtime on hours worked in a workweek, not the nature of the day. PTO hours taken for a holiday don't count as hours worked and typically don't factor into the overtime threshold.

What is the federal holiday pay law?

There is no federal law requiring premium pay for holiday work. The FLSA governs overtime and minimum wage but leaves holiday pay policies entirely to employers. State laws vary — check requirements in every state where you have employees.

How does holiday pay work for part-time employees?

Part-time employees are subject to the same policy as full-time employees unless your organization's policy specifies otherwise. Many employers prorate holiday pay based on scheduled hours. Apply the policy consistently to avoid wage and hour exposure.

Note: This information is for informational purposes only and does not constitute formal tax, legal, or compliance advice. Always consult with qualified tax advisors, legal counsel, and your organization's internal teams for guidance specific to your situation. Additional regulations may apply. For the most accurate and up-to-date information, refer to official government resources and regulatory agencies.