Three in four Americans will take time off during the holiday season, and many believe holiday pay is federally mandated. In reality, the Fair Labor Standards Act (FLSA) does not require payment for "off-the-clock time, “such as vacations or holidays.
Given that holiday pay is largely up to the employer, it can be difficult to understand which holidays to observe, what rate to pay employees, and how to properly calculate premium pay for those who will be working. Let’s explore how payroll and HR software can help keep track of holiday schedules and simplify payroll calculation.
The most common holidays employers acknowledge and offer as paid time off (PTO) include New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. The list of federal holidays for 2023 includes:
- New Year’s Day Monday, January 02
- Martin Luther King Jr. Monday, January 16
- Presidents Day Monday, February 20
- Memorial Day Monday, May 29
- Juneteenth National Independence Day Monday, June 19
- Independence Day Tuesday, July 04
- Labor Day Monday, September 04
- Columbus Day Monday, October 09
- Veterans Day Friday, November 10
- Thanksgiving Day Thursday, November 23
- Christmas Day Monday, December 25
Configuring the HR calendar inside the payroll and HR software can help managers and employees track which holidays the organization chooses to observe. The self-service portal can allow employees and managers quick access to the calendar from any location. Inside the same portal, employees can submit PTO requests and managers can approve requests anytime, anywhere.
Title VII of the Civil Rights Act of 1964 makes it unlawful to discriminate against someone based on race, color, national origin, sex (including pregnancy, sexual orientation, and gender identity), or religion. Employers with more than 15 employees must reasonably accommodate an employee’s religious observances and practices unless it imposes an undue hardship on business operations. It is the employer’s job to determine whether giving the time off will cause undue hardship. If it does not, then the employees should be given time off to observe religious holidays.
The Act requires employers to observe holidays that fall into an employee’s religious beliefs, however, the FLSA still does require an employer to pay employees for the time off for the observance of a holiday.
How to Calculate Holiday Pay
For employees who opt to work during a recognized holiday, many employers will extend a premium as a way of enticing workers to "clock in" for those shifts as well as show gratitude for sacrificing what could have been a day off. A strong payroll platform[DW3] will be able to configure to automatically apply any premium pay conditions for any applicable worker or role. This eliminates the need for manual workarounds and ensures there is a "paper trail” documenting the time off. The most common codes include:
- Time and a Half: Offering extra pay for working on a holiday is a great incentive for employees. This is a good way for employees to generate more income, providing extra opportunities to earn additional income can help boost retention. This is a busy time of the year for some organizations, and extra help is appreciated.
- Shift Differentials: The employer may choose any rate to compensate employees for working on a holiday. The employer may choose not to do time and half, instead offering a shift differential to offer more or less of a pay difference.
- Normal Pay: If the employer does not recognize the holiday as a day eligible for holiday pay, the holiday will be treated as a normal workday. The employee will be paid the regular hourly wage they earn
- Paid Time Off: Employees will have the day off for the holiday while still receiving their normal pay, so they can enjoy the time off without affecting their paid time off balance.
Determining which holiday pay option is best will depend on the business model. If an organization is busy during the holidays and extra labor is needed to meet demand, offering time and a half or shift differentials may be best. Paying time off might be a better option if the business is slower during the holidays.
State-Specific Holiday Policies
Two states that have laws regarding holiday pay are Massachusetts and Rhode Island. The Massachusetts Blue Laws require employers to extend "premium pay" to employees who work on certain legal holidays. Rhode Island goes even further, requiring some employers to pay time and a half when employees work on Sundays and holidays that are included in RI General Law 25-3.
Overtime Pay with Holiday Pay
Another scenario many employers face is determining how to handle calculations when overtime and holiday pay overlap. The FLSA guidelines for overtime do not require PTO for work on Saturdays, Sundays holidays, or regular days unless OT is worked on such days.[MM5] This means that an employer can subtract the hours worked on the holidays when calculating overtime if they offer paid time off for the holidays.
Suppose an employee works on a holiday and works overtime. In that case, the rate the employer pays for holiday pay (time and a half, shift differentials, or regular pay) will be factored into the overtime calculation. Payroll providers, like Greenshades, will automatically apply the proper overtime guidelines set by the FLSA during overtime calculations to help stay compliant.
Offering holiday pay or paid time off as an incentive can enhance your organization’s benefits package to make it more attractive to potential new hires. Having payroll and HR software that allows you to configure the company calendar to acknowledge the holidays you choose to observe, automatically apply the correct pay codes, and properly calculate overtime will help your team save time and money.
If are curious about how Greenshades can help you properly adhere to your holiday pay guidelines, contact firstname.lastname@example.org or visit go.greenshades.com.
Holiday pay isn't necessarily over time, but many employers give a premium to those working on holidays.