How to Calculate Holiday Pay in the US?

As the year comes to a close, many employees eagerly anticipate receiving extra wages or paid time off during the holiday season. Understanding how holiday pay is calculated is essential for both employers and employees to ensure fair compensation. Let’s explore the key factors that go into determining holiday pay and how employers can accurately calculate it to meet legal requirements and worker’s expectations for fair compensation.

Let’s explore further.

Common Holiday Pay Practices in the U.S.

Under federal law, holidays do not automatically trigger overtime pay, and working on a holiday is not inherently considered overtime. However, many employers choose to offer additional compensation for employees who work on holidays or provide time off as part of their employee benefits package. These practices are typically outlined in an organization’s employment policy.

If your employer offers paid holidays as part of your benefits, you should expect to be compensated for those days off, even if the holiday falls during a standard workweek. For example, if your employment agreement includes paid holidays like Christmas or New Year’s Day, you will receive your regular pay for those days, whether or not you work.

Overtime and Holiday Pay: If you are eligible for overtime pay under federal law (i.e., you are a non-exempt employee), any hours worked over 40 hours in a week must be compensated at the overtime rate, which is typically time-and-a-half. So, if you work more than 40 hours during a week that includes holidays, the extra hours are paid at 1.5 times your regular hourly rate.

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For instance, if you work 45 hours in a week that includes a holiday, your first 40 hours are paid at your regular rate, and the 5 overtime hours are paid at your hourly rate plus 50% (i.e., 1.5 times your regular hourly rate).

While there’s no federal requirement for holiday pay, offering this type of compensation is a common practice, designed to recognize the importance of work-life balance and to reward employees for their efforts during key times of the year.

Holiday Pay Eligibility: While holiday pay is not mandated by federal law, many employers offer paid time off (PTO) for recognized holidays as part of their employee benefits package. It’s important for employees and employers to be clear about eligibility criteria, such as full-time vs. part-time status and whether employees are required to work on the holiday.
Premium Pay for Working Holidays: Many employers offer premium pay (like time and a half or double time) for employees who work on holidays. This extra compensation acknowledges the inconvenience of working during a time when most people are off. However, the rates and policies for holiday work vary widely, so employers should ensure these terms are well communicated and aligned with company policies.
Paid Time Off vs. Holiday Pay: Some companies provide paid time off for holidays (a set number of paid holidays per year), while others may require employees to use their vacation or sick leave for holiday time. It’s essential for employees to understand whether a holiday is automatically a paid day off or if they need to use PTO.
Calculating Holiday Pay for Hourly vs. Salaried Employees: The method for calculating holiday pay can vary depending on whether an employee is hourly or salaried. Hourly employees typically receive higher pay for working on holidays (like overtime), while salaried employees may simply receive their regular salary unless they work overtime hours, which would then require additional compensation.
Local and State Regulations: Some states or regions have specific laws regarding holiday pay, so employers must stay updated on their local regulations to ensure compliance. Additionally, some unionized workplaces may have agreements that outline specific holiday pay terms.

Holiday Pay in the U.S.: What Employees Can Expect

In the United States, there is no federal law mandating that employees must receive pay on holidays. However, many employers offer holiday pay as part of their benefits package, with employees typically compensated for an average of 8 recognized holidays per year. These commonly observed holidays often include:

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

In addition to these standard holidays, some employers also provide paid time off for other observances or special days, which may vary depending on the company’s policy. These additional holidays can include:

Martin Luther King Jr. Day
President’s Day
Veterans’ Day
Floating holidays (allowing employees to take time off at their discretion)
Employee birthdays (offered by some companies like KPMG and Virgin Media)
Christmas Eve
New Year’s Eve

Interestingly, while paid holidays are commonly offered in certain sectors, there are disparities based on industry.

According to the Bureau of Labor Statistics (BLS), 97% of employees in manufacturing and information industries receive paid holidays. However, only 77% of workers in the private sector and 37% of those employed in leisure and hospitality enjoy paid time off for holidays.

Overtime and Holiday Pay Explained

Employees who work overtime on a holiday are entitled to the same overtime compensation they would receive on any other day, in addition to the premium holiday pay.

For example, if an employee works over 8 hours on a holiday, they’ll first receive holiday pay for the standard hours (e.g., 8 hours) and then be compensated with overtime pay for any additional hours worked beyond that.

Call-Back Work on a Holiday

If an employee is called back to work on a holiday, they are entitled to holiday pay and call-back pay if the work lasts no more than two hours and occurs within their normal working hours.

For example, if Sandra is called back to work for two hours on Christmas Day, she’ll receive two hours of holiday pay at the premium rate. If called back multiple times, she will receive at least two hours of holiday pay each time, but the total pay will not exceed her regular hours for the day.

If the call-back work extends beyond the employee’s regular hours into overtime, the portion worked during normal hours will be paid at the holiday rate, while any overtime work will be paid at the regular overtime rate.

Premium Pay for Overtime, Night, and Sunday Work

Holiday pay is separate from other premium pay, such as overtime, night shift, or Sunday pay. For example, if an employee works on a holiday during their night shift, they will receive both the night differential and holiday premium pay. For FLSA-exempt employees, the holiday pay is included in the calculation of their overtime entitlement.

Travel on a Holiday

If an employee travels during a holiday as part of their work, they may be eligible for holiday pay if the travel time meets the criteria outlined in the company’s “Compensable Overtime Travel” policy.

Recording Holiday Hours

Holiday pay is typically calculated in 15-minute increments, with any time worked that exceeds 8 minutes rounded up to the next quarter-hour. For example, if an employee works 8 minutes past the hour, it will be counted as 15 minutes toward their holiday pay.

How Do Employees Receive Holiday Pay?

Employers typically provide holiday pay either as full compensation for a day off or, in the case of working on a holiday, through premium pay (often time-and-a-half or double time). The specifics can vary based on company policy, industry, and employee classification (e.g., salaried vs. hourly). For employees who are entitled to overtime pay, working on a holiday may also trigger overtime pay for hours worked over 40 during the workweek.

In sum, while holiday pay is not a requirement under federal law, it’s a widely used benefit designed to enhance employee satisfaction, support work-life balance, and reward employees for working during key periods of the year.

Calculating holiday pay in the U.S. can depend on many factors, including company policies, the employee’s status (full-time, part-time, or hourly), and whether or not the employee works on the holiday.

Here’s a guide to understanding how holiday pay is typically calculated:

1. Determine if the Employee is Eligible for Holiday Pay

Full-Time Employees: Most full-time employees are eligible for paid holiday leave, though the specific holidays (e.g., Christmas, Thanksgiving, New Year’s Day) will depend on the company.
Part-Time Employees: Part-time employees may or may not be eligible for holiday pay, and the employer’s policy should specify whether they receive paid holidays, and how much.
Hourly Employees: Hourly employees typically do not receive paid holiday leave unless specified by the employer’s policy. If they work on a holiday, they may receive overtime or “holiday premium” pay.
Exempt vs. Non-Exempt Employees: Exempt employees (those who are salaried and not entitled to overtime) are typically paid their regular salary regardless of whether they work on a holiday. Non-exempt employees (hourly workers) are usually paid for the hours they work, and they may be entitled to extra pay (like overtime or premium pay) if they work on a holiday.

2. Check the Company Holiday Pay Policy

Holiday Pay Policy: Companies may or may not offer paid holidays to their employees. There is no federal law requiring employers to provide holiday pay, but many employers do so as part of their benefits package.
Paid vs. Unpaid Holidays: If an employee is eligible for holiday pay, you will need to determine whether the holiday is paid or unpaid. Some companies offer paid holidays, while others might only provide holiday pay if the employee works on the holiday.
Work on a Holiday: Some companies pay employees extra (e.g., time and a half or double time) if they work on a recognized holiday.

3. Standard Pay for Holidays (If Paid)

Regular Pay: If the employee is not working on a holiday, they are typically paid their regular rate (either hourly or salary) for the day.
Holiday Pay (If Working on a Holiday): Many employers offer a premium pay rate for employees who work on holidays. These rates can vary based on company policy and employment agreements, but common practices include:
- Time and a Half (1.5x Regular Rate): If an hourly employee works on a holiday, they might be paid 1.5 times their regular hourly rate.
- Double Time (2x Regular Rate): Some employers offer double time for working on major holidays.

4. Calculate Hourly Employee’s Holiday Pay

If the employee works on a holiday and is entitled to “time and a half” or “double time,” the holiday pay can be calculated as follows:

Time and a Half (1.5x Regular Rate):

Holiday Pay=(Hourly Rate×1.5)×Hours Worked on the Holiday

Example: If an employee’s regular hourly rate is $20 and they work 8 hours on a holiday, the calculation for time and a half would be:

20×1.5 = 30 (Holiday Pay per Hour)

30×8 = 240 (Total Holiday Pay for 8 hours)

Double Time (2x Regular Rate):

Holiday Pay=(Hourly Rate×2)×Hours Worked on the Holiday

Example: If the employee’s hourly rate is $20 and they work 8 hours on a holiday with double time:

20×2 = 40 (Holiday Pay per Hour)

$40 \times 8 = 320 (Total Holiday Pay for 8 hours)$

5. Calculate Salary Employee’s Holiday Pay

For salaried employees, holiday pay is typically based on their normal salary, regardless of whether they work on the holiday:

Non-Exempt Salaried Employees: If a non-exempt salaried employee works on a holiday, they may be entitled to overtime or premium pay.
Exempt Salaried Employees: Exempt employees usually receive their regular salary regardless of whether they work on a holiday. If a salaried employee does not work on a holiday, they do not receive additional pay beyond their regular salary.

Example: If an exempt salaried employee earns $60,000 annually:

Daily Salary= 60,000 / (52 x 5) = 230.77 per day

If the employee does not work on a holiday, they will still receive $230.77 for the day, regardless of the holiday.

6. Example of Paid Holiday Pay Calculation

Let’s say you have an employee who is an hourly worker making $15 per hour, and they work 8 hours on a holiday. If the company offers time and a half for working on holidays, the holiday pay calculation would be:

15×1.5 = 22.50 per hour

Then, multiply by the number of hours worked:

22.50×8 = 180 total holiday pay

So, the employee would earn $180 for working 8 hours on a holiday.

7. Federal and State Law Considerations

Federal Law: There is no federal law mandating that employers must provide holiday pay. However, if an employee works more than 40 hours in a week, they are entitled to overtime pay (at least 1.5 times their regular hourly rate) under the Fair Labor Standards Act (FLSA).
State Law: Some states may have additional regulations regarding holiday pay, so it’s important to check your state’s labor laws for any specific requirements.

8. Holiday Pay for Holidays Not Worked

If an employee doesn’t work on a holiday but is eligible for holiday pay based on company policy, they will usually receive their regular pay for that day. However, if the employee is required to use vacation or paid time off (PTO) for a holiday, it may be counted against their accrued time.

Example:

Let’s say Sandra works as a full-time marketing coordinator at a tech company in the U.S., and her company offers paid holidays. On Christmas Day, Sandra doesn’t need to work. Since Christmas is listed as a paid holiday in her company’s policy, Sandra will still receive her normal daily pay (e.g., $200) for the day, even though she’s not working. This is a common practice at many companies that offer paid holidays.

Key Takeaways:

Holiday pay is not federally required in the U.S., but many employers offer it as a benefit.
Hourly employees who work on a holiday often receive premium pay (time and a half or double time).
Salaried employees generally do not receive extra pay for holidays unless they work overtime or are non-exempt.
It’s essential to check your company’s holiday pay policies and local state laws to ensure compliance.

As employee payment trends evolve, AI and blockchain-powered technology would play a critical role in automating and streamlining holiday pay calculations, ensuring compliance, and improving transparency. Modern HR technology platforms automate holiday pay rates, integrate benefits and payroll systems, and provide employees with real-time access to their pay information. AI-powered forecasting helps businesses manage holiday pay expenses, while blockchain enhances transparency and fraud prevention.

By embracing these technologies, employers can offer fair, timely, and transparent compensation, ensuring both employee satisfaction and compliance with labor laws, particularly during peak holiday periods.

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