What Is Holiday Pay? (+ How to Calculate It)

Holiday pay can be seen as a gift to your hardworking team members—a way to enjoy some time off without feeling the pinch in their wallets. While no formal rule states you have to pay employees for time they don’t work, the reality is a bit more complex. 

How do you calculate it? And how do you ensure you’re not over or underpaying holiday pay? 

In this article, we’ll give you a step-by-step guide to calculating holiday pay so you can focus more on spreading holiday cheer and less on crunching numbers.

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What is holiday pay?

Holiday pay is the compensation an employee receives for time off during public holidays, like New Year’s Day, Christmas Eve, Labor Day, Thanksgiving Day, and Independence Day in the United States. It’s a benefit that ensures staff members don’t lose wages when they’re not working on designated holidays.

What does time and a half mean?

In some cases, if an employee works on a public holiday, they’ll receive additional compensation called “time-and-a-half”—meaning they get their standard hourly wage plus an extra 50%. But, the specifics can vary greatly depending on local laws, company policies, and the terms of your employees’ contracts.

Who’s eligible for paid holidays?

According to the Fair Labor Standards Act (FLSA), you don’t have to pay employees for time not worked, including holidays. It’s largely a matter of agreement between you and your workers, often outlined in employment contracts or company policies.

Generally, full-time employees—salaried or hourly—are eligible for holiday pay. Some businesses might require part-time employees to complete a certain service period before they receive it, while others might extend this benefit to all their team members from day one. Offering holiday pay also helps improve retention for hourly employees.

Note: Independent contractors and freelancers aren’t typically eligible for holiday pay as they aren’t considered employees.

How does holiday pay work?

Holiday policies aren’t federally mandated, so employers decide how they manage holiday pay. This means that holiday pay can vary from business to business. For example, due to their seasonal nature, holiday pay is more common in retail, tourism, and hospitality. 

There are a few different ways to manage holiday pay, including: 

Paid time off for holidays

Some small businesses pay employees for certain holidays. For example, New Year’s Day, Christmas Day, and Thanksgiving. 

Who is eligible for holiday pay is at the discretion of the employer. For example, a full-time employee would likely get paid leave on these types of holidays. In contrast, a part-time or hourly employee is more likely to be ineligible for holiday pay—unless they work or the company has a pro-rata policy. 

For example, Cheryl works 20 hours a week in a hair salon. On a holiday day, she receives 4 hours of paid holiday. 

Premium pay for working a holiday

Some employers offer premium holiday pay to incentivize and motivate employees if an employee is required to work on a holiday. For example, paying time-and-a-half or double time. 

For example, Cheryl works a 6-hour shift at the salon on New Year's Day. Her regular hourly wage is $20 per hour. She earns double time on New Year’s Day, meaning she takes home $240. 

Is holiday pay mandatory?

Holiday pay isn’t mandatory under federal law. This means that employers and small business owners aren’t obligated to pay out holiday pay. Whether or not your small business pays its team members holiday pay depends on company policy and employment contracts. 

However, some states, such as Massachusetts and Rhode Island, have specific requirements and laws for certain industries. 

Read our full guide on holiday pay laws by state for more information.

How do I set up a holiday pay policy?

Whether you’re managing salaried or hourly employees or a combination of the two, it’s essential to establish a holiday pay policy. It's where you define guidelines and set expectations for your business and your staff.

Here are some key points that should make up the basis of your holiday pay policy:

• Eligibility criteria: This typically includes full-time and part-time employees under certain conditions but probably excludes temporary staff or contractors.

• Process for requesting time off: Specify any deadlines when asking for days off and define how you’ll handle situations where you get multiple requests for the same day. For example, if you’re using Homebase employee scheduling, mention how team members can use this tool and any circumstances that might lead to a request being denied. This helps maintain fairness and transparency in managing holiday schedules.

• Holiday schedule: List the holidays for which employees will receive holiday pay. This usually includes recognized federal holidays, but you may include additional days based on your local area, business operations, or industry.

• Payment calculation: Outline how you’ll calculate holiday pay. For example, if you’re using tools like Homebase time tracking and payroll, you can quickly convert your employee timekeeping data into hours and wages ready for payroll (more on this in the next section!)

• Working on a holiday: Specify your small business’s policy for working on federal holidays. Does your business close altogether? Will you require some employees to work? How will they be chosen and compensated?

• Unused holiday pay: If your company allows staff to accrue holiday pay, specify what happens if they don’t use it. Can it be carried over to the next year, or will they have to forfeit it?

• Policy exceptions: Detail any exceptions to your holiday pay policy. This may include probationary periods for new employees or specific rules for part-time or shift workers.

⚠️ Remember: If an employee logs more than 40 hours in a workweek due to working on a holiday, they’re entitled to overtime pay.

How do you calculate holiday pay?

Calculating holiday pay depends on your small business policies and can differ between salaried and hourly employees.

How to calculate holiday pay for salaried employees

Salaried employees receive a set amount of pay each year regardless of the number of hours they work. As holiday pay is typically built into their annual salary, they generally receive their usual pay for holiday periods, whether they work or not.

Let’s say a staff member has an annual salary of $52,000. If this is paid bi-weekly, they have 26 pay periods per year. This means their gross pay per pay period is $52,000 divided by 26, which equals $2,000. So, even if one of the pay periods includes a public holiday, the employee would still receive the $2,000.

In some cases, companies might offer additional incentives or bonuses for salaried employees who choose to work on a holiday.

How to calculate holiday pay for hourly employees

Calculating holiday pay for hourly employees can be slightly more complex because it often depends on whether the person worked on the holiday and the specifics of your company’s holiday pay policy.

For calculating holiday pay, consider whether employees are salaried or hourly and your company’s policies. Here’s a detailed example for hourly employees: If an employee earns $15 per hour for 8-hour shifts, their daily pay is $120. 

If this employee doesn’t work on a holiday but gets paid holidays, they earn $120 for the day. If they work and receive “time-and-a-half,” the pay is $22.50 per hour, totaling $180 for an 8-hour shift. For “double-time” pay, the rate is $30 per hour, leading to $240 for the day.

Massachusetts and Rhode Island have specific requirements for holiday pay for hourly workers. In Massachusetts, the rules differ for retail and non-retail, but usually, workers get 1.5 times their regular pay on certain holidays. Rhode Island mandates time-and-a-half pay on Sundays and some holidays.

To stay up to date on holiday pay policies, understanding federal and state regulations is necessary. Consulting a labor law specialist or the U.S. Department of Labor’s website might assist in ensuring policies are compliant and fair.

Holiday pay examples

Here are some more situational examples:

1. If an hourly employee doesn’t work on the holiday and your company offers paid holidays

Formula: Average daily hours x hourly wage = Holiday pay

Let’s say an employee usually works an 8-hour day and earns $15 per hour. Their holiday pay would be 8 hours (average daily hours) x $15/hour (hourly wage) = $120. So, although they didn’t work on the holiday, they’d still receive $120 as holiday pay.

2. If an hourly employee works on the holiday and your company offers regular pay for working on holidays

Formula: Hours worked x hourly wage = Holiday pay

If they logged 6 hours and their hourly wage was $15 per hour, their holiday pay would be 6 hours (hours worked) x $15/hour (hourly wage) = $90. Here, the employee would get paid as normal for working on a holiday. So, for working 6 hours on the holiday, they’d receive $90.

3. If an hourly employee works on the holiday and your company offers premium pay for working on holidays (like “time-and-a-half”)

There are two different but very similar formulas you can use to calculate this.

Method 1 formula: (Hours worked x hourly wage) + [(hours worked x hourly wage) x 0.5] = Holiday pay

The first formula assumes the employee worked 6 hours on the holiday, their hourly rate is $15 per hour, and your company pays time-and-a-half for holidays. Then, their holiday pay would be: (6 hours x $15/hour) + [(6 hours x $15/hour) x 0.5] = $135.

Method 2 formula: (Hours worked x hourly wage x 1.5) = Holiday pay

Based on the same numbers above, you’d use the second formula to calculate: 6 hours x $15/hour x 1.5 = $135. So, you’d effectively be paying the employee their standard hourly wage plus an additional 50% for every hour worked on the holiday.

Pro tip: If you want to automate employee holiday pay, Homebase payroll lets you add “holiday season” periods and set rules for them. Our platform then automatically calculates a different wage rate and overtime for employees working during that period. 

See it in action:

Benefits of holiday pay

Holiday pay is an investment that can have tangible returns for your small business. Here are some of its benefits:

1. Increase employee happiness and retention rates.

When team members feel cared for, they’re more likely to stay with your company longer, reducing the cost and disruption of a high turnover rate.

Offering holiday pay allows them to enjoy time off without worrying about unpaid leave. This sense of security and appreciation contributes to a positive work environment, increasing employee loyalty. 

2. Higher productivity and motivation.

Compensation (like “time-and-a-half”) for working on holidays can serve as an incentive, motivating employees to contribute willingly during holiday periods. This increased motivation can drive higher levels of efficiency and output. It can also solve potential scheduling issues by prompting team members to work on less desirable days of the year.

3. Promote cultural diversity.

Promoting diversity, equity, and inclusion (DEI) is a crucial aspect of modern workplace culture, and your paid time off (PTO) policy can play a significant role in these efforts. For example, acknowledging holidays like Diwali, Hanukkah, or Juneteenth might not be typically recognized in conventional holiday schedules but hold immense importance for different employee groups.

How much is holiday pay?

Holiday pay rates differ based on company policies, local and state regulations. While federal laws do not require holiday pay, some companies offer extra pay to hourly workers on holidays. This extra pay might be “time-and-a-half” or “double-time,” but this varies by location and employer. 

To find out about holiday pay rules where you are, checking with local or state government labor offices is advised. The U.S. Department of Labor also lists resources for state and local labor laws.

Empower your team with a fair holiday pay structure

Implementing a solid holiday pay policy isn’t just a good business practice. It’s an investment in your most valuable asset—your employees.

A holiday pay policy outlines eligibility, defines the request process, details payment calculations, and sets holiday schedules. 

But it’s easy to waste time, lose track of information, and make avoidable mistakes when doing this kind of work manually.

With a platform like Homebase, you can automate these key payroll processes—from converting time tracking data into timesheets complete with hours and wage reports that are ready for payroll. 

You can also set up communication alerts to make sure staff don’t accidentally run into expensive overtime and send reminders to team members to take their breaks and sign out of work on time to avoid significant rounding errors.

At the same time, our HR and compliance tools help you navigate complex compliance requirements, and our free plan gives you access to basic scheduling, time tracking, and employee management features.

Step into a simpler, faster way of managing holiday pay with Homebase because it’s an investment in the backbone of your business: your employees.

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FAQs

How many holidays are typically paid in the US?

There’s no federal law that states employers must provide paid holidays, but many offer between 6-10 paid holidays annually. For example, New Year’s Day, Thanksgiving, Christmas, and Independence Day. The number of paid holidays can vary by employer, industry, or location, with some businesses offering additional paid days off, like Labor Day or Memorial Day.

Can part-time employees receive holiday pay?

Yes, part-time employees can receive holiday pay, depending on the employer's policies. In some cases, part-time workers may be eligible for paid holidays, but the pay may be prorated based on the number of hours they typically work. 

Employers are not required by law to provide holiday pay to part-time workers, but many choose to do so as part of their benefits package. 

What is the difference between holiday pay and PTO?

Holiday pay compensates employees for work on certain holidays, such as Christmas or Thanksgiving. It’s usually separate from paid time off (PTO), which is a more flexible form of leave that can be used for personal reasons, vacation, or illness. 

Holiday pay often comes with a premium rate, such as time-and-a-half or double time, while PTO is usually paid at the employee’s regular rate. 

PTO is generally accrued, whereas holiday pay is given on specified holidays.

What is an example of holiday pay?

An example of holiday pay is an employee earning $15 per hour might get paid $22.50 per hour (time-and-a-half) for working a holiday day. Some employers may offer double time or additional paid days off in exchange for working on a holiday.

What is included in holiday pay?

Holiday pay includes the base pay an employee would normally receive for a standard workday, along with an additional premium, often called "holiday premium." For example, if employees work on a holiday, they may receive time-and-a-half (1.5 times their regular rate) or double time (2 times their regular rate). 

If the employee doesn’t work on a holiday, they may still receive paid time off for the day. Benefits like PTO or sick leave are not usually part of holiday pay but are separate.

Is holiday pay different to normal pay?

Yes, holiday pay often differs from normal pay because it’s usually paid at a higher rate. For example, an employer might offer time-and-a-half or double time for hours worked on a holiday, which is a premium over the employee’s usual hourly wage. 

What is the federal rule on holiday pay?

Under federal law, there is no requirement for employers to provide holiday pay. The Fair Labor Standards Act (FLSA) does not mandate holiday pay, whether the employee works or takes the day off. However, many employers offer paid holidays as part of their benefits package.

How do you calculate holiday pay?

Holiday pay is generally calculated by multiplying the employee's regular hourly rate by the applicable premium, such as time-and-a-half or double time. For example, if an employee’s regular hourly rate is $20 and the employer offers time-and-a-half for working on a holiday, the holiday pay would be $30 per hour.