What Is Holiday Pay And How To Calculate It

Holiday pay shouldn't be a guessing game. Whether you're figuring out Christmas bonuses or trying to understand if you even need to offer it, the rules can feel murky. Some employers offer it. Others don't. Some employees expect time-and-a-half. Others just want the day off.

Holiday pay isn't federally mandated, but it's one of the smartest ways to keep your team happy and reduce turnover during your busiest seasons. This guide breaks down what holiday pay actually is, who qualifies, how to calculate it, and how to build a policy that works for your business.

What you need to know about holiday pay.

Holiday pay isn't required by federal law, but it's one of the smartest ways to hold onto your team during the busiest times of year. There are two types: paid time off for the holiday, or premium pay for working it. Who qualifies, which holidays you recognize, and what rate you pay are all decisions you get to make.

• No federal law requires holiday pay for private employers
• Two types: paid time off for the day off, or premium pay for working the holiday
• Common rates: regular pay (1×), time-and-a-half (1.5×), double time (2×)
• Rhode Island has specific premium pay requirements for certain employees who work on Sundays and legal holidays
• Eligibility and pay rates are set entirely by your company policy

What is holiday pay?

Holiday pay is compensation you provide to employees for recognized holidays, either as paid time off or as premium pay for working on the holiday itself. Under federal law (the Fair Labor Standards Act)¹, private employers are not required to offer holiday pay, paid time off, or premium rates for holiday work. It's entirely a matter of your company policy, employment contract, or collective bargaining agreement.

There are two main types.

Paid time off for holidays. Your employee gets their regular pay for a holiday they don't work. If someone earns $15/hour and would normally work an 8-hour shift, they get $120 for the day off.

Premium pay for working holidays. Your employee works the holiday and earns extra, typically time-and-a-half (1.5x their regular rate) or double time (2x). If that same $15/hour employee works Christmas, they'd earn $22.50/hour instead.

Common holidays that trigger holiday pay policies include New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas Day. Some employers also include Martin Luther King Jr. Day, Presidents' Day, Veterans Day, or Juneteenth.

What does time and a half mean?

Time-and-a-half is a premium pay rate where employees earn 1.5 times their regular hourly wage. It's the most common holiday pay rate employers offer.

Here's how it works: If an employee's regular rate is $20/hour, their time-and-a-half rate is $30/hour ($20 × 1.5). For an 8-hour shift on a holiday, they'd earn $240 instead of their regular $160.

Some employers offer even higher rates, like double time (2x the regular rate), for major holidays like Christmas or New Year's Day. But time-and-a-half is a common premium rate among employers who choose to offer holiday pay.

Important note: Time-and-a-half for holiday work is separate from overtime. Under federal law (FLSA)², overtime kicks in when an employee works more than 40 hours in a workweek, not simply because they worked a holiday. If working a holiday pushes someone over 40 hours, they'd be entitled to overtime pay, but the two aren't automatically connected.

How does holiday pay work?

Holiday pay works differently depending on whether your employee has the day off or works the holiday.

When employees get the day off. Let's say Cheryl works at a hair salon and typically works Thursdays. Thanksgiving falls on a Thursday this year. The salon is closed, but Cheryl's boss offers paid holidays. Cheryl earns $18/hour and would have worked an 8-hour shift. She gets paid $144 for Thanksgiving even though she didn't work. That's 8 hours × $18/hour = $144.

When employees work the holiday. The salon stays open on Black Friday and Cheryl volunteers to work. Her boss offers time-and-a-half for holiday shifts. Cheryl works her usual 8 hours. Instead of $18/hour, she earns $27/hour (1.5 × $18), making $216 for the day instead of $144.

Some businesses offer double time (2x pay) for major holidays like Christmas. In that case, Cheryl would earn $36/hour, or $288 for the day.

Who qualifies for holiday pay?

Because holiday pay isn't mandated by federal law, eligibility is entirely determined by your company policy or employment contract.

Full-time employees often receive holiday pay if a business chooses to offer it. Full-time definitions vary by employer and applicable law, so your policy should state your own threshold clearly.

Part-time employees may or may not qualify, depending on your policy. Some businesses offer prorated holiday pay based on average hours worked. Others limit it to full-timers only.

Exempt salaried employees generally receive their full salary for any workweek in which they perform work, holiday or not, subject to FLSA¹ salary-basis rules.

Hourly employees are where holiday pay policies really matter. If you offer it, they either get paid for the day off or earn premium pay for working.

Independent contractors typically don't receive holiday pay because they're not employees. Benefits like paid holidays don't apply unless specifically negotiated in the contract.

Eligibility requirements to consider.

Many businesses add requirements to make the policy fair and predictable.

• Minimum tenure: Employees must work for you for 30, 60, or 90 days before qualifying.
• Hours threshold: Part-timers must average a minimum number of hours per week to qualify.
• No-call/no-show rule: If someone misses their scheduled shift before or after the holiday without notice, they forfeit holiday pay for that day.

Whatever rules you set, apply them consistently across your entire team.

How much is holiday pay?

The amount depends on which rate structure you choose.

• Regular pay (1×): Your employee gets their normal hourly rate for the holiday, even if they don't work.
• Time-and-a-half (1.5×): Your employee earns 1.5 times their regular rate for working the holiday. This is the most common premium structure.
• Double time (2×): Your employee earns twice their regular rate. Some employers reserve this for major holidays like Christmas.

How to calculate holiday pay.

Calculating holiday pay depends on your policy and whether employees work the holiday. Here are three common scenarios.

Scenario 1: Employee has the day off, gets paid.

Formula: Average daily hours × hourly wage = holiday pay

Example: An employee works 8-hour shifts and earns $15/hour. On Thanksgiving (which they have off), their holiday pay is:

1. 8 hours × $15/hour = $120

They receive $120 even though they didn't work.

Scenario 2: Employee works the holiday and earns time-and-a-half.

Two methods give you the same result.

Method 1: (Hours worked × hourly wage) + [(hours worked × hourly wage) × 0.5]

1. Employee works 6 hours at $15/hour with time-and-a-half:
2. (6 × $15) + [(6 × $15) × 0.5] = $90 + $45 = $135

Method 2: Hours worked × hourly wage × 1.5

1. 6 hours × $15/hour × 1.5 = $135

Method 2 is faster. Both give the same result.

Scenario 3: Employee works the holiday and earns double time.

Formula: Hours worked × hourly wage × 2

Example: 6 hours on Christmas at $15/hour:

1. 6 × $15 × 2 = $180

The employee earns twice their normal rate for every hour worked.

When you have different roles, different hourly rates, and a mix of people working and taking the day off, that math adds up fast. Manual tracking is where payroll errors start. Wages, overtime, and holiday rates calculate automatically from your timesheets based on your configured settings in Homebase payroll, so there's less manual math and fewer chances for errors before payday.

Is holiday pay mandatory?

No. Holiday pay is not required by federal law.

The Fair Labor Standards Act (FLSA)¹ doesn't mandate that private employers provide paid holidays, holiday premiums, or any special compensation for holiday work. If you're a private employer, you can choose not to offer holiday pay at all. That said, a few states have specific rules worth knowing.

States with holiday pay rules.

Rhode Island: The state has special premium-pay requirements for certain employees working on Sundays and legal holidays. Covered holidays, exemptions, and applicable rates vary. Check with the Rhode Island Department of Labor and Training for current rules before making any commitments to your team.⁴

Massachusetts: As of January 1, 2023, Massachusetts eliminated its Blue Laws premium pay requirement for retail workers. Private employers are no longer required to pay premium rates for holiday work unless it's specified in an employment contract or collective bargaining agreement.⁵

California: No statewide law requires private employers to provide holiday pay. Some collective bargaining agreements or prevailing wage laws for specific industries may include requirements, but private employers are not mandated to offer it.⁶

Federal contractors: If you hold certain service or construction contracts governed by the Davis-Bacon Act or the McNamara-O'Hara Service Contract Act, holiday pay may be required if it's specified in the wage determination for your contract. This isn't a blanket requirement for all federal contractors. Check your specific contract terms.⁷

State labor laws change. Always verify current requirements with your state's department of labor, especially if you operate across multiple locations.

Keeping up with federal rules is manageable. Tracking state-specific requirements across every location you operate in is a different level of complexity. Your configured wage, overtime, and holiday settings run calculations automatically in Homebase payroll, so there's less manual work between your timesheets and payday.

What about overtime on holidays?

Holiday pay and overtime are separate under federal law. If an employee works more than 40 hours in a workweek, they're entitled to overtime at 1.5x their regular rate under the FLSA². Working a holiday doesn't automatically trigger overtime unless it pushes them over the 40-hour threshold.

Example: Jenna works 40 hours Monday through Friday, then volunteers to work 8 hours on Saturday (a holiday). She's now at 48 hours for the week, so she qualifies for overtime pay at 1.5x her regular rate. If your company policy also offers holiday premium pay at 1.5x, you generally pay whichever rate applies. In most cases, that means the overtime rate covers it.

State wage-and-hour laws vary. Review your state's specific requirements any time holiday premiums and overtime occur in the same workweek.

Why offer holiday pay?

You're not required to offer holiday pay, but there are real business reasons to consider it.

It helps you hold onto good people.

When employees feel valued during the holidays, they're more likely to stay. Holiday pay signals that you recognize the sacrifice of working a busy shift, or the value of giving your team a real day off. Every person who leaves takes their training, their relationships, and their institutional knowledge with them. Replacing them takes longer and costs more than most owners expect.

It makes covering busy shifts easier.

Premium pay for holiday work gives your team a real incentive to volunteer. Instead of scrambling to cover Thanksgiving or Christmas Eve, you'll have willing team members who see the extra pay as worth it. That willingness tends to show up in how they show up. Employees who get time off during holidays also return more focused and recharged.

It reflects your team's diversity.

Acknowledging holidays beyond the standard federal list, like Diwali, Hanukkah, Eid, or Juneteenth, shows respect for the different backgrounds on your team. Offering floating holidays or letting employees choose which days matter most to them builds a more inclusive culture. That matters for attracting and keeping people who want to work somewhere that actually sees them.

How to create a holiday pay policy.

Building a holiday pay policy doesn't have to be complicated. Here's what to include.

• Which holidays you'll recognize. Pick 6–10 that align with your business. New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas are the most common starting point. Consider adding holidays that reflect your team's backgrounds.
• Your pay structure. Decide whether you're offering paid time off, premium pay for working holidays, or both. Be realistic about your budget before committing to premium pay across multiple holidays for a large team.
• Eligibility requirements. Define who qualifies. Full-time only, or part-timers too? Is there a tenure requirement before they're eligible?
• Rules for working holidays. Do employees need to work their scheduled shifts before and after the holiday to qualify? What happens if someone no-shows without notice?
• What happens when a holiday falls on a day off. If Christmas lands on a Sunday and the employee doesn't normally work Sundays, do they get a substitute paid day? Some businesses offer a floating holiday in that case.
• Unused holiday pay at termination. Payout requirements vary by state and how your policy is written. Check your state's rules before assuming you're in the clear, and document it in your policy regardless.
• Put it in your employee handbook and share it early. Don't surprise your team with a holiday policy in December. Get it in front of them in early Q4 so they can plan.

Writing the policy is the easy part. Consistently applying it across roles, employee types, and pay periods is where things get complicated. Set your holiday pay configuration in Homebase payroll, and your timesheets, wage calculations, and payroll run in one connected workflow.

Holiday pay FAQs.

What is holiday pay and how does it work?

Holiday pay is compensation for recognized holidays, either as paid time off or premium pay for working the holiday. It's not required by federal law. You decide which holidays to recognize, who qualifies, and whether employees get regular pay, time-and-a-half, or double time. It's entirely determined by your company policy or employment contract.

What does time and a half mean?

Time-and-a-half means employees earn 1.5 times their regular hourly rate for hours worked on a holiday. If someone normally earns $20/hour, they'd earn $30/hour ($20 × 1.5) on that day. It's a common premium rate among employers who choose to offer holiday pay.

How much is holiday pay for $16 an hour?

For paid time off, an 8-hour shift at $16/hour = $128. For time-and-a-half: $16 × 1.5 = $24/hour, or $192 for 8 hours. For double time: $16 × 2 = $32/hour, or $256 for 8 hours. The rate depends entirely on your company policy.

How do you calculate holiday pay?

Multiply the employee's regular hourly rate by the applicable premium. For time-and-a-half: hourly rate × 1.5 × hours worked. For double time: hourly rate × 2 × hours worked. For a paid holiday the employee doesn't work: average daily hours × hourly rate. The step-by-step examples above walk through all three scenarios.

What is the difference between holiday pay and PTO?

Holiday pay compensates employees specifically for recognized holidays like Christmas or Thanksgiving, either as paid time off or as premium pay for working. PTO is broader. It's flexible leave employees can use for vacation, sick days, or personal needs. Holiday pay often comes with a premium rate. PTO is typically paid at the employee's regular rate.

Does California require holiday pay?

No. California has no statewide law requiring private employers to provide holiday pay.⁶ Some collective bargaining agreements or prevailing wage laws for specific industries may include requirements, but private employers are not mandated to offer it.

Does holiday pay count toward overtime?

Under federal law, holiday pay for a day an employee doesn't work generally doesn't count toward the 40-hour overtime threshold.²³ If an employee works on a holiday and that work pushes them over 40 hours for the week, they're entitled to overtime pay at 1.5x their regular rate. In most cases, you pay whichever rate applies, not both stacked together.

Manage holiday pay without the headache.

Holiday pay gets complicated fast when you have a team with different roles, different hourly rates, and a mix of people working and taking the day off. Tracking who worked which holiday, at which rate, and making sure payroll gets the right numbers every time is exactly the kind of manual work that leads to errors and payday corrections nobody wants to deal with.

With Homebase payroll, you can configure holiday pay settings and track eligible hours through your timesheets automatically. Wages, overtime, and holiday rates calculate based on your configured rules, which means less manual math and a cleaner run to payday. No spreadsheets. No crossed fingers.

Try Homebase free and see how easy holiday pay can be.

Sources

1. U.S. Department of Labor. Holiday Pay. https://www.dol.gov/general/topic/wages/holiday
2. U.S. Department of Labor. Overtime Pay. https://www.dol.gov/general/topic/wages/overtimepay
3. U.S. Department of Labor. Fact Sheet #23: Overtime Pay Requirements of the FLSA. https://www.dol.gov/agencies/whd/fact-sheets/23-flsa-overtime-pay
4. Rhode Island Department of Labor and Training. Legal Holidays and Sunday Work Requirements. https://dlt.ri.gov/regulation-and-safety/labor-standards/legal-holidays
5. Commonwealth of Massachusetts. Working on Sundays and Holidays (Blue Laws). https://www.mass.gov/guides/working-on-sundays-and-holidays-blue-laws
6. California Department of Industrial Relations. Holiday Pay FAQ. https://www.dir.ca.gov/dlse/FAQ_Holidays.htm
7. U.S. Department of Labor. Government Contracts Compliance Assistance. https://www.dol.gov/agencies/whd/government-contracts

This article is for informational purposes only and does not constitute legal or tax advice. Labor laws change frequently and vary by jurisdiction. Consult your state labor agency or qualified legal counsel for guidance specific to your situation.