Holiday pay describes a voluntary benefit or compensation that an employer offers employees during the holiday period.
An employee’s compensation package may include holiday pay in addition to sick leave, vacation days, and health insurance.
What is holiday pay
Holiday pay compensates employees who work over the holidays and rewards those who choose to take a break.
Companies offer holiday pay in the following ways;
- Fully paid time off
- Partially paid time off
- Bonus payment
- Paying “time-and-a-half” or “double-time” of an employee’s regular rate
Full-time salaried employees are usually eligible for holiday pay. The company policy and employee handbook should stipulate the arrangement and be communicated during onboarding.
Some organizations may offer hourly employees and independent contractors who work a regular work schedule holiday pay as well.
Ultimately, pre-negotiated rates dictate holiday pay for all seasonal, full-time, and part-time employees who work on a holiday. In addition, businesses should honor all union contracts with a provision for holiday pay.
What are paid holidays?
While each organization can choose which holidays to observe, most private employers follow federal government guidelines. Federal contractors and government organizations observe specific national holidays as paid holidays.
The United States celebrates the following national holidays;
- New Year’s Day
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving Day
- Christmas Day
When a holiday falls on the weekend, employers may offer holiday pay for other days in the workweek, usually the surrounding Friday or Monday.
Benefits of Holiday Pay
Depending on the type of holiday pay, it offers various benefits such as;
- Attract talent by using holiday pay as an appealing perk during the recruitment phase
- Improve employee morale by giving employees time off to be with their families without worrying about finances
- Offer extra pay and encourage employees to work on the holidays so that business keeps running smoothly
As a perk, holiday pay incentivizes employees to work during the holiday season by offering premium pay rates in each exchange for holiday work.
For employees that do take time off around Christmas Day or New Year’s Day, the paid time off (PTO) helps to boost morale by rewarding them for their hard work throughout the year.
Is holiday pay required by law?
While the Fair Labor Standards Act (FLSA) in the US regulates minimum wage and overtime pay, there is no federal or state law requirement that demands employers offer holiday pay.
Employers can elect employees to work during the holiday time and pay the normal pay. In the hospitality and retail industry, in particular, employees don’t usually earn a holiday rate.
However, offering extra compensation has a positive impact on the employer-employee relationship.
How to calculate holiday pay
As there are different ways to compensate employees working on a holiday, the calculation for holiday pay may differ from one organization to another.
Calculating holiday pay for PTO
If a permanent employee uses holiday pay in the form of PTO, then their holiday pay should be the same on their day off as when they are at work, determined using an hourly rate.
Calculate the hourly rate by dividing the number of hours worked in the last month by their salary.
For example, a marketing strategist named Max earns a salary of $6,160 per month, working 176 hours in November (22 working days divided by eight hours each day).
The hourly rate of holiday pay is calculated as follows;
$6,160 / 176 hours = $35 per hour
In turn, this equates to $280 per day of holiday pay.
Calculating holiday pay for working during a holiday
After using the above formula to determine an employee’s hourly rate, the result can be multiplied by the premium rate.
For example, if Max offers to work over Christmas, their hourly rate of $35 is multiplied by 1,5 (or 2), bringing the holiday hourly rate to $53,5 or $70.
Accommodating non-traditional holidays
As workplaces become more diverse and businesses cross geographical borders, holidays have expanded beyond American federal holidays. For example, some employees may celebrate President’s Day, Veterans Day, Juneteenth, and New Year’s Eve.
Some organizations offer their employees floating holidays to observe their own cultural celebrations or take time for personal reasons. For example, a floating holiday can be used to celebrate cultural and religious holidays, such as Indigenous Peoples Day, or add days to their vacation time.
Offering unlimited time off is another employee benefit that compensates for non-traditional holidays. With proper planning and open communication, unlimited time off encourages a healthy work culture and prioritizes inclusivity.
At Deel, we offer a robust platform to help global businesses manage paid time off, holiday pay, and payroll.