What Is Holiday Pay? Definition & Creating Your Policy

Holiday pay is a voluntary compensation employers offer their employees during holidays. It allows employees to take time off work without losing pay. Holiday pay also means compensation such as a “time-and-a-half,” which is the standard hourly earning plus an extra 50% paid to an employee for working on a holiday.

While there are typically no laws requiring holiday pay, there are a few exceptions. Holiday pay is mandatory for government and employee contracts subject to the McNamara-O’Hara Service Contract Act and Davis-Bacon and Related Acts. Also, holiday and holiday pay details vary between locations.

On average, 21% of U.S. employees receive six paid holidays yearly. Some employers offer their workers more or less paid holidays, while others offer floating holidays, enabling employees to take time off any day during the year. However, the most common paid holidays in the United States are:

• New Year’s Day (January 1)
• Martin Luther King Jr.’s Birthday (Third Monday in January)
• Inauguration Day (January 20, every four years following a presidential election)
• Washington’s Birthday or President’s Day (Third Monday in February)
• Good Friday (the Friday before Easter, which usually falls between March and April)
• Memorial Day (Last Monday in May)
• Juneteenth National Independence Day (June 19)
• Independence Day (July 4)
• Labor Day (First Monday in September)
• Columbus Day or Indigenous Peoples’ Day (Second Monday in October)
• Veterans Day (November 11)
• Election Day (November, every four years)
• Thanksgiving Day (Fourth Thursday in November)
• Christmas Eve (December 24)
• Christmas Day (December 25)
• New Year’s Eve (December 31)

Twelve of those holidays are federal holidays. Many government offices and private businesses close on federal holidays and offer holiday pay for the time off.

Since no laws mandate holiday pay, it’s up to you as a business owner to decide which employees are eligible for paid holidays. However, independent contractors and freelancers aren’t eligible for holiday pay since they aren’t considered employees.

Below are the typical employees eligible for holiday pay if your company chooses to make holiday payments.

Full-Time Employees

Full-time employees who usually work a scheduled number of hours during the week are eligible for holiday pay if a holiday falls on a workday.

Part-Time Employees

A part-time employee is eligible to receive holiday pay, but note that they are not entitled to “in lieu of” holiday. That means if a part-time employee’s non-workday falls on a holiday, they are not allowed to take time off on the next business day or receive pay for that day.

New Employees

Any newly employed worker whose effective date of employment falls on a regular non-business day or “in lieu of” holiday is eligible for holiday pay if they work for up to an hour on the day before or after the holiday.

Federal Employees

The law on holiday pay is different for public employees. Federal employees are entitled to 12 federal holidays and “in lieu of” holidays. That means they must receive holiday premium pay when called to work during holiday hours. However, exempt employees, such as firefighters, who receive premium pay for standby duty or are covered by special pay provisions are not entitled to paid time off or holiday premium pay.

A holiday pay policy lays out the guidelines and expectations around holiday payments. We’ve compiled a quick and easy step-by-step guide to show you how to create a holiday pay policy.

1. Conduct Relevant Research

Start by determining what your local laws say about holidays and holiday pay. For example, Rhode Island requires private employers to pay additional compensation (one and a half times the typical pay rate) to employees other than exempt employees who work on Sundays and federal holidays. This means if you refuse to pay as an employer, an employee can lodge a wage complaint against you.

The Blue Laws in Massachusetts also create holiday work restrictions for specific businesses, including non-retail and manufacturing businesses, on Sundays and holidays. Such businesses require a permit to operate on certain holidays, and they cannot force employees to work on those days.

2. Draft Your Holiday Pay Policy

After conducting relevant research, it’s time to draft your organization’s holiday pay policy. Here are a few points to consider:

• Eligibility Criteria

Which employees are eligible for holiday pay? Are part-time employees eligible for holiday pay? What makes them ineligible? Do employees need to be scheduled for a specified number of weekly hours to receive holiday pay? Can employees on probation receive holiday pay? Does an employee have to be on a certain level to be entitled to holiday pay?

Ensure you include information about which employees are eligible for holiday pay and which conditions affect their eligibility.

• Holiday Schedule

List the holidays your employees are entitled to and which ones qualify for holiday pay. Popular holidays that fall into this category are federal holidays and holidays particular to a business or organization’s local area or industry.

• “In Lieu Of” Holiday

If you’re compensating your employees for working on holidays or allowing them to take time off, indicate how to handle holidays that fall during the weekend. Will employees get holiday pay for days preceding or following a holiday? You can offer holiday pay for the Friday before or the Monday after the holiday. Just make sure you indicate a clause for the “in lieu of” holiday.

• Religious Holiday Requests

Title VII of the Civil Rights Act stipulates that employers shouldn’t discriminate against employees based on religious beliefs. So, if an employee asks for a religious holiday, you should allow them to take time off to observe their practice unless it exposes your business to undue hardship. While you’re not required to pay for their time away from work, you need to be clear about your holiday pay policy regarding religious holidays.

• Payment Calculation

If you’re paying employees for time off or working on a holiday, outline how to determine and calculate holiday pay. However, note that under law, you cannot pay employees less than the regular rate when they work on holidays. Highlight the pay model that works for your company budget, whether it’s regular, time-and-a-half or even double-time pay.

Meanwhile, if working during a holiday pushes an employee beyond the typical number of hours per week, overtime pay rules apply.

3. Include the Policy in Your Handbook

Holiday payments are part of employee compensation and benefits. Plus, you want current and prospective employees to know your organization’s take on holiday pay. So, include the policy in your employee handbook. That way, everyone can access the information.

Holiday pay is compensation given to an employee who is away from work on a holiday or called in to work on a holiday. While the general law is that businesses and organizations can decide whether or not to offer holiday pay, this compensation can enhance an organization’s productivity. There are also holiday pay laws pertaining to specific employees and states within the United States.