Holiday pay refers to additional compensation you provide to employees who work on designated company holidays. Unlike regular paid time off for holidays, this premium pay rewards team members who show up when most people have the day off.
There's no federal law requiring you to pay extra for holiday work. The Fair Labor Standards Act doesn't mandate premium rates, bonuses, or any special compensation just because someone clocks in on Christmas or Thanksgiving. That said, offering holiday pay has become a competitive necessity in industries like restaurants, retail, hospitality, and healthcare where operating on holidays is part of doing business.
The key distinction: holiday pay is about compensating people who actually work on the holiday itself, not paying employees for holidays they take off. That's a different benefit covered under your regular PTO or paid holiday policies.
Types of Holiday Pay Arrangements
Most businesses use one of several standard approaches when compensating employees for holiday work:
Time-and-a-Half Pay
The most common method is paying 1.5 times an employee's regular hourly rate for all hours worked on a holiday. An employee who normally earns $15 per hour would receive $22.50 per hour on Thanksgiving, for example.
This approach feels fair to employees because it mirrors the overtime premium they're already familiar with. The calculation is straightforward, which makes payroll processing easier.
Double-Time Pay
Some companies go further and pay double the regular rate for holiday work. This typically happens in industries with particularly demanding holiday schedules, like 24/7 operations in healthcare or emergency services.
Double-time sends a strong message that you value employees' sacrifice in working when others are celebrating. It can be a powerful retention tool, though it obviously increases your labor costs significantly.
Flat-Rate Bonuses
Instead of multiplying the hourly rate, you might offer a fixed bonus for working a holiday. You could provide $100 to anyone who works any portion of a holiday shift, or scale the bonus based on hours worked.
Flat bonuses work well when you want predictable labor costs. They're also easy for employees to understand. The downside is that hourly employees making different rates end up with different effective premiums, which can feel inequitable.
Shift Differentials
Holiday shift differentials add a set dollar amount per hour on top of regular pay. You might add $3 per hour for all holiday hours, regardless of someone's base rate.
This method splits the difference between percentage-based premiums and flat bonuses. An employee working an eight-hour holiday shift with a $3 differential would earn an extra $24, while someone working four hours would get an extra $12.
Combination Approaches
Many businesses blend methods to balance costs and fairness. You might offer time-and-a-half for the first eight hours of holiday work, then double-time for anything beyond that. Or you could provide a flat bonus plus a smaller hourly premium.
A restaurant group might give every employee working Thanksgiving a $50 bonus, plus time-and-a-half for their actual hours. This ensures everyone gets something meaningful while still rewarding those who work longer shifts.
How to Calculate Holiday Pay
Let's walk through real-world examples of how these different approaches play out:
Example 1: Time-and-a-Half
- Employee's regular rate: $16/hour
- Hours worked on Christmas: 8 hours
- Calculation: $16 × 1.5 = $24/hour
- Total holiday earnings: $24 × 8 = $192
Example 2: Flat Bonus
- Employee's regular rate: $14/hour
- Hours worked on New Year's Day: 6 hours
- Regular pay: $14 × 6 = $84
- Flat holiday bonus: $75
- Total earnings: $159
Example 3: Shift Differential
- Employee's regular rate: $18/hour
- Hours worked on Labor Day: 10 hours
- Holiday differential: $4/hour
- Calculation: ($18 + $4) × 10 = $220
One important note: if a non-exempt employee works over 40 hours in a workweek that includes a holiday, you still need to calculate and pay overtime separately. Holiday premiums don't replace overtime obligations under the FLSA.
State and Local Requirements
While there's no federal mandate for holiday pay, some state and local laws do impose requirements. Massachusetts and Rhode Island, for instance, require premium pay for certain employees working specific holidays.
A handful of cities have also passed retail worker protection laws that include holiday pay provisions. Always check your state and local regulations, particularly if you operate in multiple locations. What's voluntary in Texas might be mandatory in Rhode Island.
Which Holidays Should You Cover?
Most businesses that offer holiday pay designate six to ten major holidays per year. The typical list includes:
- New Year's Day
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving
- Christmas Day
Some companies add holidays like Martin Luther King Jr. Day, Presidents' Day, Veterans Day, or the day after Thanksgiving. You're not required to designate any particular day as a company holiday unless state law says otherwise.
The key is communicating clearly which specific dates qualify for holiday pay. Spell this out in your employee handbook so there's no confusion when someone works December 26th and expects a premium.
Best Practices for Holiday Pay Policies
Put It in Writing Document your holiday pay policy in your employee handbook. List which holidays qualify, how you calculate the premium, and who's eligible. This prevents misunderstandings and ensures consistent application.
Consider Your Industry What competitors offer matters. If every other restaurant in your area pays time-and-a-half for holidays, offering straight time puts you at a serious disadvantage when scheduling those shifts.
Balance Costs and Morale Holiday pay represents a real labor cost, but it also drives retention and makes scheduling significantly easier. Employees are much more willing to work holidays when they know they'll be fairly compensated.
Communicate Early Don't surprise employees with your holiday schedule. Post holiday shift needs weeks in advance and remind your team of the premium pay they'll earn. This transparency helps people plan and reduces last-minute staffing scrambles.
Track Carefully Make sure your payroll system properly flags and calculates holiday hours. Manual adjustments after the fact create errors and delays. Most modern scheduling and time tracking software can automate holiday premium calculations.
Frequently Asked Questions
Do I have to pay holiday pay? No federal law requires it. Unless you're in a state or city with specific mandates, offering holiday pay is voluntary. That said, it's become standard practice in industries that operate on holidays.
Can I require employees to work holidays? Generally yes, unless you have a contract or collective bargaining agreement that says otherwise. Most employment in the U.S. is at-will, which means you can schedule employees as business needs require.
What if someone calls in sick on a holiday? You typically don't pay holiday premiums for hours not worked. If someone calls out on Thanksgiving, they would use sick leave or PTO for those hours at their regular rate. Only hours actually worked qualify for the holiday premium.
Do salaried employees get holiday pay? This depends on your policy. Many companies give salaried employees paid holidays off rather than requiring them to work. If a salaried employee does work a holiday, you're not required to pay extra unless your company policy promises it.
Can I offer compensatory time off instead? For non-exempt employees, this is generally not legal under the FLSA. Private sector employers must pay non-exempt employees for all hours worked, not provide comp time. You can only offer comp time to exempt employees or to public sector workers.
The Bottom Line
Holiday pay isn't just about compliance since most businesses aren't legally required to offer it. It's about creating a workplace where employees feel valued for the sacrifice of working when others celebrate. The specific method you choose matters less than making sure your approach is fair, clearly communicated, and consistently applied across your organization.
