Paid holidays are specific days throughout the year when you give employees time off from work while continuing to pay them their regular wages. These are days when your business may close or reduce operations to recognize significant national, cultural, or religious occasions.
The key distinction: paid holidays mean employees receive compensation for a day they don't work. This differs from holiday pay, which refers to premium compensation for employees who do work on a holiday. If you close your restaurant on Thanksgiving and your employees still receive their normal pay, that's a paid holiday. If you stay open and pay employees extra for working that day, that's holiday pay.
Here's what surprises most business owners: there's no federal law requiring you to offer paid holidays to private sector employees. The Fair Labor Standards Act doesn't mandate that you close for holidays or pay employees for days they don't work. Offering paid holidays is entirely voluntary for private employers, though it's become standard practice in most industries.
Federal Holidays: What You Should Know
The federal government recognizes 11 official holidays each year. Federal employees receive these days as paid time off, but private employers aren't legally obligated to follow this schedule. That said, many businesses use these federal holidays as a starting point when creating their own paid holiday policies.
The 11 federal holidays are:
- New Year's Day (January 1)
- Martin Luther King Jr. Day (Third Monday in January)
- Washington's Birthday (Third Monday in February, commonly called Presidents' Day)
- Memorial Day (Last Monday in May)
- Juneteenth (June 19)
- Independence Day (July 4)
- Labor Day (First Monday in September)
- Columbus Day (Second Monday in October)
- Veterans Day (November 11)
- Thanksgiving Day (Fourth Thursday in November)
- Christmas Day (December 25)
Federal employees in the Washington, D.C. area also get Inauguration Day as a paid holiday every four years when a president is sworn in on January 20th.
When a federal holiday falls on a Saturday, it's typically observed on the preceding Friday. When it falls on a Sunday, it's observed on the following Monday. Private employers can choose whether to follow this "observed" schedule or stick to the actual calendar dates.
What Private Employers Actually Offer
While federal law doesn't require paid holidays, most private employers do offer them as a competitive benefit. According to Bureau of Labor Statistics data, 77% of private sector employees have access to paid holidays, with an average of 8 paid holidays per year.
The most commonly offered paid holidays in the private sector are:
- New Year's Day
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving Day
- Christmas Day
These six holidays form the core of most paid holiday policies. Some employers add additional days from the federal holiday list or include days like Christmas Eve, New Year's Eve, or the day after Thanksgiving.
Less common paid holidays include Martin Luther King Jr. Day, Washington's Birthday, Columbus Day, Veterans Day, and Juneteenth. Many employers are gradually adding these to their offerings, particularly Juneteenth, which became a federal holiday in 2021.
Industries that traditionally remain open every day of the year, like restaurants, retail, healthcare, and hospitality, are less likely to offer traditional paid holidays. Instead, they may offer floating holidays that employees can use at their discretion, or they may provide premium pay for those who work on major holidays.
State and Local Requirements
While federal law doesn't mandate paid holidays, a few states do impose specific requirements:
Rhode Island has the most comprehensive paid holiday requirements. Non-exempt employees in Rhode Island must be paid time-and-a-half for work performed on Sundays and designated holidays. The state observes the same holidays as the federal government, plus Victory Day (the second Monday in August). Work on these days must be voluntary, and employees cannot be penalized for refusing to work. Retail employees working on holidays must also be guaranteed a minimum of four hours of work.
Massachusetts has complex "blue laws" that regulate business operations on certain holidays. Retail stores cannot open on Thanksgiving or Christmas, and they face restrictions on Columbus Day and Veterans Day. When retail stores with more than seven employees do operate on Memorial Day, Independence Day, or Labor Day, they must pay non-exempt employees time-and-a-half, and work must be voluntary. Non-retail businesses generally need permits to operate on restricted holidays.
A handful of other states have specific requirements related to certain holidays or industries. For instance, Iowa, Massachusetts, New Hampshire, Oregon, and Tennessee require employers to provide time off to veterans on Veterans Day, though this time off doesn't have to be paid unless your company policy says otherwise.
Several cities have passed "predictive scheduling" or retail worker protection laws that include provisions about holiday scheduling and pay. Always check your local regulations, especially if you operate in multiple locations across different states.
How Paid Holidays Work for Different Employee Types
The way paid holidays function depends on whether employees are classified as exempt or non-exempt under the FLSA.
Exempt Employees
Exempt employees meet specific duties and salary thresholds set by the Department of Labor. Most exempt employees are salaried, though some highly paid hourly workers can also be exempt. If your business closes for a holiday that falls during the workweek, you must pay exempt employees their full salary as long as they work any portion of that week.
For example, if you close for Thanksgiving on Thursday but the exempt employee works Monday through Wednesday and Friday, you cannot dock their pay for Thursday. Federal law requires that exempt employees receive their full weekly salary whenever they work any part of the workweek, even if the business closes for one or more days.
You can require exempt employees to use accrued PTO or vacation time to cover the holiday closure, but if they don't have enough accrued time, you must still pay their full salary.
Non-Exempt Employees (Hourly)
Non-exempt employees can be either hourly or salaried. For non-exempt employees, you're only required to pay for hours actually worked. If your business closes for a holiday and a non-exempt employee doesn't work, you don't have to pay them unless your company policy specifically promises paid holidays.
Many employers do offer paid holidays to non-exempt employees as a benefit. When you provide a paid holiday to a non-exempt employee, you typically pay them for the number of hours they would have normally worked that day. An employee who usually works eight-hour shifts would receive eight hours of pay for the holiday.
For non-exempt salaried employees (less common but they do exist), calculate their hourly equivalent when determining holiday pay. If a non-exempt salaried employee earns $40,000 annually and works 2,080 hours per year, their hourly rate is approximately $19.23. An eight-hour holiday would equal about $154 in holiday pay.
Part-Time Employees
There's no legal requirement to provide paid holidays to part-time employees. How you handle part-time workers is entirely up to your company policy. Some employers offer paid holidays on a pro-rated basis based on average hours worked. Others offer paid holidays only to full-time employees. Many part-time employees simply don't work on major holidays and don't receive holiday pay.
Creating Your Paid Holiday Policy
When designing a paid holiday policy, consider these key elements:
Number of Holidays Decide how many paid holidays you'll offer annually. Six to eight holidays is common for small businesses, while larger corporations often offer 10-11 holidays. Consider your industry norms and what competitors offer when making this decision.
Which Holidays to Include The six most common holidays (New Year's, Memorial Day, July 4th, Labor Day, Thanksgiving, Christmas) form a solid foundation. From there, you might add Christmas Eve, New Year's Eve, or Thanksgiving Friday. Consider your workforce demographics when deciding whether to add holidays like Juneteenth or Martin Luther King Jr. Day.
Eligibility Requirements Specify who qualifies for paid holidays. Common approaches include:
- All full-time employees after a probationary period (often 90 days)
- Full-time employees only, with part-time employees excluded
- All employees, but with part-time workers receiving pro-rated holiday pay
- Different policies for different employee classifications
Holiday Pay Calculations For non-exempt employees, clarify how holiday pay is calculated. Most employers pay the employee's regular daily or shift hours. For example, someone who typically works 8 hours would receive 8 hours of holiday pay, while someone who works 10-hour shifts would receive 10 hours.
Holidays That Fall on Weekends Decide whether to observe holidays that fall on non-working days. Many employers follow the federal model: if a holiday falls on Saturday, observe it Friday; if it falls on Sunday, observe it Monday. Others stick to calendar dates and don't provide a substitute day off when holidays fall on weekends.
Work Requirements Specify what happens if an employee must work on a designated paid holiday. Will they receive both their regular holiday pay plus their earnings for working? Will they receive premium pay for working? Can they take a different day off in lieu of the holiday?
Common Paid Holiday Policy Mistakes
Not Putting It in Writing Your paid holiday policy should be clearly documented in your employee handbook. Verbal promises or inconsistent application create confusion and potential legal issues. Spell out exactly which holidays you observe, who's eligible, and how pay is calculated.
Inconsistent Application Once you establish a policy, apply it consistently across all eligible employees. Making exceptions for certain people or departments can lead to claims of discrimination or favoritism. If you offer paid holidays to one full-time employee, you need to offer them to all full-time employees in similar roles.
Confusing Holiday Pay with Premium Pay Make sure employees understand the difference between a paid holiday (when they're paid for not working) and premium pay for working a holiday. These are distinct benefits with different purposes. If you offer both, explain clearly how each works.
Ignoring State Requirements If you operate in Massachusetts or Rhode Island, you must comply with their specific blue laws and holiday pay requirements. Don't assume federal standards apply everywhere. Research the requirements for every state where you have employees.
Not Planning for Weekend Holidays When Christmas falls on a Sunday, do you observe it Monday? Do employees get both days off? These situations create confusion if you haven't established a clear policy in advance. Decide your approach and document it before questions arise.
How to Communicate Your Paid Holiday Policy
Post your holiday calendar at the beginning of each year. Many employers include the specific dates for all observed holidays in January so employees can plan accordingly. Some holidays like Thanksgiving always fall on the same relative date (fourth Thursday in November), but their calendar dates shift annually.
If you use scheduling software like Breakroom, you can mark holidays directly in your schedule so the entire team has visibility. This prevents employees from being accidentally scheduled on days the business is closed or from being surprised when they're expected to work a holiday.
Update your employee handbook whenever you make changes to your holiday policy. If you add Juneteenth or make Veterans Day a paid holiday, communicate this to your team in writing and update all official policy documents.
For businesses that operate on holidays, make sure employees know well in advance when they'll be expected to work. Give at least two weeks' notice for holiday schedules, and more if possible. People make plans around major holidays, and last-minute schedule changes cause frustration and call-outs.
Paid Holidays vs. PTO: What's the Difference?
Paid holidays and PTO are separate benefits, though they're sometimes confused. Paid holidays are specific designated days that you determine in advance. PTO is a bank of hours that employees can use at their discretion for vacation, personal days, or sick leave.
When you offer paid holidays, employees don't need to request time off or use their PTO balance. The holiday is automatically a paid day off according to your policy. With PTO, employees must request time off and have sufficient hours in their PTO bank to cover the absence.
Some employers use a "PTO bank" system that consolidates everything, including holidays, into a single pool of hours. This approach gives employees maximum flexibility but requires careful tracking. Most small and mid-sized businesses find it simpler to keep paid holidays separate from PTO.
The Bottom Line
Paid holidays aren't legally required for most private employers, but they're a standard benefit that helps attract and retain employees. The six major holidays form the core of most policies, with many employers adding a few more based on their industry, workforce, and values.
Your paid holiday policy should be clear, consistent, and documented in writing. Decide which holidays you'll observe, establish eligibility criteria, determine how you'll handle holidays that fall on weekends, and communicate everything to your team at the start of each year. If you operate in Massachusetts or Rhode Island, make sure you understand and comply with their specific requirements.
