Holiday pay can be a cornerstone of workplace satisfaction and competitive hiring. If you’re running a business or managing a team, you already know the stakes — morale, retention, and compliance. A holiday pay policy can be a successful HR strategy.
At its core, holiday pay is straightforward. It means compensating employees on recognized holidays, whether they’re clocking in or taking the workday off. It may sound simple, but it isn’t. Without a clear company policy, misunderstandings can arise, morale can plummet, and the potential for compliance risks looms large.
A good policy eliminates the guesswork, ensuring everyone understands what to expect. This becomes non-negotiable for businesses in competitive industries or those in states with complex labor laws, like California. You must also define how holiday pay interacts with overtime hours, PTO, and more.
In this guide, we’ll discuss the details of holiday pay, including its benefits, legal requirements, and best practices for developing your own. We’ll also share how tools like Mosey can help you level up your state compliance.
Key Takeaways
- Holiday pay compensates employees for recognized holidays, whether they work or take time off, and isn’t required by federal law but offers several benefits to both employers and workers.
- A clear policy defines eligibility, pay calculations, covered holidays, and how holiday pay interacts with overtime and PTO to avoid confusion and disputes.
- Salaried employees, hourly employees, exempt employees, and shift workers may all have different holiday pay structures that should be clearly documented.
- Best practices include staying compliant with federal and state laws, being transparent about calculations, and offering flexibility through floating holidays.
What Is Holiday Pay?
Holiday pay refers to compensation that employees receive for time off during recognized holidays or for working on those days. Unlike standard wages, holiday pay often includes additional compensation, such as time-and-a-half or double-time pay.
Federal law doesn’t mandate holiday pay, but many private employers opt for it anyway. Common options include paid holidays, premium pay, and year-end bonuses — it’s a proven way to keep employees happy, motivated, and productive.
Common federal holidays covered by these policies include Christmas, Thanksgiving, New Year’s Day, and Independence Day (Fourth of July). Some employers also offer coverage for additional public holidays like Martin Luther King Jr. Day, Labor Day, Columbus Day, or floating holidays for extra flexibility.
Holiday pay policies can vary widely. Retailers and healthcare providers — industries that rarely slow down — rely heavily on this form of holiday pay to incentivize shifts. Ultimately, the intent is what’s most important: showing employees they’re valued when it counts.
What Are the Legal Requirements for Holiday Pay?
The legal landscape of holiday pay is deceptively simple. Federal law, courtesy of the Fair Labor Standards Act (FLSA), provides the foundation for wage and hour rules, but it offers no mandate on holiday pay.
That means employers are not required by federal law to offer paid holidays, time-and-a-half, or double-time pay. Unless specified in an employment contract or collective bargaining agreement, holiday pay is discretionary. However, federal employees often receive different treatment under specific government regulations.
The FLSA also governs overtime pay for non-exempt employees. When they work more than 40 hours in a week, overtime pay kicks in at one-and-a-half times their regular rate of pay. That includes workweeks with holidays and applies regardless of whether the holiday is what caused the extra hours.
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Religious Holidays
Here’s where compliance gets a little more tricky. Title VII of the Civil Rights Act of 1964 requires employers with 15 or more employees to accommodate sincerely held religious beliefs — unless doing so creates an undue hardship.
Practical solutions like floating holidays or unpaid time off can help you meet these obligations without disrupting your operations.
State Laws
Things get even more nuanced at the state level. Take California as an example. While it doesn’t mandate paid holidays, California law allows employees to use accrued PTO or sick leave for holidays that their employer does not observe.
On top of that, California’s overtime rules include daily overtime for non-exempt employees who work more than eight hours a day. With all of these factors at play, the need for a precise holiday pay policy is clear.
The Importance of Compliance
Missteps invite disputes, fines, and damage to your reputation. A policy tailored to federal and state requirements isn’t just a safeguard — it reflects your company’s values and commitment to fairness.
If you’re not confident your current approach is up to par, now’s the time to reassess. Getting it right from the start is always easier than fixing it later.
How To Develop a Holiday Pay Policy
Creating a holiday pay policy isn’t a “set-it-and-forget-it” exercise. Done right, it’s a deliberate combination of legal compliance, employee satisfaction, and operational efficiency. Miss the mark, and you invite confusion, disputes, or worse.
Here’s what it takes to get it right:
1. Define Which Employees Are Eligible for Holiday Pay
Who qualifies for holiday pay? Full-time or part-time employees? Salaried or hourly? Be explicit.
Typically, full-time employees see the best benefits. That said, don’t underestimate the morale boost of including your part-time staff. Be clear about who is eligible for holiday pay and who may be ineligible for holiday pay based on employment status or tenure.
Additionally, clear conditions should be set, such as requiring employees to work the day before and after a holiday to qualify. This isn’t meant to be punitive. Rather, it’s about fairness and keeping absenteeism in check.
2. Be Transparent About Pay Calculations for Hourly Employees
Ambiguity can lead to mistrust, so spell out exactly how your holiday pay is calculated. Are hourly employees included? Are you offering time-and-a-half or half pay for certain holidays? Explain the math.
If an hourly employee makes $20/hour, and you’re paying time-and-a-half, their extra compensation will result in a paycheck that’s worth $30/hour — provide specific examples like that. Transparency about the difference between holiday pay and regular pay can build trust and minimize misunderstandings before they start. This clarity is especially important for shift workers who may work during holiday periods.
3. Offer Floating Holidays
Flexibility matters. Floating holidays let employees observe the religious or cultural days important to them — days your standard calendar may overlook.
Define how these accrue and whether they roll over. It’s a way to demonstrate inclusivity and respect for individual commitments.
4. Specify the Holiday Schedule for Workers
List the federal holidays you observe. Christmas Day, Thanksgiving Day, Memorial Day — be explicit about which specific holidays and national holidays are covered.
Are you considering adding Presidents Day, Veterans Day, or Juneteenth? Your decision should be based on your workforce, industry, and bottom line. Clarity can avoid awkward assumptions or unexpected disputes down the road.
5. Address Premium Pay for Exempt Employees and Others
If you’re open on holidays, be clear about overtime. How will you handle the overlap between overtime and holiday work?
For example, if someone works Christmas and exceeds 40 hours that week, they should know whether they will receive holiday compensation and overtime. Nail down these details. Consider how this applies to both exempt employees and non-exempt workers, as the rules differ. Ensure all calculations meet minimum wage requirements and account for the employee’s hourly rate or annual salary.
6. Document Everything
If it’s not in writing, it doesn’t exist. Your employee handbook is the logical home for this policy. Update it regularly to reflect changes in employment law or company shifts.
To that end, Mosey can help with Employee Handbooks. Refine your existing handbook or create one for the first time. Automatically detect new locations and laws, change your policies with one-click updates, and keep your workforce up to date with our user-friendly employee portal.
A well-constructed holiday pay policy isn’t fluff. It’s a strategic tool for compliance, retention, and culture-building. Done poorly, it’s a liability — but done right, it’s a clear signal that your organization values fairness, transparency, and its people.
What Are the Employee Benefits of Holiday Pay?
Holiday pay isn’t just a line item on a payroll spreadsheet. Instead, it’s a deliberate move — a show of respect that can drive loyalty, retention, and performance. Businesses that get it right can see happier employees and stronger results.
For your workforce, holiday pay is a clear signal that their time matters and their contributions are valued. That recognition can trickle down, encouraging retention, boosting morale, and building a team that sticks together. Holiday pay offers several benefits beyond just the financial aspect.
In a market full of noise, holiday pay also helps with hiring. Top candidates will notice companies that reward effort and acknowledge sacrifices made during holiday time. Be an employer that people want to work for, and you’ll win the war for top talent.
Finally, there’s attendance. Absenteeism during the holidays can slow down operations, but fair compensation can change the game. Employees during holidays who feel respected are more likely to show up, work hard, and stay committed. This is particularly true for salaried employees whose usual pay doesn’t always reflect the extra effort required during peak holiday periods. When holiday pay is calculated properly and added to gross pay or factored into annual leave policies, it demonstrates real value.
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What Are the Best Practices for Implementing Holiday Pay?
A holiday pay policy is only as good as the thought behind it. If it’s unclear, outdated, or non-compliant, you’re setting yourself up for unnecessary headaches.
Here’s how to get it right:
Compliance
Labor laws aren’t static. The FLSA is just the start. States like California add extra layers with PTO and overtime requirements. Review your policy regularly, or risk falling behind.
Clarity
Ambiguity can lead to confusion, and confusion can lead to disputes. Spell out who qualifies for holiday pay, how it’s calculated, and any conditions employees need to meet. Make it accessible.
Precision
Tools for tracking the number of hours worked and calculating pay periods are essential. Delayed or inaccurate payroll can erode employee trust.
Flexibility
Offering floating holidays or customizable PTO shows respect for diversity and personal commitments. It’s a nice thing to do, but it’s also smart business.
Ultimately, your holiday pay policy reflects your values. With the right policy in place, you can foster loyalty, satisfaction, and a stronger team than ever before.
Mosey Can Help With Holidays
Many businesses struggle with payroll compliance. Holiday pay policies, state-specific regulations, shifting obligations — it’s normal to feel a little lost. Enter Mosey.
Our platform streamlines payroll compliance with tools that work across all 50 states, eliminating errors and wasted time.
Need to register for tax accounts? Done. Expanding into new states? We anticipate and adapt. Our automated Employee Handbooks even lets you launch a fully compliant, multi-state handbook in minutes.
With Mosey, compliance is no longer a moving target — it’s something you can master. Book a demo with Mosey and discover what real compliance looks like, not just during the holiday season but all year long.
Frequently Asked Question: Creating a Holiday Pay Policy
How does holiday pay work?
Holiday pay works by compensating employees for recognized holidays, either by paying them for time off or providing premium pay when they work those days. The specific calculation depends on your company policy and whether employees are hourly, salaried, exempt, or non-exempt.
Is holiday pay the same as PTO?
Holiday pay is not the same as PTO, though they’re related forms of paid time off. Holiday pay specifically covers designated holidays like Christmas or Labor Day, while PTO is a broader category that employees can use for vacation, personal days, or illness.
What are common holiday pay mistakes?
Common holiday pay mistakes include unclear eligibility criteria, inconsistent application across employee types, and failing to specify how holiday pay interacts with overtime or annual leave. Another frequent error is not documenting the policy properly in the employee handbook.
How common is holiday pay?
Holiday pay is very common among private employers, with most offering some form of holiday compensation despite no federal mandate. The specific holidays covered and pay rates vary widely by industry, company size, and geographic location.
Is holiday pay factored into salary?
Holiday pay for salaried employees is typically factored into their annual salary and doesn’t result in additional compensation when holidays occur. However, if salaried exempt employees work on holidays, some employers offer extra compensation or comp time as a benefit.
Is holiday pay taxed differently?
Holiday pay is not taxed differently from regular pay and is included in gross pay for tax purposes. Whether it’s premium pay for working a holiday or regular pay for taking the day off, it follows the same tax withholding rules as usual pay.
How much holiday pay is accrued per week?
Holiday pay typically doesn’t accrue per week like PTO or annual leave—instead, it’s designated for specific holidays throughout the year. Some companies offer a set number of paid holidays annually, while others may allow employees to bank unused floating holidays.
Read more from Mosey:
- Form 941: Employer’s Guide to Quarterly Federal Tax Return
- Employer’s Guide to Workers Compensation for Remote and WFH Employees
- California IWC Wage Orders: What Is My Wage Order and Requirements?
- Introducing Automated Employee Handbooks
- Client Reporting States: 8 Steps To Maintain Compliance on a PEO
- Employee Handbook Acknowledgment: Importance and Best Practices
