Holiday Pay for Hourly Employees: Is It Mandatory?

For your employees, holidays are an excellent time to rest and relax with loved ones. 

For business owners, holidays add complexity and questions to scheduling. You may have questions like, "Am I required to give my employees paid holidays?" and "Do I have to pay employees more if they work holidays?"

If only there was a guide to walk you through holiday pay for hourly workers. Oh wait, there is, and it's right here!

What Is Holiday Pay? 

Holiday pay refers to any pay adjustments you give to employees on holidays, such as paid time off or time and a half pay for employees who have to come to work.

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Holiday pay is not required by federal law for private employers. Still, many companies give their employees paid holidays as a benefit, so they can take time off without losing pay.

If you have employees that work on holidays, you can offer to pay them more than their regular hourly rate. Some companies also chose to offer employees that have to work the option of a personal paid day off later in the year instead of a higher hourly rate for a holiday.

When you decide to offer holiday pay to those working on a holiday, make sure that you enter those premium rates in your payroll so your employees get the right amount. 

You can use Hourly payroll software to easily edit an employee's rate for a given pay period. The full-service payroll platform also lets you do unlimited payroll runs—so you can always pay them that extra cash right away.

Now that you know what holiday pay is, let's take a look at how to calculate it.

How To Calculate Holiday Pay for Hourly Employees

Holiday pay typically means paying an overtime rate, or time and half, to employees working those shifts. 

To calculate overtime or the holiday pay rate for an hourly employee using this method, multiply their regular pay rate by 1.5. So if your employee's normal pay rate is $16 per hour, their holiday pay rate is $24 per hour. 

What is the Formula for Calculating Holiday Pay?

The typical formula for calculating holiday pay is 1.5 times the employee's regular rate, similar to overtime pay, but it isn't mandatory. You can decide what extra rate to use for your company when you create your holiday pay policy. 

Some employers choose to use the double time rate, or twice an employee's normal rate, as holiday pay. Using the previous example's hourly rate of $16, their double time holiday pay rate would be $32 per hour.

Is Holiday Pay Mandatory in the U.S.?

In the U.S., there is no federal law requiring that private employers provide paid holidays or time and a half pay rates for employees that work holidays. The Fair Labor Standards Act (FLSA) doesn't require holiday pay. 

That said, there are state rules surrounding holiday pay rates for private businesses in Rhode Island, which we'll explain later on. There are also paid holiday requirements for federal and state government employers and some government contractors. Union labor contracts may also include negotiated holiday pay requirements.

If you don't fall under any of those restrictions, holiday pay is generally up to your discretion. But even when it's not required, many companies offer it to their employees as a benefit. 

Federal Government Employers

Non-essential federal government employers are required to close their offices and give their full-time employees paid holidays for the 11 federal holidays:

• New Year's Day: Jan. 1
• Martin Luther King Jr. Day: Third Monday in January
• Washington's Birthday/President's Day: Third Monday in February
• Memorial Day: Last Monday in May
• Juneteenth National Independence Day: June 19
• Independence Day: July 4
• Labor Day: First Monday in September
• Columbus Day/Indigenous Peoples' Day: Second Monday in October
• Veterans Day: Nov. 11
• Thanksgiving: Fourth Thursday in November
• Christmas: Dec. 25

If a federal government office has to stay open on a required holiday, they are required to give their employees a replacement paid day off.

Government Contractors

Government contractors that fall under either the McNamara-O'Hara Service Contract Act (SCA) or the labor standards sections of Davis-Bacon and Related Acts have to provide holiday pay as outlined in those laws.

The specific benefits vary by contract type, amount, and employee classification under each law.

State Government Employers

Many state government employers also give employees paid time off for federally-recognized holidays. And some states have additional state holidays that qualify employees for paid time off. 

For example, Texas state holidays include Texas Independence Day and Emancipation Day.

How is Holiday Pay Calculated in Texas?

In Texas, holiday pay is calculated as the employee's regular rate of pay for state employees who have to work on holidays.

Rhode Island Holiday Wage Rate Laws

According to Rhode Island state law, as of 2023, non-exempt employees are entitled to earn a holiday pay premium rate of time and a half when they work on Sundays and holidays. Rhode Island holidays are:

• New Year's Day: Jan. 1
• Memorial Day: Last Monday in May
• Independence Day: July 4
• Victory Day: Second Monday in August
• Labor Day: First Monday in September
• Columbus Day: Second Monday in October
• Veterans Day: Nov. 11
• Thanksgiving: Fourth Thursday in November
• Christmas Day: Dec. 25

Even though most companies aren't required to offer holiday pay, there are some great reasons why you should consider it.

Massachusetts Premium Holiday Pay Update

Massachusetts used to require premium pay, similar to Rhode Island, but as of Jan. 1, 2023, it no longer requires holiday premium pay. 

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The state does have some blue laws, which create work restrictions for certain businesses on Sundays and holidays. For example, manufacturing businesses are not allowed to operate on Sundays unless they receive a permit.

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You can refer to the state website’s post on blue laws for more details on which businesses can legally operate on Sundays and holidays.

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Even though most companies aren’t required to offer holiday pay, there are some great reasons why you should consider it.

Benefits of Giving Holiday Pay to Your Employees

Offering paid holidays can boost your team's morale and motivation because they know they'll be able to take certain rest days without losing pay. Here are the main benefits of this type of pay:

More Employees Willing to Work Holidays

Premium pay rates or alternative days off in lieu of the holiday give employees more incentive to volunteer for holiday shifts, which means you'll have an easier time staffing your business on holidays. Not to mention, morale is better for people who volunteer since they're willingly working on the holidays.

Increased Productivity and Performance

Offering any type of paid time off (PTO), including paid holidays, can help your employees create a better work-life balance, which can create benefits for you. In fact, 63% of employees who said they had great work-life balance also said that they were willing to go above and beyond at work. 

Higher Engagement and Lower Turnover

The same report found that employees with a good work-life balance are more likely to exceed expectations, be more engaged at work, and stay with the company longer. In other words, providing paid time off can improve the quality of work each employee does, and it can help reduce turnover rates.

More Competitive on the Job Market

Benefits such as holiday pay and paid time off can be especially helpful for growing businesses looking to attract top talent. Let's face it, you are competing with other companies to hire the best workers.

Offering generous holiday pay gets the attention of potential new hires. In addition to providing a financial incentive for work, holiday pay shows that you're an employer who appreciates and values their employees' time.

How To Create Your Holiday Pay Policy

When it comes to employee hours and pay, it's best to create clear company policies from the start. This way, your employees know exactly what to expect in terms of when they're supposed to work and how much they're going to earn.

Here's how to create a holiday pay policy in a few quick steps.

1. Choose Your Paid Holidays

In addition to the 11 federal holidays, here are some common paid holidays used in the U.S. 

• Easter: First Sunday after the full moon that happens on or after the spring equinox
• Black Friday: The day after Thanksgiving
• Christmas Eve: Dec. 24
• The Day After Christmas/Boxing Day: Dec. 26
• New Year's Eve: Dec. 31

If one of the holidays falls on a day you're closed, you can offer an alternative day off so your employees still get time to rest. For example, if Independence Day is on Saturday, and that isn't a normal workday, you can give your employees Friday off.

2. Set a Pay Rate for Paid Holidays and Holiday Shifts

The next step is to determine the pay models you'll use for employees who work on holidays and those who don't. 

If employees don't have to come to work on holidays, you can pay them at their normal rate like any other vacation day. Or you can also choose a higher pay rate for holidays off, such as time and a half or double time. Time and a half is a common holiday rate in the U.S., but the pay model you choose is up to you and what you can afford. 

As for employees that work on holidays, your holiday rate should be higher than their regular rate if other employees are getting PTO. Once again, the most popular options are time and a half or double time.

3. Create a Policy for Religious Holiday Requests

Title VII of the Civil Rights Act states that employers can't discriminate against candidates or employees based on their religious beliefs. As part of that, you're supposed to provide accommodation for an employee's religious beliefs. 

At the very least, this means allowing them to take time off for major religious holidays and observances unless it would put "undue hardship" on the business. It defines undue burden as "significant difficulty or expense." You're not required to make religious holidays paid time off, but you can choose to do so as a benefit. 

Be sure that whatever policy you create is uniform for all employees.

4. Add Your Policy to the Employee Handbook

Finally, add your policy to your employee handbook so everyone has the information. You can use our employee handbook table of contents template and add the policy to your "work schedules, time off, and holidays" section.

Final Thoughts on Holiday Pay for Hourly Employees

Holiday pay is extra compensation for employees whether they do or don't work on holidays. 

Holidays are often offered as PTO. Otherwise, the premium payment for holiday work is typically calculated as 1.5 or 2 times your employee's regular hourly rate. And some employees do fall under required holiday pay due to government contracts, union contracts, or state law.

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Now that you know the benefits of offering holiday pay, you can decide if it's right for your business and get started creating a policy that works for you.