Holiday pay refers to pay on days established by law or custom for which workers receive pay while absent from work. Holiday pay can be received in different forms, such as fully or partially paid time off (most common for salaried employees), a bonus, or, most commonly, additional hourly pay for work performed on a holiday. The amount of holiday pay that an employee receives typically depends on their regular pay rate (hourly or salaried), employment contract, and applicable laws. Compensation professionals must consider holiday pay, in addition to base pay, bonuses, commissions, and other factors that contribute to the total compensation package, in the salary planning process.  

Develop a Holiday Pay Policy  

Not all businesses have the luxury of closing for the holidays. When planning your holiday pay policy, consider the following: 

Define Holidays   

The United States recognizes 11 standard federal holidays:  

  • New Year’s Day – January 1
  • Martin Luther King’s Birthday – 3rd Monday in January 
  • Washington’s Birthday – 3rd Monday in February 
  • Memorial Day – last Monday in May 
  • Juneteenth National Independence Day – June 19 
  • Independence Day – July 4 
  • Labor Day – 1st Monday in September 
  • Columbus Day – 2nd Monday in October 
  • Veterans’ Day – November 11 
  • Thanksgiving Day – 4th Thursday in November 
  • Christmas Day – December 25

Employee Eligibility 

It is important to determine which employees will qualify for holiday pay. For instance, retailers like Target offered store employees and service center employees an additional $2 per hour for shifts during the holiday season to encourage employees to work.  

How to Determine Holiday Pay  

Organizations must first consider the budget allocated for holiday pay to determine how much employees will receive. Once the holiday pay budget is calculated, it is time to decide how employees will receive the holiday pay, including these options: 

  • Paid time off (PTO): Employees receive a predetermined number of PTO days that can be used for holidays not celebrated by the company or for personal time. 

  • Statutory holiday pay: Employers pay a set amount for designated holidays, regardless of whether the employee works or not. 

  • Time-and-a-half or double-time holiday pay: Employees receive a premium pay rate for working on holidays. 

How to Calculate Holiday Pay for Full-Time and Part-Time Employees 

Calculating holiday pay involves determining the employee’s regular hourly rate and applying any premium rates for work on holidays. To calculate holiday pay, follow these steps: 

1. Identify the employee’s regular hourly rate. If you have a full-time salaried employee, convert their annual salary to the hourly rate. The standard annual to hourly conversion rate is 2080 hours per year. Simply divide the annual salary by 2080 to arrive at the corresponding hourly rate.  

Hourly Rate for Salaried Employees = Annual Salary / 2080 

For example, if a salaried employee is paid $52,000 annually and works 40 hours per week, then their hourly rate is 52,000 / 2080 = $25 per hour. 

 

2. Determine any additional pay for overtime or shift differentials. For example, in the United States, holiday pay is typically 1.5 or 2 times the worker’s average hourly pay. 

 

3. Calculate the premium rate for working on a holiday, if applicable. 

Holiday Pay = Total Hours Worked on the Holiday x Adjusted Hourly Rate 

Let’s consider this holiday pay policy example to help illustrate the role of holiday pay in a total compensation package:  

An hourly employee, Ann, with a regular pay rate of $20 per hour works 8 hours on a federal holiday. The company’s policy provides double-time pay for holiday work.

Calculation:  

Regular hourly rate: $20  
Double-time premium: 2x regular rate  
Total hours worked on holiday: 8  
Holiday Pay = Regular Hourly Rate × Double-Time Premium × Total Hours Worked  

$20 × 2 × 8 = $320 

Ann usually earns $160 on a normal workday. However, since she worked on a holiday, she will earn $320.  

The holidays are busy enough. Use ERI’s compensation planning software to help you determine holiday pay without the work of manual calculations and easily manage your employee payroll. Schedule a free demo to learn more about how we can help with your overall compensation management. 

Federal Holiday Pay and FLSA Rules 

The Fair Labor Standards Act (FLSA) governs federal labor laws in the United States, including regulations related to holiday pay. While the FLSA does not mandate holiday pay, it does provide guidelines for employers who choose to offer it. Compensation professionals should be aware of FLSA rules and how they may impact holiday pay practices within their organization. 

Accurately benchmarking compensation to factor in pay differentials, such as holiday pay, helps HR professionals plan business expenses and understand the actual cost of labor during different time periods. Visit ERI to learn more about how companies benchmark holiday pay and how to determine holiday pay when pricing roles.