What Small Businesses Need to Know About Holiday Pay

Eight out of 12 months have at least one holiday on the calendar. As an employer, have you figured out how you're going to handle them?

There are no federal holiday laws that say you have to give employees the day off for federal or state holidays. And if an employee is nonexempt, hourly, you may not even have to pay them for time not worked depending upon what state you're in.

Yet, employees expect to have at least some holidays to look forward to and most want to be paid for them, whether or not they work on the holiday. Find out what holiday pay is, what it's for, and who is eligible for it.

Is holiday pay mandatory?

"Holiday pay, in general, is not required under the federal Fair Labor Standards Act (FLSA)," explains Fisher Phillips senior counsel Michael Miller. "There are some unique situations in California and Massachusetts, for example, but most of the nation is pretty straightforward."

Holiday pay, as in premium pay, i.e., time-and-one-half, double-time, or triple-time, is totally voluntary on your part as the employer.

Should a nonexempt or hourly employee be scheduled to work on a holiday, you are only required to pay for hours worked at the regular rate of pay. Exempt (salaried) employees, however, would be paid for the entire workweek at their regular rate should they work any time during the workweek. The distinction should be clear in your policy.

Why you need a holiday pay policy

Everyone should have a holiday pay policy. Without a policy in place, there is a greater likelihood that people will be treated differently. "That opens up the argument that there's discrimination going on for one of the reasons protected under state or federal law," Miller says. "A policy will eliminate that possibility. And employers should follow the policies they enact."

Your policy should clearly state which days will be considered holidays and how you will or will not pay them for those days. "Many employers," Miller notes, "have a policy that, to receive holiday pay, [employees] must work the day before and the day after the holiday so people don't call in sick to extend their leave."

How to avoid discrimination

Creating your policy should be done carefully. It is perfectly legal to allow one class of employees, e.g., office workers, to receive holiday pay but another class, e.g., field workers.

You have to be careful, though, not to inadvertently discriminate against a protected class, such as sex, age, race, etc. For example, say all of your field workers are men, and all of your office workers are women. Should only your office workers be eligible for holiday pay, your male field workers could have a basis for a sex discrimination suit.

"Reasonable policies," says Miller, "are going to be in compliance with applicable local, state, and federal discrimination laws."

How do sick, vacation, and FMLA days figure in?

Because the holiday is discretionary, it's totally up to you to determine how you will handle payment when holidays fall on someone's sick or vacation day. For example, if someone is out sick for an entire week when a holiday occurs, you do not have to pay holiday pay. This means a non-exempt, hourly employee would be charged for sick days if you pay sick days.

If you do not have sick days, then the employee would be out one week's pay. An exempt, salaried person out the entire week would also be out one week's pay if you do not pay sick days, and the person did not do any work, e.g. take or make a work phone call, work on documents, etc.

Holidays that fall within the time an employee is out on Family Medical Leave Act (FMLA) leave are generally unpaid, as FMLA leave is unpaid leave, though an employee may use sick and vacation days to cover unpaid days.

What days are eligible for holiday pay?

Since holidays are discretionary, many employers follow the federal holiday schedule. This includes:

• January: New Year's Day, Birthday of Martin Luther King, Jr., (Inauguration Day following a presidential election)
• February: Washington's Birthday
• May: Memorial Day
• July: Independence Day
• September: Labor Day
• October: Columbus Day
• November: Veterans Day, Thanksgiving Day
• December: Christmas Day

State holidays may be included as well. To compensate for non-standard holidays, e.g., Yom Kippur, Kwanzaa, Miller advocates giving everyone two floating holidays to be used at the employees' discretion. This gives them the opportunity to observe religious holidays.

Although there are no specific holiday pay laws in the U.S., there are several federal and state laws that require employers to treat employees fairly when a holiday pay policy is established. Regardless of how you choose to pay—or not pay—for a holiday, create a standard, and stick to it.