Success means doing your best in every possible way—and that includes payroll. Many contingencies arise over the financial year that complicates payroll, like holiday pay.
Holiday pay is alternative compensation offered during the holidays, like paying above an employee’s regular rate of pay for hourly workers who come in on a federal holiday, for example. It isn’t required by employment law, but it provides many benefits to your employees (and business owners!) that make it a wise addition to your payment practices.
Of course, creating a holiday pay policy isn’t always easy. When crafting your company policies, you have to ask questions like, “How much is holiday pay typically within our industry?” or “What is holiday pay rate best practices?” Thankfully, Payscale helps you get pay right and ensures that salaried and hourly employees alike receive competitive and effective holiday pay.
Let’s take a look at how you calculate holiday pay with step-by-step instructions. That way, you ensure that your organization maintains a one hundred percent success rate with your payroll every day of the year.
How to determine eligibility for holiday pay
The first consideration of issuing holiday pay is determining which employees are eligible. Typically, employers outline their holiday pay policy in their employee contracts; that’s why it’s so important for employers to have a clear, comprehensive holiday pay policy—it’s a standard that employers set themselves.
More often than not, policies state that employees who work on recognized holidays—part-time or full-time—are eligible for holiday pay. Non-W2 employees, like I-9 contractors, are exempt from holiday pay as they work on a strict, contractual basis.
As per the Fair Labor Standards Act (FLSA), employers are not legally required to pay time for hours not worked, paid holidays included. When it comes to employees who come to work on recognized holidays, many employers abide by overtime standards for their employees earning at-work holiday pay.
Similarly, this kind of holiday pay is not legally required. However, time and a half holiday pay, or overtime pay, has become the status quo for when an employee works holidays.
How to create a holiday pay policy
Because the holiday is not legally mandated, an organization’s holiday pay policy provides the sole basis for employee holiday pay. It’s vital to use due diligence when crafting a holiday pay policy.
Follow these basic steps to create a holiday pay policy that attracts new employees and keeps onboard employees engaged.
Provide details on the process for requesting time off during holidays
If employers offer paid time off (PTO) for holidays, be sure to make the process for requesting time off on qualifying dates as clear as possible. Holiday PTO is often a popular option for employees. In all likelihood, employees choose to request time off on those days.
To ensure there is proper coverage for these days, employers have the option to approve holiday PTO based on a lottery system with a set deadline for employees to request the number of hours off they need.
Clarify eligibility criteria for employees
It’s important to be clear about who qualifies for holiday pay and how. Ensure your policy states which employees are exempt from holiday pay.
For non-exempt employees, the policy stipulates how holiday relates to existing hourly pay for the pay period, salary status, or other qualifying criteria that sometimes affect pay on that day.
Present the holiday schedule for better planning
The holiday schedule that qualifies for holiday pay often varies between organizations. Because holiday pay is up to the employer, be sure to explicitly list which days are eligible for pay.
Listing the qualifying days helps employees plan around which says the need off, which helps managers better schedule for holiday seasons year-round.
Explain the payment calculation process for holidays
Let your employees know what to expect for holiday pay. It’s important to inform employees of the holiday pay rate in their policy and clarify how payroll calculates holiday pay for hourly employees and salaried team members.
The more transparent employers are about holiday pay, the more trust employees have in the organization.
Establish guidelines for employees working on holidays
Holiday shifts are often highly irregular to standard work days. Whether it’s shifting demand or tighter schedules, holiday shifts become confusing and stressful for the employees who work them.
Leave guidelines that help employees work holiday shifts to reduce strain during these irregular days.
4 steps for calculating holiday pay
Employers that offer holiday pay to the workforce have a responsibility to meet the expectations set out in the policy. A clear, step-by-step framework for holiday pay ensures that payroll properly follows through on it.
Holiday pay sometimes has slightly different calculations depending on their hourly or salary status. Follow this holiday pay example to figure out how to calculate it yourself.
1. Determine the employee’s annual salary
The first step to calculating an employee’s holiday pay is to determine their annual base salary. For salaried employees, payroll simply needs to refer to their listed salary. For hourly workers, simply approximate annual salary based on their hourly wage. Let’s suppose our model employee makes 52,000 dollars a year.
2. Identify the number of pay periods per year
For salaried employees, start by finding the number of pay periods over the year. Let’s suppose our employee is paid weekly, meaning they have 52 pay periods a year.
3. Calculate the gross pay per pay period by dividing the annual salary by the number of pay periods
In the case of our 52,000 salaried employees, their gross pay per pay period is 1,000: 52,000 divided by 52 is 1,000. To find the theoretical hourly wage for the salaried employee, divide 1,000 by 40 hours: 25.
4. Calculate the time-and-a-half pay for working on a holiday by adding half of the regular hourly rate of pay to the employee’s normal pay rate
To find the holiday time and a half rate for your salaried employee, take their theoretical hourly wage—25—and divide it in half. Add that half to their theoretical wage to get their holiday pay rate: 37.5.
Federal and non-federal holidays to consider
How employers determine their eligible holiday pay schedule is up to them. However, there are two types of holidays to consider: federal and non-federal.
Federal holidays are officially recognized by the government, meaning its offices are closed, and government employees have the day off. Many other organizations often choose to follow suit. Non-federal holidays are dates not observed by the federal government, although some city or state governments celebrate them.
Several non-federal and federal holidays are holiday pay eligible across most industries.
Here are a few common paid federal and non-federal holidays to consider when crafting your holiday pay plan:
- New Year’s Day: New Year’s Day is a federally recognized holiday celebrated on January 1st.
- Easter: The Christian holiday Easter is not a federal holiday, though organizations often close or offer holiday pay for workers. Easter falls on a different date each year, but it’s always the first Sunday after the vernal equinox.
- Christmas Eve: Christmas Eve is a non-federal holiday celebrated on December 24th.
- Christmas Day: Christmas Day is a federal holiday celebrated on December 25th.
- Labor Day: Labor Day is a federal holiday celebrated on the first Monday of September.
- Thanksgiving Day: Thanksgiving is a federal holiday celebrated on the fourth Thursday of November.
- The day after Thanksgiving (Black Friday): Black Friday is not a federal holiday. However, because Black Friday produces high demand, some employers offer incentive pay.
- Memorial Day: Memorial Day is a federal holiday celebrated on the last Monday in May.
- Independence Day: The celebration of American independence is a federal holiday celebrated on July 4th.
Of course, you don’t have to feel trapped by just these days. Some organizations choose to honor Martin Luther King, Jr.’s Birthday, New Year’s Eve, or President’s Day based on their culture, values, and more. The number of days you choose is entirely up to you!
Benefits employers receive from holiday pay
Holiday pay is an elective decision. The fact that the vast majority of organizations opt for some level of holiday pay indicates that there is an incentive for them to do so. Holiday pay is not simply a kind gesture employers extend to their workforce; it has a quantifiable impact on the organization.
Here are a few benefits employers gain when they implement a holiday pay policy.
Improved employee morale and job satisfaction
Holidays are special events. Make employees who work the holidays feel special for stepping up. Giving workers an additional stipend like holiday pay positively impacts long-term morale and overall job satisfaction—it’s a sign of respect.
Acts as an incentive for employees to work on holidays
Holidays are a scheduling headache because few people want to work them; they’d rather spend time with their family and friends. Holiday pay recognizes the high value of holiday shifts by paying employees more work for them. The extra pay rate gives added incentive to holiday work hours, filling up any scheduling gaps.
Increased employee engagement and productivity
The added stress of working on a holiday distracts from the demands of the work. When employees know that their time is more valuable at the workplace, they are more likely to remain focused, engaged, and productive, no matter what the holiday shift has in store for them.
Improved company reputation and employer branding
In a competitive labor market, it’s important to take every opportunity to improve their brand reputation into a place where top talent wants to work. Broadcasting a generous holiday pay policy is an attractive feature that draws in both talented workers and even customers who appreciate corporate conscientiousness.
Final thoughts
Holiday pay is a gray area that each organization negotiates on its own. It is not legally required, but it is highly advisable to include a holiday pay policy; countless organizations do so to appeal to their full-time employees, their part-time employees, and even their customers.
By drafting your own holiday pay policy, you set the standard for your organization’s values. Work with your managers and your workforce to create a holiday pay policy that respects your people every special day appears on the calendar.
Implementing holiday pay appears difficult at first, but it doesn’t have to be—and it’s not when you leverage proven compensation systems. Consider Payscale’s comprehensive compensation and pay strategy tech when you enter the holiday pay season. Our product offers the best solution to solve pay challenges effectively and quickly for holiday pay and beyond.
