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How to Create a Holiday Pay Policy
Anyone who’s either held a job or had to pay a team around the holidays knows it’s a tricky time for calculating paychecks.
Will you have to work during Christmas or the Fourth of July? Do you need to pay your employees while not working at Thanksgiving? Can you still work if you don’t partake in turkey carving?
There tends to be lots of red tape around making money during the holidays, but that’s where the festive magic of holiday pay steps into play.
Holiday pay is any business owner’s answer to “What happens when Christmas falls on a Monday?” and the many other holiday-adjacent questions you’ll get from your employees.
We will unpack everything you need to know about holiday pay — the laws associated with it, employee and business owner requirements, policies, and a few other things — here for you in this guide. Let’s fire up that sleigh, unpack the fireworks, and discuss holiday pay!
What is Holiday Pay?
This one’s self-explanatory, but we still need to cover it in case you’re new to all of this.
Holiday pay is when an employer allows their team members to continue earning their regular salary while on a holiday break or vacation. The most wonderful time of year, indeed!
What many don’t know is that holiday pay is actually a gift from an employer because paying your employees for any holiday isn’t legally required for any business in the United States. But, as a business, providing holiday pay shows that you truly value your team members, which is why companies choose to include holiday pay as an employee benefit. When you provide holiday pay, you can prevent undue hardship during the holiday season and bolster your employee benefits.
Holiday pay laws
Here are the answers to a few common questions you might have:
Do I legally have to pay my employees on the holidays?
No. Legally speaking, holidays are just another business day in the United States. Holidays like Thanksgiving, Martin Luther King Jr. Day, and Christmas are considered federal holidays by the government mainly because they apply to employees of the federal government. So, for privately-owned companies, it’s up to the boss to decide what to do. Employers do, however, have to pay their full-time employees if they are using their paid time off.
If my employees work on a federal holiday, do I have to pay them overtime?
Unfortunately for your team, overtime pay on holidays is not required. Nothing stops you from doing this if you feel extra generous this holiday season, but that’s up to you. If you’re feeling more Grinch-like, no one can stop you from pinching pennies (or stop all of your employees from talking about buying you coal this year).
What if I manage hourly employees? Do I need to pay them on holiday?
If your team is primarily non-exempt employees (those who are paid hourly), then no, you have no legal obligations to pay them on the holidays. Again, if you’re feeling kind and want to, we’re sure they’d appreciate it.
What about religious holidays? Are there any rules around those?
This one’s a bit tricky if you’re not careful. If you choose not to give someone time off for a religious holiday, it can be considered religious discrimination in some cases. However, when your employees are asking for the time off, they do need to give ample notice. If they don’t, there is a case to reject a religious discrimination claim, but that’s another situation entirely.
Your best bet is to proactively work with your employees to know every day in the calendar year that they might need.
Now, it should be noted that all this information is based on employment in the U.S. If you live in another country, it looks a little different.
| Canada | The UK |
|---|---|
In the great white north, holiday pay is referred to as Statutory pay, and — other than handing out a Molson and a pack of Timbits to each employee —there are a few rules that need to be followed. If you run a team of full-time employees, then you are mostly required to give them time off and pay them on all the following holidays:
The exception to this rule is that some businesses may still choose or are required to stay open (such as hospitals or other on-call staff). If your team does work on any of these holidays, you as the business are required to pay them overtime (normally one-and-a-half to two times their regular wage) and may even have to give them an additional day off. Thanks, Canada! | Known as holiday entitlement in jolly old England, paying your employees in the U.K. is rather straightforward. Well, if you consider math straightforward, that is. Legally, almost all full-time workers are allowed to have 5.6 weeks of holiday pay a year, which comes out to 28 days. Part-time workers get a similar amount of time, but since they work fewer days a week, they would also get fewer days off. For example, if you work four days a week, rather than five, you’d only get the equivalent of 4-day weeks’ worth of time off per year. So, rather than 28 days, you’d only get 22.4. If you run a company or have a job where your team works irregular hourly jobs, then they’re also entitled to holiday hours. For these kinds of jobs, you are allowed paid time off for every hour that your team works. So, if your barista works 40 hours, then they are allowed 40 hours of holiday pay. People working irregular hours (like shift workers or term-time workers) are entitled to paid time off for every hour they work. Regardless of the kind of job you have, you get paid time off, which is excellent for those U.K.-ers out there. |
As you can see, holiday pay is treated differently depending on where you live. If you’re not sure what the policy is for your area, and we didn’t cover it above, be sure to do your research before writing a holiday pay policy for your business
Speaking of holiday pay policies, let’s take a look at how those work.
Holiday pay policies
Since, in the United States, you’re not legally required to do much for your employees on holidays, you can be as stingy or generous with the holiday pay as you like. Either way, it’s a good idea to have some policies in place for when your employees ask.
An excellent place to start is with the federal holidays. It’s standard for your business to have some or most of these holidays off — Christmas and Thanksgiving are good examples. But if you still want people to work on Columbus, Juneteenth National Independence Day, and Groundhog Day, that’s entirely up to you.
How to set holiday pay policies
The best place to start is by outlining the specifics of your holiday policies. Here are a few questions to ask yourself to help figure these out:
What dates will you set as paid holidays, and which will not be?
How are those holidays going to work or be observed if they fall on a weekend versus during the work-week?
Which of your employees — full-time, hourly, part-time — will be eligible for paid holidays?
Will you give any special rates or holiday premium pay for those employees who work on paid holidays?
Will you set aside any bonuses for your team on those paid holidays?
Once you’ve figured that out, the next part will be a piece of almost-stale fruit cake.
How is holiday pay calculated?
One crucial part of your holiday pay policy is considering how you’ll calculate pay for these days. Whether you’re offering paid time off or time and a half, let’s explore the options and understand the formulas you’ll need.
Holiday pay is usually handled in one of the following ways:
1. Employees are paid to take the day off.
Some companies pay employees for a day’s worth of work while giving them the day off.
This is often factored into an annual salary, where that person will get paid as they usually do for the pay period. It’s considered a perk to receive paid time off for a few significant holidays yearly. No additional calculation is needed for salaried employees.
That said, it can also work for hourly workers using their daily rate. Here’s how to calculate holiday pay in this case:
Holiday pay = Daily rate x Number of days off
2. Employees work and get paid more.
The other option is to have employees work during the holidays but pay them more.
Most companies that opt for this approach offer employees 1.5x to 2x their usual daily rate for working during the holidays. This is a common approach for businesses or organizations that need to stay open, such as retail and health care.
Here’s how to calculate holiday pay if you opt for this approach:
Holiday pay = Daily rate x 1.5 (or 2) x Number of days worked
To calculate holiday pay for hourly employees, use the following formula:
Holiday pay = Hourly rate x 1.5 (or 2) x Number of hours worked
Holiday policies for full-time salaried employees
Again, holiday pay isn’t required in the U.S., but it’s still pretty standard to give your full-time team members some paid time off for some holidays each year.
Here’s a simple list of the holidays most businesses give as paid days off:
| Standard paid holidays | Other commonly paid holidays |
|---|---|
|
|
If you have team members required to work on a holiday, they may ask or even demand overtime for the holiday work — which is a fair thing to ask. So, consider whether or not you'll offer this.
A standard rate for overtime pay is time-and-a-half, so if someone on your team makes $40,000 a year, you'd need to pay them 1.5x their typical pay for that day or week of holiday pay. If you need clarification on calculating that accurately, don't worry; we'll give you some helpful tools to help you out.
Holiday pay for part-time employees
The previous list of merriment still applies to part-time employees, so consult that list of holidays.
Now, part-time employees usually receive different benefits than full-timers do, but, as with everything else here, it's up to the business owners.
Choosing whether or not to give part-time employees overtime for working holidays or just pay them to have holidays off is something you need to consider when looking at what sets everyone apart at the company. It may be that you want everyone to have the same perks or that you think it'd be best to save paid holidays for full-time employees.
Whatever you decide, make sure to be consistent. Once you set your holiday pay policy, there should be clarity about who gets what.
Holiday pay for hourly employees
Holiday pay for an hourly employee is a different thing entirely. It's relatively common for those working in retail or food service to have to work holidays in the U.S., but of course, that isn't always true. As a result, you have a few options here.
Give those who work on holidays time-and-a-half for their willingness to work the holidays. Alternatively, you could provide holiday workers a bonus, like an extra vacation day (if you offer those) or an additional $200 in their monthly paycheck.
Typically, for hourly non-exempt jobs, you'll need to have people request time off for the holidays if you are, in fact, open on those days. This is where your policy comes in handy. If everyone wants Christmas off, and you need to be open Christmas Eve, then you obviously can't give everyone that time off. You can either choose to do the seniority method — those who've been with the company longer get first pick — or to go with the first-come-first-served process. Either way, outlining that in your holiday pay policy is essential so everyone knows what to expect.
Read about holiday work schedule in our guide here
Create your own holiday pay policy with our free template
Now, you need to write it all down.
That's right, you’ll want an authentic document. Or, at least, it should be if you want people to abide by it. Once you have it in place, you can slide this festive document into your business's handbook so that everyone knows what to be aware of come holiday season.
In your holiday policy document, you must outline a few things, including your stance on holiday pay, what happens when holidays are on the weekend, which holidays your business will observe, and any other notes you want everyone to be clear on.
If you need help figuring out where to start, we've made this handy sample holiday pay policy doc to get you started.
Once you’ve got your policy in place, you need to enforce it. Ask your employees to give you notice if you require it, and make sure that everyone is following what you’ve laid out, including yourself. A policy means nothing if the owner doesn’t lead by example.
How Hubstaff can help
There are several tools out there that you can figure out holiday pay for everyone on your team — including doing it manually — but we (biasedly) recommend Hubstaff.
Calculating holiday pay is complicated, but don’t let that stop you from offering holiday pay for your team. Your company’s holiday pay policy is critical to your team’s satisfaction, but you don’t have to do it alone. Hubstaff can help you offer holiday pay without extra work.
Hubstaff is a robust timesheet software and payroll solution for any sized business. Hubstaff tracks your team's time and productivity and makes it easy to pay everyone for all their hard work at the end of the pay period.
Hubstaff also makes holiday pay super simple. With our easy-to-use app, you can create single or recurring holidays for your business and choose who can bill during them. So, if you manage both full-time staff and contract roles, you can select who's eligible for holiday pay.
Additionally, you can easily set a holiday pay rate, so if you decide to give your team time-and-a-half for the holidays, Hubstaff will automatically pay them for those set dates.
Once you’ve set that up, you can update your employee schedule within Hubstaff so you’ll know who’s working over that holiday or on vacation. Learn more about Hubstaff’s scheduling feature.
Hubstaff wants to ensure paid holiday time is simple enough so you, too, can enjoy the holidays without worrying about whether your team will receive holiday pay.
Important Notice: The information in this article is general in nature and you should consider whether the information is appropriate to your needs and federal law in your region. Legal and other matters referred to in this article are of a general nature only and are based on Hubstaff’s interpretation of laws existing at the time and should not be relied on in place of professional advice. Hubstaff is not responsible for the content of any site owned by a third party that may be linked to this article, and no warranty is made by us concerning the suitability, accuracy, or timeliness of the content of any site that may be linked to this article. Hubstaff disclaims all liability (except for any liability which by law cannot be excluded) for any error, inaccuracy, or omission from the information contained in this article and any loss or damage suffered by any person directly or indirectly through relying on this information.