What is Holiday Pay and Should You Offer It?


You’ve likely heard about holiday pay in employee compensation. Employees receive extra pay when they take paid time off for holidays. Understanding this concept can be immensely important as you prepare your business for the holidays or begin hiring for the first time. In this article, we’ll break down what holiday pay entails and whether it should be on your list of employee benefits. 

What is Holiday Pay?

Holiday pay is a part of employee compensation, typically extra wages given during holidays. In the U.S., it stems from both federal laws and industry norms. Federal guidelines set the foundation, while industries often add their own practices, ensuring workers are rewarded for their holiday hours.

The Difference Between Paid Holidays and Holiday Pay

It’s important to grasp the difference between a paid holiday and getting extra for working on one. A paid holiday means you get your usual pay for the day off, while holiday pay means extra earnings for putting in hours on a holiday.

Paid Holidays: What Are They?

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In the U.S., we’re talking about the classic typical paid holidays like New Year’s Day, Independence Day, and Thanksgiving. These are days when folks typically take a breather, and employers often ensure their team gets this time without missing out on their regular pay.

How Holiday Pay Works

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Holiday pay sweetens the deal. If you’re clocking in on a holiday, you’ll usually see a little extra in your paycheck. This could be a bump in your hourly rate or even a special bonus. It’s a way for employers to show appreciation for the effort of putting in work on a holiday, giving employees an extra nudge to be there when it counts.

Eligibility and Requirements for Receiving Holiday Pay

Let’s dive into who usually qualifies for holiday pay. Eligibility often hinges on factors such as your job type, industry, and the terms of your employment agreement. These criteria can vary but are important to understand.

Who is Entitled to Receive Holiday Pay?

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Eligibility for holiday pay differs based on your employment status. Full-time employees often enjoy more holiday pay benefits than part-time or contractual workers. The specifics can also depend on your employer’s policies and the nature of your work.

Common Practices in Different Industries

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Different industries have their own take on holiday pay. In healthcare, it’s common to ensure staff working holidays receive extra compensation. In the hospitality industry, bonuses or higher hourly rates on holidays are common. Office jobs often follow standard holiday pay practices outlined in employment contracts or company policies. Finding a common standard and communicating it to employees so that they understand their compensation and what is expected of them is among the hardest parts of being a manager.

How Much is Holiday Pay?

Now, let’s talk dollars and cents when it comes to holiday pay. It’s not just a flat amount; it can vary based on several factors. Let’s break it down.

Standard Rates vs. Overtime Pay

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Holiday pay can come in different flavors. Sometimes, it’s your regular hourly rate, and other times, it’s a bit more, like overtime pay. The specific rate often depends on your employer’s policies and agreements.

Factors Influencing Holiday Pay Amounts

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Several things play into how much holiday pay you might get. Here’s a closer look at several factors:

  • Job Role
  • Different positions within a company might have varying pay scales. For example, managerial roles might receive a different holiday pay rate than entry-level positions.
  • Some roles, especially those in essential services like healthcare or public safety, might get higher holiday pay due to the nature and demand of their jobs on holidays.
  • Tenure with the Company
    • Employees who have been with the company longer might receive higher holiday pay as a reward for their loyalty and experience.
    • Some businesses have a tiered system where holiday pay increases with each year of service.
  • Size of the Employer
    • Larger companies might have more established policies and budgets for holiday pay, potentially offering more generous rates.
    • Smaller businesses, while they may have a tighter budget, sometimes offer competitive holiday pay to retain their staff.
  • Company’s Financial Health
    • A company that has had a successful financial year might decide to reward its employees with higher holiday bonuses or pay.
    • Conversely, a business facing financial struggles might offer reduced holiday pay or none at all.
  • Presence of a Union or Collective Bargaining Agreement
    • In companies with strong unions or collective bargaining agreements, holiday pay rates might be standardized and could be higher than in non-unionized environments.
  • Location and Cost of Living
    • Businesses located in areas with a higher cost of living might offer more in holiday pay to help offset living expenses.
    • Regional laws and standards might also dictate minimum holiday pay rates.
  • Policy on Holiday Pay
    • Not all companies offer holiday pay. For those that do, the way they calculate it can vary—some might offer a fixed bonus, others might provide double-time pay, and some might give an extra percentage of the daily rate.
    • The number of holidays recognized by a company can also influence overall holiday earnings.
  • Employee Performance
    • Some companies might offer performance-based bonuses during the holiday season, meaning an employee’s recent performance could influence their holiday pay.
  • Industry Norms
    • Certain industries might traditionally offer more generous holiday pay due to competition or the nature of the work.
    • For example, the hospitality industry might offer higher holiday pay rates to incentivize working during peak holiday times.

Understanding these variables is crucial for employees when negotiating contracts or for employers when establishing fair and competitive holiday pay policies.

Types of Holidays and Implications for Pay

Let’s break down the different holidays in the U.S. and what they mean for your pay. Each has its own set of implications, from federal holidays to religious observances.

CriterionFederal HolidaysReligious HolidaysFloating Holidays
DefinitionHolidays recognized by the federal government, often marking national events or historical figures.Important days in various religions; they may vary greatly among different religious groups.Personal days that an employee can take off at their choosing, sometimes offered by businesses in lieu of, or in addition to, fixed holidays.
Examples- New Year’s Day- Christmas (Christian)Typically not fixed to any specific day.
- Independence Day- Hanukkah (Jewish)Employee chooses the day based on personal or family needs.
- Thanksgiving- Eid (Islamic)
Mandatory OfferingIn the U.S., businesses are not required to close or offer time off for federal holidays, but many choose to do so.Not mandatory, but businesses may offer to accommodate employees' religious practices.At the discretion of the business. Some companies offer them, some don’t.
Schedule ImpactFixed dates; businesses can plan ahead for closures or reduced staffing.May change every year, especially for lunar calendars. Can make scheduling more challenging.Can be unpredictable, as employees select dates based on personal needs. Might create short-staff situations if not managed.
Diversity & InclusivityBroadly recognized, but doesn’t accommodate all cultural or religious observances.Accommodating religious holidays promotes inclusivity and respects diversity.Promotes inclusivity by allowing employees to choose days important to them, whether cultural, religious, or personal.
Financial ImplicationIf businesses decide to offer additional pay (like double time), it's on fixed, predictable days.Offering additional pay might be less predictable due to varying observances among employees.If offering additional pay, cost is less predictable due to the personal nature of these holidays.
Legal ConsiderationsWhile not mandated for private businesses, some regulations might apply to federal contractors or other sectors.Employers must reasonably accommodate religious practices, including observances, unless it creates undue hardship.Largely determined by company policy, but must be applied consistently to avoid discrimination.
Employee Morale & SatisfactionSeen as standard in many industries, can affect morale if not offered.Recognizing and accommodating boosts morale among diverse employee groups.Highly valued for their flexibility, allowing employees to observe personal or cultural events.

Federal Holidays vs. Religious Holidays

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Federal holidays like Independence Day often mean paid time off, while religious holidays may require accommodations or special pay arrangements. Understanding the distinctions helps employers navigate these situations effectively.

Floating Holidays: A Flexible Option

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Floating holidays are gaining traction for their adaptability. They let employees choose when to take their day off, catering to diverse cultural or personal preferences. Offering this option shows consideration for individual needs and promotes a more inclusive work environment.

Holiday Season and Pay Considerations

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Employers might offer additional incentives to keep their workforce engaged during busy holiday seasons, like the end of the year. Bonuses, extra pay, or even additional time off can be part of these seasonal considerations. It’s a way to say thanks for the extra effort during the holidays. Utilize work schedule apps or online calendars to schedule these extra breaks in a way that won’t harm your business.

Holiday Pay Policy and Calculations

When it comes to offering holiday pay, companies usually have a clear policy in place. This policy outlines who’s eligible for holiday pay, how much they’ll get, and when they’ll receive it. Companies consider factors like employment contracts, federal and state laws, and internal guidelines to create a solid holiday pay policy.

How to Calculate Holiday Pay

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Calculating holiday pay might seem tricky, but it follows a straightforward formula. Start by figuring out how much the employee normally earns. Next, work out the average daily earnings over a certain period. Finally, multiply that average by the number of days they’re taking off. This way, you make sure they’re fairly paid for their holiday time.

The Role of the Fair Labor Standards Act

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The FLSA plays a crucial role in holiday pay regulations. It sets the minimum wage, overtime rules, and standards for employee classifications. When it comes to holiday pay, the FLSA doesn’t mandate it, but it can affect how companies approach holiday compensation. Complying with FLSA guidelines ensures fair treatment and pay for employees during holidays.

FAQs: Holiday Pay

Are paid holidays the same as federally recognized holidays?

Paid holidays and federally recognized holidays aren’t always identical. While federally recognized holidays like New Year’s Day and Independence Day are commonly paid, companies may offer additional paid holidays like Thanksgiving or Christmas. Check your company’s policy to see which holidays they provide paid leave for.

How does working on religious holidays differ from a federal holiday?

Working on religious holidays versus federal holidays varies. Federal holidays are recognized nationwide, and most businesses close or provide extra pay. Religious holidays depend on an employee’s faith and company policies. Accommodations may include time off, flexible hours, or swapped workdays.

How should holiday pay be calculated for hourly employees?

Calculating holiday pay for hourly employees follows a simple formula. Start by determining their regular hourly rate. Then, calculate their average daily earnings over a specific period, often the past few weeks. Finally, multiply that average by the number of holiday hours worked.

What is the difference between holiday pay and paid holidays?

Holiday pay refers to the additional compensation employees receive when they work on holidays. It’s an extra payment beyond their regular wages. Paid holidays, on the other hand, are days when employees receive their regular pay even though they’re not working, typically on federally recognized holidays or as per company policy. Creating a standard policy that can easily be communicated can simplify hiring and keep current employees happy.

Image: Envato Elements

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Kevin Ocasio Kevin Ocasio is a staff writer for Small Business Trends and has been with the team for 2 years. He holds certifications in SEO, digital marketing, and content marketing. Kevin is also certified in Information Technology Technical Support Fundamentals.

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