Holiday Pay: What It Means for Employers

What it means in practice

Holiday pay covers two things that policies often bundle together. Paid holidays are days, such as Thanksgiving, that an employer designates as days off with pay. Holiday premium pay is a higher rate, such as time and one-half or double time, for employees who work on a holiday. Private employers choose which days count and are not bound by the calendar described in our entry on federal holidays; a personal day the employee schedules is covered under floating holiday. Both usually sit inside a broader paid time off (PTO) program.

The federal baseline. The Department of Labor states that the Fair Labor Standards Act (FLSA) does not require payment for time not worked, such as vacations or holidays, and that these benefits are generally a matter of agreement between employer and employee or the employee's representative. Its FLSA questions and answers add that the FLSA does not require extra pay for weekend work and has no double time requirement, and the Wage and Hour Division says it does not require overtime for work on holidays unless overtime is worked on those days. Paid holidays are common anyway: the Bureau of Labor Statistics reports that in March 2026, 81 percent of private industry workers and 68 percent of state and local government workers had access to them.

Federal contracts are the main exception. The Department of Labor notes that holiday requirements on covered service contracts over $2,500 appear in the Service Contract Act wage determination, and that under the Davis-Bacon and Related Acts holiday pay is required only if the wage determination specifies it. Service contract rules differ from many private policies: unless the determination says otherwise, an employee who performs any work in the workweek of a named holiday is entitled to the benefit, even if the holiday falls on the employee's day off, and it cannot be denied because the employee was recently hired or did not work the day before or after the holiday. The entitlement vests by working in that workweek, so an employee terminated before receiving it must get a final cash payment (29 CFR 4.174).

What counts as a "holiday." The overtime regulations read "holiday" in its ordinary usage: days customarily observed in the community in celebration of some historical or religious occasion. A day off given because of lack of work is not a holiday, and neither is a regularly scheduled day off such as a Sunday when the business is closed (29 CFR 778.203(c) and 778.218(b)). The two regular rate rules below apply only to days that fit this meaning.

Paid holidays and the regular rate. Under 29 U.S.C. 207(e)(2) and 29 CFR 778.218, payments for occasional absences due to a holiday, vacation, illness or similar cause, approximately equal to normal earnings, are not compensation for hours of employment. They may be excluded from the regular rate, and no part of them may be credited toward overtime due (29 U.S.C. 207(h)(1)). The regular rate is total remuneration, less exclusions, divided by hours actually worked (29 CFR 778.109), and overtime is owed for hours worked over 40, so paid holiday hours not worked do not push a week into overtime. See overtime.

Holiday premium pay. Under 29 U.S.C. 207(e)(6) and 29 CFR 778.203, extra compensation from a premium rate of at least one and one-half times the rate established in good faith for like work on other days, paid for work on Saturdays, Sundays, holidays or regular days of rest, may be treated as an overtime premium: it is excluded from the regular rate and may be credited toward overtime due (29 U.S.C. 207(h)(2)). A premium below time and one-half must be included in the regular rate and cannot be credited. The premium must be paid because work is performed on the holiday; one paid for short notice to report, for example, does not qualify (778.203(d)). Other premiums are included in the regular rate (29 CFR 778.207).

Example: the regulation's holiday and Sunday premium. In the regulation's illustration (29 CFR 778.205), an employee with a bona fide $12 hourly rate earns $18 an hour for work on a holiday or Sunday. His workweek starts Sunday, he works 8 hours every day (56 hours), and Tuesday is a holiday, so he is paid $768. The extra $48 for Sunday and $48 for the holiday are excluded from the regular rate and credited against the $96 overtime premium owed for 16 hours over 40 at $6, so nothing more is due.

Example: idle holiday pay versus a working premium. Under a contract described in 29 CFR 778.219(b), an employee paid $12 an hour gets 8 hours' pay for named holidays not worked, but if required to work receives $18 (time and one-half) per holiday hour instead. He works 9 holiday hours and 50 hours in the week: the contract pays $162 for the holiday plus $492 for the other 41 hours, $654. The FLSA requires $660 for 50 hours at $12, and because the premium can be credited, the employer owes only $6 more. At double time, $24 an hour, the week would total $708, exceeding the FLSA amount, so nothing more is due.

Example: a premium below time and one-half. Our illustration, applying 29 CFR 778.203 and 778.109: a non-exempt employee paid $20 an hour works 48 hours in a holiday week, 8 of them on the holiday at a policy premium of $25 an hour (1.25 times). Because the premium is under time and one-half, the extra $40 stays in the regular rate. Straight-time pay is $960 (48 x $20) plus the $40 premium, $1,000, giving a regular rate of $20.83 ($1,000 / 48). The overtime premium is half of that rate for each of the 8 hours over 40, $83.33, for a total of $1,083.33. Had the policy paid $30 an hour (time and one-half) for the holiday hours, the $80 premium could be credited toward the $80 overtime premium owed for 8 hours at $10, and the week would total $1,040.

Holiday pay that does not depend on working. Some policies pay for every recognized holiday whether or not the employee works it. The regulations' example is an employer on rotating 24-hour shifts that pays holiday pay approximately equal to normal earnings regardless of duty, plus the regular salary when the employee works the holiday; the holiday pay may be excluded from the regular rate (29 CFR 778.219(a)(4)). Pay for a forgone holiday may be excluded whether paid that period or later as a lump sum, but it may not be credited toward overtime.

Exempt employees. The salary basis rule says an exempt employee must receive the full salary for any week in which the employee performs any work, and deductions may not be made for absences occasioned by the employer or the operating requirements of the business (29 CFR 541.602(a)). As our illustration: an exempt employee paid $1,250 for a five-day week who works Monday through Thursday must still receive $1,250 when the employer closes Friday for a holiday. The regulation addresses salary deductions, not leave balances. Extra pay is allowed: an exempt employee whose pay arrangement includes the required weekly salary may also receive pay for work beyond the normal workweek on any basis, including time and one-half or paid time off (29 CFR 541.604(a)), although the regulation does not name holidays. See exempt vs. non-exempt employees.

Holidays during FMLA leave. A holiday in a full week of FMLA leave has no effect; the week counts as FMLA leave. If leave is taken in increments of less than a week, the holiday does not count against the entitlement unless the employee was otherwise scheduled and expected to work that day. Days when the business has temporarily ceased operations for one or more weeks, such as a two-week holiday closing, do not count (29 CFR 825.200(h)).

Where states differ: Rhode Island. States can require what the FLSA does not; these three are examples, not a complete list. Rhode Island General Laws 25-3-3 says work on Sundays and holidays must be paid at least one and one-half times the normal rate and that refusing such work is not grounds for discharge or other penalty, subject to exceptions such as certain continuously operating manufacturers. The listed holidays include Victory Day and Columbus Day, and employees in fields such as health care, restaurants, hotels and agriculture are excluded (25-3-1). Licensed retail establishments must pay time and a half, provide at least four hours' work and keep the work strictly voluntary (5-23-2). The Department of Labor and Training guidebook (December 2024) gives an example of 60 hours with 8 on a holiday: outside retail, 20 overtime hours and the 8 holiday hours are paid at time and one-half and 32 hours at straight time; in retail, the 8 holiday hours come out first, then 12 of the remaining 52 are overtime and 40 are straight time.

Where states differ: Massachusetts. Acts of 2018, chapter 121, stepped down the retail Sunday premium under M.G.L. c. 136, sec. 6, from one and one-half times to one and four-tenths in 2019 and to one and one-tenth by 2022, then struck it effective January 1, 2023, along with the premium stores with more than 7 persons owed for Memorial Day, July Fourth and Labor Day (sec. 16). The current section 16, checked November 2026, says such stores may not require holiday work and refusing cannot bring discrimination, discharge, reduced hours or other penalty; section 13 protects retail employees the same way on January 1, the second Monday in October and November 11.

Where states differ: California. The California Labor Commissioner's holiday FAQ says state law requires no paid holidays and no holiday premium beyond overtime for hours over eight in a workday or 40 in a workweek. In its example, a business closes on Memorial Day, the employee works 8 hours a day Tuesday through Saturday, and 48 hours paid at straight time is correct, because overtime depends on hours worked, not hours paid. See California labor laws, and vacation pay for state rules on earned leave at separation.

Contrast: federal employees. OPM says most federal employees required to work on a holiday receive their basic rate plus holiday premium pay equal to it, 200 percent in total, with a 2-hour minimum (5 U.S.C. 5546; 5 CFR 550.131). This does not apply to private employers.

Recordkeeping. FLSA records must show the amount and nature of each payment excluded from the regular rate, including excluded holiday pay (29 CFR 516.2(a)(6)). Payroll records, and written plans and contracts under section 7(e), are kept at least 3 years; time cards and wage rate tables at least 2 years (29 CFR 516.5 and 516.6).

Questions employers ask. Must we pay for holidays off? Not under federal law, unless a federal contract wage determination requires it (DOL). Must we pay extra for holiday work? Not under the FLSA, though Rhode Island requires time and one-half for covered work. Does holiday pay count toward 40 hours? Not for federal overtime (29 CFR 778.218 and 778.109). Can a holiday premium cover overtime? Yes, if it is at least time and one-half (29 CFR 778.203). Can an exempt salary be cut for a company holiday? Not in a week the employee works (29 CFR 541.602).

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