Posted on March 2, 2018

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When a company decides to close on July 4th, Memorial Day, Thanksgiving Day, or for the entire week between Christmas and New Year's Day, is the employer required to compensate any of its employees? Well, that depends.

What You Need to Know about Holiday Pay Policies

Per the Department of Labor, the Fair Labor Standards Act does not require payment for vacation or holidays. Employers are responsible for establishing which days are recognized as holidays and communicating them to employees through a company handbook.

Non-Exempt Employees

For non-exempt (overtime-eligible employees), the company is generally not required to pay employees on days in which they do not perform work. As long as all non-exempt employees are notified of the closure prior to reporting to work on the holiday, no pay is required. If the non-exempt employee has accrued vacation or PTO time, the employee may request or the employer may require that the employee use accrued vacation or PTO to cover the days of the holiday closure.

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Exempt Employees

For exempt employees who are paid on a salaried or fee basis, federal law requires the company to pay the employee his or her regular salary without interruption for business closures that extend less than one full work week. Failure to provide this continued compensation is likely to jeopardize the employee's exempt status. A "work week" is the predefined seven-day period that the employer uses for payroll purposes. Unless the closure extends for a full work week, the exempt employee should experience no interruption in salary for the purpose of a holiday closure. The employer may require the exempt employee to use accrued vacation time or PTO time to cover the closure. However, if the exempt employee does not have sufficient accrued time to cover the holiday closure, the employer is required to ensure the exempt employee experiences no interruption in salary.

Added Benefit: Premium Pay for Holidays

As a benefit to workers, many companies opt to pay non-exempt employees a premium for working holidays. A 2017 SHRM Holiday Schedules survey found that 57% of organizations surveyed pay a premium to employees who work on a holiday when the business would normally be closed. And of these organizations, 40% pay double-time, 21% pay time-and-a-half and another 19% said they paid overtime.

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Holiday Work Schedules

Holiday schedules vary significantly by industry and even job type. No two organizations are the same, and some may choose to offer more paid holidays than others. Here's a look at the most common:

The same SHRM survey we detailed above found that over 90% of organizations close for New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. No matter which days your organization officially recognizes, it's critical that you set proper expectations with your workforce. Not only should your company handbook contain a clear and consistent policy and guidelines regarding holiday pay, but be sure to include which days you recognize as paid holidays.

It is also important to note that the law only requires employers to consider actual hours worked as opposed to hours paid when calculating overtime pay. If an employer provides paid holidays, it is not required to count the unworked paid holiday hours towards the overtime calculation for a non-exempt employee.

If you're looking for more information on creating holiday policies, Paycor's HR Support Center offers several resources to help you communicate properly with employees and prevent compliance mistakes. Click here to speak to a Paycor Solutions Consultant about the ways we can help you mitigate compliance risk.

This content is intended for educational purposes only and should not be considered legal advice. If you have specific questions regarding holiday closures at your organization, we recommend you consult with an attorney.


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