With the holiday season approaching, it is important for employers to understand the legal obligations they have related to holiday pay.
First, as a general matter, paid holidays are not required by federal or state law. Whether to provide paid time off for holidays is within the employer’s discretion. If an employer elects to provide paid holidays as a benefit, it can choose how many and which holidays to compensate. Indeed, public employers are not required to provide time off for federal or state holidays, although most public employers usually do. Likewise, because paid holidays are a benefit that employees expect and appreciate, to attract and retain employees, most private employers do offer at least some paid time off for holidays.
So, how does holiday pay affect overtime for non-exempt workers? Under the Fair Labor Standards Act (FLSA), holiday pay is not included in the regular rate of pay for the calculation of overtime when the employee does not perform work on the holiday. However, if an employee works on the holiday, there are some circumstances where holiday pay may have to be included.
Holiday pay does not have to be included in the regular rate of pay if the employee receives both full holiday pay and regular wages for working on the holiday. Only the regular wages need be included because the employee would have received the holiday pay whether or not they worked; therefore, it is not considered wages. Under these circumstances, holiday pay may not be credited toward any overtime owed because it is not wages.
If, on the other hand, the employee is paid a premium rate for working on a holiday equal to at least one and one-half times the regular rate and is required to forego the regular holiday pay, the FLSA provides that the premium counts as an overtime premium and can be excluded from the regular rate. In this situation, however, the employer may credit the premium pay toward any statutory overtime required.
State wage and hour laws may differ. For example, in Colorado, employers subject to COMPS Order #39 may exclude holiday pay for time not worked from the regular rate of pay. However, on September 9, 2024, the Colorado Supreme Court held that holiday incentive pay for non-exempt workers who perform work on a holiday must be included in the regular rate of pay for purposes of calculating overtime. If you are in another jurisdiction, check your local wage and hour rules, or if you are a Consulting or Enterprise member, contact an Employers Council attorney for guidance.
Generally, exempt employees must receive their full salary for any week in which they perform services, whether or not they work on a holiday. Employers have the discretion to provide extra holiday pay or to allow exempt employees who work on holidays to take time off on other days.
One additional issue employers need to be aware of is how floating holidays are treated under federal and state law. Typically, if an employer grants floating holidays that can be used for any purpose, they are treated as if they were PTO. Therefore, because PTO must be paid out upon separation in Colorado, so too must floating holidays. In some other states, whether floating holidays must be paid out depends on the employer’s policy regarding payout of PTO upon separation. Again, if you are a Consulting or Enterprise member and have employees in jurisdictions other than Colorado, contact an Employers Council attorney for guidance. All Employers Council members can access payroll information, laws, and forms for all 50 states by visiting the multi-state resources page on Member Central.
Barbara Bagdon is an attorney for Employers Council.