In the United States, federal law does not mandate that private-sector employers provide paid time off for holidays. Paid holidays are typically an employee benefit offered at the employer’s discretion, not a legal requirement. Understanding the distinction between federal requirements, state laws, and individual company policies is important for navigating compensation rules.
The Legal Status of Paid Holidays
Federal Law (FLSA)
The Fair Labor Standards Act (FLSA), which governs minimum wage, overtime, and recordkeeping, does not require private employers to offer paid holidays. Under the FLSA, an employer is legally obligated to pay an employee only for the hours actually worked; time taken off for a holiday does not count. Consequently, private sector employees can be required to take an unpaid day off if the business closes, or they can be required to work the holiday for their standard rate of pay. While the federal government recognizes 11 holidays, this list applies only to federal employees and does not mandate observance by private businesses.
State Law Exceptions
Few state laws address holiday pay, and required paid holidays for the private sector remain extremely rare. Most states follow the FLSA, treating holidays like any other workday for pay purposes. The most notable exceptions involve premium pay requirements for working on a holiday, rather than pay for time not worked. For example, Rhode Island requires certain businesses to pay a premium rate, often time-and-a-half, to non-exempt employees who work on Sundays and specific holidays. These state-level mandates are highly specific to the day, business type, and employee classification.
How Company Policy Determines Holiday Compensation
Since laws do not require paid holidays, the decision to offer this benefit is codified entirely within a company’s policy or employment contract. The employee handbook defines which holidays are observed, employee eligibility, and how pay is calculated. Companies offer paid holidays as a voluntary benefit to attract and retain talent, often attaching specific conditions to the compensation.
Eligibility for holiday pay is frequently subject to tenure requirements, such as a 90-day waiting period before an employee qualifies. A common policy is the “day before and day after” rule, which stipulates that an employee must work their last scheduled shift before the holiday and their first scheduled shift after to receive pay. This rule prevents employees from extending time off and ensures consistent staffing. If an employee fails to meet these policy conditions, they may forfeit the paid time off even if the company is closed.
Premium Pay for Working on a Holiday
Premium pay is a higher wage rate, such as time-and-a-half or double time, offered specifically for hours worked on a holiday. The FLSA does not require private employers to pay this premium rate simply because the work occurs on a holiday. The only federal requirement for increased pay is standard overtime, which applies when a non-exempt employee works more than 40 hours in a single workweek.
For example, if an employee works eight hours on a holiday and 32 hours on other days, totaling 40 hours, the employer only needs to pay the standard hourly rate. Premium pay for holiday hours is a voluntary incentive written into company policy to encourage employees to work. If the employee works over 40 hours in the week, the standard overtime rate (at least 1.5 times the regular rate) applies to the hours worked beyond 40, irrespective of the holiday.
Holiday Pay for Exempt vs. Non-Exempt Employees
Holiday pay rules differ significantly based on an employee’s FLSA classification as either non-exempt (hourly) or exempt (salaried). Non-exempt employees are subject to the employer’s policy and only receive the benefit if the company offers it. If a non-exempt employee is not scheduled to work and the policy does not grant paid time off, the day is unpaid.
The situation differs for exempt, salaried employees due to the FLSA’s salary basis test. If an exempt employee performs any work during a workweek, they must be paid their full predetermined salary for that week. Therefore, if a company closes for a holiday, the exempt employee must receive their full weekly salary without reduction. If the business remains open and an exempt employee voluntarily takes the day off, the employer may require them to use accrued paid time off to cover the absence.
Strategic Benefits of Offering Paid Holidays
Companies often offer paid holidays voluntarily because it serves as a valuable component of their total compensation package. Providing paid time off is a powerful tool for attracting new talent in competitive labor markets. A generous holiday schedule makes an organization more appealing, as job candidates frequently compare benefits.
Offering paid holidays also helps maintain a satisfied and productive workforce. This benefit increases employee morale and loyalty, contributing to higher retention rates. By demonstrating a commitment to work-life balance, employers foster a positive work environment and reduce costs associated with turnover.