What Employers Need to Know About Holiday Pay

Quick look: Holidays are meant to be a time of joy, relaxation, and celebration—but unclear holiday pay policies can be a source of stress for employers and their staff. Keep reading to dive into the details and laws surrounding holiday pay, what other businesses typically offer, best practices on developing your policy, and how a PEO can help business leaders enjoy their days off instead of worrying about payroll and compliance.

Holiday pay is an essential part of employee compensation, and many employers offer it as a benefit to attract and retain top talent. However, navigating the legal and practical aspects can be challenging for business leaders, from deciding which holidays to include to figuring out when premium wages are required.

Below, explore everything you need to know about holiday pay, including applicable laws, common employer policies, best practices for structuring it in your workplace, and how a professional employer organization (PEO) can simplify it all.

What is holiday pay?

Holiday pay is the compensation that an employee receives for a federal, state, or company-recognized holiday.

Depending on the employer’s policy, labor agreements, or state laws, holiday pay can take different forms, including:

• Paid time off (PTO): Staff receive regular pay but do not work on a holiday.
• Premium pay: Those who work on a holiday receive a higher pay rate.
• Floating holidays: A flexible paid day off that some employers offer to be used for a holiday of an employee’s choice.

How much is holiday pay?

The amount of holiday pay depends on several factors, including employer policies, labor agreements, and state laws.

Exempt, salaried employees typically receive their regular pay on holidays when they are not required to work. On the other hand, non-exempt, hourly staff may receive extra compensation, depending on company policy or state or federal law.

Is holiday pay mandatory?

To ensure compliance, business leaders must remain aware of several federal and state-specific holiday pay requirements:

Federal holiday pay laws

The U.S. Fair Labor Standards Act (FLSA) does not require private employers to provide holiday pay, including extra pay for working on federal holidays. Holiday pay policies are determined by the individual company or through union contracts.

However, employers should note that per the FLSA, if working on a holiday causes a non-exempt employee to exceed 40 hours in a workweek, they must be paid overtime at a rate of at least 1.5 times their regular pay. This overtime is based on the hours worked in a week, not the holiday itself.

State requirements

At the time this blog was published in February 2025, Massachusetts and Rhode Island were the only states with employment laws requiring holiday pay:

• Massachusetts: Under the state’s “Blue Laws,” some businesses must obtain permits to operate on specific legal holidays and Sundays. Previously, certain retailer employers were required to pay some hourly employees a higher rate on those days, but the premium pay requirements were eliminated effective January 1, 2023. However, FLSA overtime pay rules still apply.
• Rhode Island: State law mandates that certain businesses pay time and a half to employees who work on Sundays and specific holidays. Some industry-specific exclusions apply.

Disclaimer: This is not an exhaustive list of employment laws. Please refer to your regional and industry-specific legal guidelines or consult your legal counsel for detailed and specific information.

What holidays do most employers offer?

Paid holidays are a standard part of employer-provided compensation packages. Many of these days align with federally observed holidays, which include:

• New Year’s Day, January 1
• Martin Luther King, Jr.’s birthday, the third Monday in January
• Inauguration Day, January 20 every fourth year
• George Washington’s Birthday (aka Presidents Day), the third Monday in February
• Memorial Day, the last Monday in May
• Juneteenth National Independence Day, June 19
• Independence Day, July 4
• Labor Day, the first Monday in September
• Columbus Day, the second Monday in October
• Veterans Day, November 11
• Thanksgiving Day, the fourth Thursday in November
• Christmas Day, December 25

According to WorldatWork, the most commonly paid holidays provided include:

• New Year’s Day (96% of employers)
• Christmas, Thanksgiving, and Labor Day (95%)
• Independence Day (94%)
• Memorial Day (93%)

If a holiday falls on a weekday, some employers also grant an early departure the day prior. Similarly, if the holiday falls on a weekend, organizations may provide a day off at the end of the week before or the beginning of the week after.

5 holiday pay policy best practices

Developing a thorough and easy-to-understand holiday pay policy reinforces your business’s employee value proposition and helps prevent confusion or potential legal issues. Keep these tips in mind to craft a comprehensive, equitable holiday policy:

1. Be specific

In your employee handbook, it’s critical to spell out the conditions under which employees are eligible or ineligible for paid holidays. For instance, some employers may specify that employees must work at least 20 hours per week or be in good standing with the company to be eligible for holiday pay.

2. Include protocols for both exempt and non-exempt employees

Business leaders should thoroughly explain how pay for holiday work is calculated for exempt and non-exempt employees:

• Exempt: Salaried employees who are exempt from the FLSA’s overtime stipulations must receive their full salary for any workweek in which they do any work, even if a holiday falls during that timeframe.
• Non-exempt: Any hours worked on holidays must be paid at no less than the employee’s regular pay rate, which cannot be lower than the required federal or state minimum wage. As mentioned above, the FLSA does not require premium holiday pay, but many employers opt to provide it to show recognition and boost morale. However, staff must receive overtime pay of at least 1.5 times their regular pay if they work more than 40 hours in a workweek. (The FLSA does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, unless overtime is worked on those days.)

3. Encourage inclusion

Today’s workforce is more diverse than ever, and it’s important your holiday pay policies reflect that. One way to do this is by incorporating floating holidays into your PTO allowances. These days can be used for any reason, including an employee’s birthday or a religious observance, allowing flexibility and promoting inclusion.

Providing this option can also aid employers in complying with Title VII of the Civil Rights Act of 1964, which mandates that employers with 15 or more employees accommodate employees’ “sincerely held religious beliefs or practices” unless doing so would cause undue hardship.

4. Plan your paydays

No one likes to be unsure of when they’ll receive their paycheck. Your holiday pay policy should state when employees will receive their wages in case your regularly scheduled payday falls on a holiday. In this instance, the best practice is to pay your staff on the preceding business day, so they receive their funds in advance to cover expenses.

5. Be thoughtful about termination

Your holiday pay policy may also describe if employees who leave the business are eligible for holiday pay within their final pay period. For example, some companies require staff to be employed on the actual day of the holiday to receive the wages.

PEOs: Here to help you properly pay your workforce

Holidays are meant for relaxing, but sometimes navigating their pay policies is anything but. That’s where a professional employer organization (PEO) steps in to simplify the process.

PEOs are a type of human resource (HR) outsourcing provider that specializes in supporting small businesses with HR management, employee benefits, payroll, compliance, and more.

These organizations help employers optimize their holiday pay strategies in multiple ways. For example, ExtensisHR provides the following solutions:

• Compliance expertise, giving you the peace of mind that you’re adhering to all applicable employment laws.
• Payroll administration, including timely and accurate payroll processing, tax filing and credit support, and more.
• Time and labor management, enabling your company to easily control schedules, attendance, overtime, and timecards.
• HR guidance, including assisting with holiday pay policy creation and updates, and maintaining employee handbooks accordingly.

Additionally, ExtensisHR connects small- and medium-sized businesses with Fortune 500-level employee benefits plans, offers them complimentary recruiting services, and a range of additional HR services.

Looking to take the stress out of maintaining your holiday pay policies? Explore ExtensisHR’s PEO solution or contact us today to learn more.