Holiday Pay 101: What Employers Need to Know
Quick look: While holidays are designed to give everyone a chance to recharge, holiday pay policies can be a common pain point for employers. Many businesses offer holiday pay to attract and retain talent, but the rules and expectations surrounding it aren’t always straightforward. Here, we outline the laws that apply to holiday pay, typical employer offerings, policy best practices, and how a professional employer organization (PEO) can streamline compliance and administration.
Holiday pay can be a meaningful benefit that supports employee satisfaction and retention. Still, questions often arise about which holidays to offer, how to handle pay, and what’s legally required.
In this guide, we cover the essentials of holiday pay, from applicable regulations to policy creation tips, and explain how partnering with a professional employer organization (PEO) can make it (and many other aspects of human resources) easier to manage.
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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? Holiday pay laws at a glance
To ensure compliance, business leaders must remain aware of these 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. Instead, holiday pay policies are determined by the individual company or through union contracts.
Holiday pay and overtime
Employers should note that, per the FLSA, if a non-exempt employee works on a holiday and exceeds 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 2026, Rhode Island was the only state with employment laws requiring holiday pay.
According to Rhode Island General Laws § 25-3-3, employers must generally pay employees at least 1.5 times their regular pay (time and a half) for work performed on Sundays and on certain designated holidays, including:
- New Year’s Day
- Memorial Day
- Juneteenth National IndependenceDay
- July 4th
- Victory Day
- Labor Day
- Columbus Day
- Veterans’ Day
- Thanksgiving
- Christmas
Additionally, employees cannot be penalized or fired for refusing to work on these days, and 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.
The most commonly offered paid holidays
Paid holidays are a standard part of many employer-provided compensation packages, often aligning with federally observed holidays:
- 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 offered paid holidays 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 may offer an early dismissal the day before. Likewise, when a holiday occurs on a weekend, organizations may provide a day off either at the end of the week before or at the beginning of the following week.
5 holiday pay policy best practices
Developing a thorough and easy-to-understand holiday pay policy reinforces your 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 important 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 provisions 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
As the workforce becomes more diverse, holiday pay policies should evolve too, so everyone feels recognized and supported. 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 help businesses comply 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
Specify how paychecks will be handled if a payday falls on a holiday. Paying employees the preceding business day is best practice to avoid financial disruption.
5. Be thoughtful about employee departures
Your holiday pay policy may also outline whether employees who leave the business are eligible to receive holiday pay in their final paycheck. For example, some companies require staff to be actively employed on the actual holiday to qualify for the wages.
How PEOs simplify holiday pay
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 streamline the process.
PEOs, like ExtensisHR, are a type of human resource (HR) outsourcing provider that specializes in supporting small and medium-sized businesses (SMBs) with HR management, employee benefits, payroll, compliance, and more.
These partners help employers optimize holiday pay strategies by providing:
- Compliance expertise, so you have the peace of mind that you’re adhering to all applicable employment laws.
- Payroll administration, including timely and accurate payroll processing, tax filing, and more.
- Time and labor management, enabling your company to control schedules, attendance, overtime, and timecards easily.
- HR guidance, including assisting with holiday pay policy creation and updates, and maintaining employee handbooks accordingly.
Additionally, ExtensisHR equips SMBs with Fortune 500-level employee benefits plans, offers them complimentary recruiting services, and provides a range of additional HR services designed to reduce administrative burden and support long-term growth and scalability.
Looking to make your holiday pay policies clearer and easier to manage? Take our quiz to see if PEO is right for you, or contact the ExtensisHR team today to learn more.
