Holiday pay is the pay an employee gets for a given holiday, whether they take the day off or work it. It usually takes one of two forms: paid time off at the regular rate when the business closes, or premium pay (often time-and-a-half or double time) for employees who work on the holiday. For most private employers in the U.S., holiday pay is an optional benefit set by company policy, not a legal rule.
That last point surprises a lot of founders. No federal law forces a private company to pay extra for holidays. But how you calculate holiday pay still matters. So do who qualifies and what rate you offer. Get it right and your payroll stays accurate, fair, and competitive. This guide walks through the math, the legal rules, the state exceptions, and a ready-to-use policy template you can adapt today.
What is holiday pay?
Holiday pay covers two related but different cases. Mixing them up is the most common mistake small employers make.
The first is paid holidays — the business closes on, say, Thanksgiving. Salaried and eligible hourly staff still get paid as if it were a normal workday. This is pay for a day not worked.
The second is premium pay for hours worked on a holiday. An employee comes in on the Fourth of July and earns a higher rate as a reward. That rate is often 1.5x or 2x their normal wage. This is pay for a day that is worked, at a boosted rate.
A single policy can include both. A shop might close on Christmas as a paid day off. It might then stay open on New Year's Day with time-and-a-half for anyone scheduled. Which holidays go in which bucket is a big part of writing your policy.
Holiday pay vs. paid holidays: If you are still deciding which days to close for and how many to offer, that is a paid-holidays question. This article is about how the pay is calculated and governed once you have picked your holidays.
Is holiday pay required by law?
For private employers, the short answer is almost always no. Here is what the rules say.
Federal law (the FLSA)
The Fair Labor Standards Act (FLSA) is the federal law that governs minimum wage and overtime. It does not require pay for time not worked, including holidays. As the U.S. Department of Labor explains, holidays off with pay — and premium pay for working a holiday — are "generally a matter of agreement between the employer and the employee."
In plain terms: federal law will not make you pay a holiday premium. That changes only if you have a contract, union agreement, or written policy promising it. If an employee works on Christmas, you owe their regular rate for those hours. Nothing extra is required by federal law.
There is one important overtime wrinkle, covered below. Hours you pay someone not to work — a paid holiday off — do not count as "hours worked" toward the 40-hour FLSA overtime threshold.
Federal holidays are for federal workers
The 11 federal holidays set by OPM apply to federal government employees. The list runs from New Year's Day and Juneteenth to Thanksgiving and Christmas. Private companies are free to observe all, some, or none of them. Most small businesses land on six to eight.
Where a legal obligation can arise
You can create a binding obligation for yourself. Holiday pay becomes legally enforceable when it is promised in:
- A written employment contract or offer letter
- An employee handbook that reads as a promise (be careful with your wording)
- A collective bargaining agreement
- A state or local law (see the next section)
Once promised, you have to honor it the same way each time. That is exactly why a clear, written policy protects you.
How to calculate holiday pay
The math is simple once you know which case applies. Payroll guides like Homebase's holiday pay breakdown use the same formulas. Here are the four cases you will actually run into, with worked examples.
1. Paid holiday, day off (hourly employee). Pay the employee's average scheduled hours at their normal rate.
8 scheduled hours × $18/hour = $144 for the day off.
2. Working the holiday at the regular rate. If your policy offers no premium, you simply pay for hours worked as usual.
6 hours worked × $18/hour = $108.
3. Working the holiday at time-and-a-half (1.5x). This is the most common premium.
6 hours × $18/hour × 1.5 = $162.
4. Working the holiday at double time (2x). Some employers offer double time for major holidays to fill shifts.
6 hours × $18/hour × 2 = $216.
The general formula for premium holiday pay is simple:
Holiday pay = Hours worked × Hourly rate × Premium multiplier
Where the multiplier is 1.5 for time-and-a-half, 2 for double time, or 1 if you pay only the regular rate. If you want to run these numbers across a whole team quickly, an overtime calculator handles the 1.5x math, and a paycheck calculator can estimate the take-home effect for an individual.
A combined example
Say a store closes on Thanksgiving but opens for a half-day on the Friday after. Maria earns $20/hour, is scheduled 8 hours a day, and your policy pays a Thanksgiving holiday-off benefit plus double time for anyone working the day after.
- Thanksgiving (paid, off): 8 × $20 = $160
- Day after (worked, 2x): 5 × $20 × 2 = $200
- Total holiday-related pay: $360
Keeping the "off" portion and the "worked" portion as separate line items makes payroll and overtime tracking far cleaner.
Holiday pay for hourly vs. salaried employees
The two groups are treated very differently. It usually comes down to FLSA exemption status.
For exempt salaried employees, holidays rarely change the paycheck. The FLSA salary-basis rule says an exempt employee who does any work in a week must get their full salary for that week. That holds whether or not the week includes a holiday. So you usually cannot dock an exempt worker's pay for a holiday closure. Premium pay for an exempt employee who works a holiday is optional and, in practice, uncommon.
For hourly (non-exempt) employees, policy really matters. They are paid for hours worked, so a closed business means no pay for that day. The exception is when you offer a paid-holiday benefit. And any premium — time-and-a-half or double time — is entirely up to your policy. This is why clear rules on who qualifies are key. Spell out who qualifies, whether part-timers are included, and whether the employee must work the shifts before and after the holiday to earn the benefit.
Here is a quick comparison:
| Factor | Exempt (salaried) | Non-exempt (hourly) |
|---|---|---|
| Pay for a closed holiday | Full salary continues | Only if you offer paid holidays |
| Premium for working a holiday | Rare; not required | Set by your policy (1x, 1.5x, or 2x) |
| Counts toward overtime | N/A (salary basis) | Only hours actually worked count |
| Docking pay for the holiday | Generally not allowed | Allowed if unpaid and not worked |
If you are formalizing which staff are hourly versus salaried in the first place, our guide to the personnel file covers what documentation to keep on record.
Holiday pay laws by state
A handful of states have historically layered extra requirements on top of the FLSA. The list is short, and it keeps shrinking.
- Rhode Island is the notable outlier. Its rules require many retail and non-manufacturing employers to pay time-and-a-half for work on Sundays and certain legal holidays. If you run a store in Rhode Island, check the current rules with the state Department of Labor and Training first.
- Massachusetts used to require retail premium pay under its "Blue Laws." That requirement was fully phased out as of January 1, 2023. Retail employers there no longer owe a holiday or Sunday premium, though voluntary programs remain common.
- Most other states follow the federal baseline. There is no mandated holiday premium for private employers.
Two practical takeaways. First, "holiday pay california" is one of the most-searched holiday pay questions. The answer is that California has no state law requiring holiday premium pay. California's daily-overtime rules can still apply if a holiday shift pushes someone past 8 hours in a day. But that is overtime, not a holiday premium. Second, state law changes, so confirm your state's current stance each year. Do not rely on a policy you wrote long ago. When in doubt, SHRM and your state labor department are the authoritative sources.
Which holidays should you offer?
While how much to pay is this article's focus, the which days question shapes your policy scope. Most U.S. small businesses build around six core paid holidays:
- New Year's Day
- Memorial Day
- Independence Day (July 4)
- Labor Day
- Thanksgiving Day
- Christmas Day
From there, common add-ons include MLK Day, Presidents' Day, Juneteenth, Veterans Day, the day after Thanksgiving, and Christmas Eve. Many modern policies also grant one or two floating holidays so employees can observe days that matter to them — a Diwali, Yom Kippur, or Lunar New Year — without you having to name every holiday explicitly.
For the full breakdown of how many days to offer and how to structure the list, see our guide to building a broader PTO policy template, or read up on how to track time-off requests once your calendar is set. Deciding the calendar is a separate exercise from deciding the pay rate — do the calendar first, then apply the rate rules from this guide.
Holiday pay policy template
Below is a plain-language template you can copy, fill in the brackets, and drop into your handbook. It covers eligibility, the holiday list, and both pay scenarios.
[Company Name] Holiday Pay Policy
1. Purpose. This policy explains which holidays [Company Name] observes and how employees are paid for them.
2. Observed paid holidays. [Company Name] observes the following paid holidays each year:
- New Year's Day
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving Day
- Christmas Day
- [Add or remove holidays as needed]
Each full-time employee also receives [1 / 2] floating holiday(s) per year to use for a holiday of personal or religious significance, subject to manager approval.
3. Eligibility.
- Full-time employees are eligible for holiday pay on their first day of employment.
- Part-time employees [are / are not] eligible; if eligible, holiday pay is prorated based on average scheduled hours.
- To receive paid-holiday pay, an employee must work (or be on approved paid leave for) their last scheduled shift before the holiday and their first scheduled shift after it, unless otherwise approved.
4. Pay for a holiday not worked (business closed). Eligible employees receive their regular rate for the number of hours they would normally have worked that day. Exempt salaried employees receive their full salary with no deduction.
5. Pay for hours worked on a holiday. Non-exempt employees who work on an observed holiday receive [1.5x / 2x] their regular hourly rate for hours worked on that day, in addition to any paid-holiday benefit above, as scheduled and approved by their manager.
6. Holidays and overtime. Paid holiday hours that are not actually worked do not count toward the 40-hour weekly overtime threshold. Only hours actually worked count toward overtime.
7. Holiday falling on a weekend. When an observed holiday falls on a Saturday, it is observed on [the preceding Friday]. When it falls on a Sunday, it is observed on [the following Monday].
8. Questions. Direct any questions about this policy to [HR contact / manager].
Effective date: [date]. This policy may be updated at the company's discretion.
Store the finished policy where your team can actually find it. A shared employee handbook is the natural home. Keeping time-off rules and the holiday calendar in one system saves you the annual scramble. Tiny Team's Team Calendar lets you set custom holidays once and apply them across the whole team's calendar. Everyone then sees the same closures and time-off balances.
Holiday pay vs. overtime pay
These two get conflated constantly, so it is worth being precise. They are not the same thing, and they can interact in ways that surprise employers.
Overtime pay is federally mandated. Under the FLSA, non-exempt employees must get at least 1.5x their regular rate for hours worked beyond 40 in a week. This is the law.
Holiday pay is not federally mandated; it exists only because your policy says so.
The key interaction is the overtime threshold. Paid holiday hours that are not worked do not count toward the 40 hours that trigger overtime. Consider an employee who works 36 hours Monday through Thursday. They then have a paid holiday off on Friday worth 8 hours. Their paycheck reflects 44 paid hours. But only 36 were actually worked, so none of it is overtime. Now say they had worked 8 hours on that holiday instead. They would hit 44 worked hours and owe 4 hours of overtime, unless a state daily-overtime rule kicked in sooner.
| Holiday pay | Overtime pay | |
|---|---|---|
| Required by federal law? | No | Yes (FLSA) |
| Typical rate | Regular, 1.5x, or 2x | 1.5x |
| Trigger | Company-observed holiday | Over 40 hours worked/week |
| Counts unworked hours? | Yes (as a benefit) | No |
The takeaway: never assume a holiday premium satisfies your overtime obligation, and never let a paid day off inflate your overtime count. Track worked hours and paid-but-not-worked hours separately.
Holiday pay best practices for small teams
A few habits keep holiday pay simple, fair, and audit-proof as you grow.
Put it in writing before you need it. The single biggest source of holiday-pay disputes is an unwritten "we usually do time-and-a-half" expectation. Use the template above and publish it.
Be explicit about part-timers and eligibility. Decide up front whether part-time and probationary employees get holiday pay, and how it prorates. Ambiguity here creates friction every December.
Separate "worked" from "not worked" hours in payroll. This keeps overtime accurate and makes your records defensible if a question ever comes up.
Apply the policy consistently. Once you promise a premium, honor it the same way for everyone eligible. Inconsistency is where fairness complaints — and legal exposure — start.
Keep the holiday calendar in one place. One source of truth beats a spreadsheet that only one person understands. For teams that would rather not maintain formulas, a flat-rate HR tool like Tiny Team — free for teams up to 10, or $79/month flat for up to 50 — lets you define custom holidays and time-off policies once and track balances automatically. If your time-off setup has grown complex, our roundup of the best leave management software compares the options.
Revisit it yearly. State laws change and so do team expectations. A five-minute annual review beats discovering a stale policy mid-payroll-run.
Frequently Asked Questions
Is holiday pay required by law in the U.S.?
For most private employers, no. The FLSA does not require pay for holidays not worked. It also does not require premium pay for working a holiday. It becomes required only when promised in a contract, handbook, union agreement, or a specific state law. Rhode Island is the main example of a state with a holiday premium requirement.
How do you calculate holiday pay at time-and-a-half?
Multiply the hours worked on the holiday by the employee's regular hourly rate, then by 1.5. For example, 6 hours worked at $18/hour is 6 × $18 × 1.5 = $162. Double time uses a multiplier of 2 instead of 1.5.
Does holiday pay count toward overtime?
Only hours actually worked count toward the 40-hour FLSA overtime threshold. Paid holiday hours where the employee did not work (a paid day off) do not count. If an employee actually works on the holiday, those worked hours do count toward overtime.
Do salaried employees get holiday pay?
Exempt salaried employees keep their full salary during a week that includes a company holiday. Their pay does not change when the business closes. Premium pay for a salaried employee who works a holiday is optional and uncommon. They are paid on a salary basis, not by the hour.
Is holiday pay required in California?
No. California has no state law requiring holiday premium pay for private employers. California's daily overtime rules still apply, though. If a holiday shift pushes a non-exempt employee past 8 hours in a day, overtime is owed. But that is an overtime obligation, not a holiday premium.
How many paid holidays should a small business offer?
Most U.S. small businesses offer six to eight paid holidays, typically anchored by New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. Adding one or two floating holidays is an increasingly common way to accommodate employees who observe different holidays.
