United States: A Holiday Pay Q&A To Keep Employers Off The Naughty List

December is a month of heavy spending. Not only are wallets taxed for holiday gifts, but December is also a heavy month for charitable giving. With money on everyone's brains a little more this month, the All Things HR Blog thought it might be a good time to go do a Q&A of commonly asked holiday pay-related questions.

Does a private employer have to pay a non-exempt employee holiday pay?

For whatever reason, many employees believe they are entitled to pay on holidays when they do not work or that they are to be paid a special holiday premium if they do work. This notion typically comes from the private-employer employee knowing someone in public employment or subject to a collective bargaining agreement (CBA) because those employees typically get paid for holidays not worked or paid a special holiday premium by virtue of a public-employer statute or CBA. In the private-employer context, however, neither the Fair Labor Standards Act (FLSA) nor most state laws require private employers pay hourly employees for holidays not worked or a premium rate for working on a holiday.

There are some states, such as California and Massachusetts, which have different laws regarding holiday pay so employers should review applicable pay laws in all states where they employees just to ensure they do not end up on the naughty list. In most states though, including Michigan, Nevada, Florida, Ohio, and Tennessee, holiday pay is considered a fringe benefit and a matter of employer policy leaving employers with discretion over the issue.

Does a private employer have to pay an exempt employee holiday pay?

Holiday pay for exempt employees is a different issue because exempt employees are to be paid the same amount every week regardless of how many hours they work. This means that, outside docking allowances (discussed below), exempt employees must be paid for holidays because the law prohibits employers from making wage deductions if the company is closed on a holiday. If an employer makes such a deduction for exempt employees, the employer will jeopardize the exempt status of those employees.

When can a private employer dock an exempt employee for a holiday?

Under the FLSA, there are only a number of instances when a private employer can dock an exempt employees pay, and depending on the circumstances, some may allow a holiday deduction:

  1. During a workweek when the employee performs no work, but it must be because the employee did not perform any work in the workweek; partial weeks do not count and the employee must be paid.
  2. For days when the employee misses work for personal reasons other than sickness or for an accident.
  3. For days when the employee misses work for sickness or disability if the employer has a plan that provides compensation for loss of salary caused by sickness or disability and the employee has exhausted the employee's leave allowance under that policy.
  4. As a penalty for violating safety rules of major significance.
  5. As a disciplinary suspension for breaking workplace conduct rules.
  6. If it is the employee's first or last week of work then the employer is only required to pay the employee for time actually worked.
  7. For full weeks when the employee is on leave under the Family Medical Leave Act (FMLA). Employers can convert an exempt employee to an hourly rate during the time the employee is on intermittent or reduced leave without affecting the employee's exempt status.

To see the governing regulation, see 29 CFR 541.602.

Can employers put conditions on the award of holiday pay?

As set forth above, in most states holiday pay is a matter of employer policy, it is considered a fringe benefit, and employers can set whatever conditions they want on holiday pay (so long as they apply those conditions in a non-discriminatory and non-retaliatory manner). As for what conditions employers may set, employers can require employees work a certain amount of hours or for a specific period of time before becoming eligible for holiday pay. Employers can also require that an employee work the day before the holiday to receive holiday pay.

If an employer pays an employee holiday pay, does it have to be at a special rate?

As set forth above, in most states holiday pay is a matter of employer policy. While an employer can agree to pay the employee more than the employee's hourly rate by virtue of a holiday pay policy, the employer is certainly not required to do so.

If the employer pays an employee holiday pay, how does that affect overtime?

Under federal and state law, overtime is only required to be paid when an employee works more than 40 hours in a workweek (except California where overtime is required for more than 8 hours in a workday). If an employee does not work the day of the holiday, the holiday pay is just pay and the hours the employee is paid for are not counted as actually-worked hours for purposes of determining overtime pay. The employer can change this by policy and chose to count holiday hours for purposes of overtime, but employer is certainly not required to do so.

This is what this looks like in application. Assume an employer does not have a policy that includes holiday pay hours into the overtime calculation and the employee works 42 hours, but is paid 8 for a holiday the employee did not work. In this case, the employer would have to pay the employee the employee's hourly rate for 48 hours and overtime at the employee's regular rate for the 2 hours because the employee only actually worked 2 hours overtime. The 8 hours of holiday pay were not actual work hours and, therefore, overtime on those hours is not required under the law or under the employer's policy.

If, however, the employer's policy includes holiday pay in overtime hours, then the employer would have to pay the employee the employee's hourly rate for 40 hours and overtime at the employee's regular rate for 10 hours.

If an employee takes a day off for a holiday as a "religious accommodation" does the employer have to pay the employee for that day off?

Employers have to provide employees a religious accommodation for closely-held religious believes so long as the accommodation does not create an undue burden on the workplace. While the undue burden threshold in the religious accommodation context is lower than the bar in the disability context, it still exists. It does, however, not require an employee pay an employee if the employee is non-exempt and does not work. Unless there is an employer-policy providing otherwise or specific state law on point, non-exempt employees only have to be paid for hours actually worked. If the employee is exempt, the employer would also not have to pay the employee because pay docking would be allowed because the reason for leave fits into the "personal reasons other than sickness or disability" docketing allowance under 28 CFR 541.602 as discussed above.

How does FMLA leave affect pay during a holiday?

Employers must treat FMLA leaves the same as non-FMLA leaves. In a nutshell, this means that employers only have to pay an employee for holidays during an unpaid FMLA leave if the employer has a policy of providing holiday pay for employees on other types of unpaid leaves. Similarly, if an employee reduces his or her work schedule for intermittent FMLA leave, the employer may proportionately reduce any holiday pay (as long as the employer treats other non-FMLA leaves the same).

Two regulations govern this specific issue. First, 29 CFR 825.09, provides how an employer must maintain an employee’s benefits while on FMLA leave, and provides: "[a]n employee's entitlement to benefits other than group health benefits during a period of FMLA leave, e.g., holiday pay, is to be determined by the employer's established policy for providing such benefits when the employee is on other to forms of leave (paid or unpaid, as appropriate).

Next, 29 CFR 825.215(c)(2), discusses how an employer must maintain equivalent pay:

Equivalent pay includes any bonus or payment, whether it is discretionary or non-discretionary, made to employees consistent with the provisions of paragraph (c)(1) of this section. However, if a bonus or other payment is based on the achievement of a specific goal such as hours worked, products sold or perfect attendance, and the employee has not met the goal due to FMLA leave, then the payment may be denied, unless otherwise paid to employees on an equivalent leave status for a reason that does not quality as FMLA leave. For example, if an employee who used paid vacation leave for a non-FMLA purpose would receive the payment, the employee who used paid vacation leave for FMLA-protected purposes also must receive the payment.

This means that, under the FMLA, employers are required to treat FMLA leave just like they would treat non-FMLA leave.

As an example, assume an employee took vacation time during a week with a holiday and the employer's policy provides that, if an employee is on vacation the day before the holiday the employee will get paid for the holiday, but will not get paid for the holiday if the employee is on an unexcused absence the day before the holiday. If the employee is on FMLA leave, the way the employer would treat the holiday pay may depend on whether the FMLA leave is running concurrent with the employee's paid vacation leave, or whether it is unpaid leave under the FMLA. If the employee is using vacation, and the employer policy would allow the employee to take holiday pay if the employee is using vacation the day before the holiday, the employer would have to allow that for the employee on FMLA leave. However, if the employer does not ordinarily pay an employee for the holiday if the employee is absent on some other kind of unpaid leave the day before the holiday, the employer would not have to pay the employee on FMLA leave. Employers just have to be sure they are treating employee consistently with similar forms of non-FMLA leave under the employer's policies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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