Holidays are the time to rejoice with family and friends. However, it is uncertain for businesses as not all companies have the luxury of closing on holidays like Christmas, and Independence Day. The complication arises when you have to decide the holiday schedule and how the compensation should be decided for these days.
Whether employees not working on holidays must be paid or those working on holidays should be given extra compensation are some of the complicated cautions regarding calculating holiday pay for hourly employees.
As holiday pay is usually at the employer’s discretion, there is no one-fit-for-all solution to calculate holiday pay. To decide how much, if anything, to pay workers who work or don’t work on holidays, you must understand certain holiday pay calculation practices.
This article will discuss what holiday pay is and how to calculate holiday pay for salaried employees and hourly workers.
What is holiday pay?
While it sounds extraordinary, holiday pay is simply the compensation workers get for working or not working during public holidays. Many companies provide holiday pay as a gift to employees so they can take time off during holidays and spend it with their family and loved ones without losing pay.
It is a gesture that directly affects employee satisfaction and the bond between employers and employees. It is also one of the motivations for retaining the workforce. Calculating holiday pay for hourly employees depends on the rules and regulations around holidays in the country of your business setup.
In the United States, holiday pay is typically 1.5 times the worker’s average pay. It implies that the workers are paid the regular rate +1/2 of their standard rate for each work hour on holiday. Several private and public companies offer holiday bonus checks or paid time off during holidays.
There are no laws in the United States that mandate that employees must be paid on holidays, but commonly employs a key one off with pay on the following holidays:
- Christmas Day
- Christmas Eve
- Independence Day
- Labor Day
- Memorial Day
- New Year’s Day
- Thanksgiving Day
- The day after Thanksgiving (Black Friday)
Public employers in the United States are required to observe the following ten federal holidays:
- New Year’s Day
- Martin Luther King Jr. Day
- George Washington’s birthday
- Memorial Day
- Independence Day
- Labor Day
- Columbus Day
- Veterans Day
- Thanksgiving Day
- Christmas Day
According to a report from the Society for Human Resource Management, 96% of private employers provide holiday pay to their workers.
In India, the holidays are declared under the Negotiable Instruments Act, 1981. Under this act, three mandatory national holidays with pay must be observed across all public and private sector companies. These are:
- 26th January (Republic Day)
- 15th August (Independence Day)
- 2nd October (Gandhi Jayanti)
National and Festival Holiday Act rules the holiday pay rule applied by states locally. While the holidays declared under this act apply to government departments, banks, factories, and other establishments usually do not adopt the same. It is at the discretion of the employers to allow workers to take time off or pay them special compensation for all other holidays.
Who is eligible for holiday pay?
Holiday pay is unique because it usually doesn’t consider the worker’s employment status. Salaried and hourly paid employees who work on an annual or a local holiday are eligible for holiday pay. The onus is on HR managers to calculate holiday pay for salaried employees or hourly workers based on the company policies.
While there is no provision to pay more than the regular pay rate to eligible employees, you should consider offering higher pay for certain holidays such as Independence Day, Christmas, and New Year’s Eve. Many companies offer unique benefits and incentives to employees on holiday pay such as bonus checks or paid time off.
If your business has hourly employees, you can pay them the same as full-time employees, extending them the same benefits as salaried employees. The importance of holiday pay is that it’s a gesture of kindness towards employees. However, there can be exceptions.
For example, the retail stores in India see a massive inflow of customers during special holidays such as Diwali, Holi, and Eid. These stores hire many hourly employees to meet the increased demand for service.
It is not viable for them to offer additional compensation. In such a scenario, they can provide unique bonus gifts instead of worrying about calculating holiday pay for hourly employees.
How do you calculate holiday pay for hourly employees?
As mentioned above, the holiday pay is no different from employees’ regular pay, but there are exceptions depending on the company’s policies.
1. Overtime: If the employees work more than the regular hours during the holiday season, they are entitled to the same overtime pay as normal days. The overtime calculation is done as per the labor law. For instance, it is mandatory to pay employees double the average hourly pay rates for overtime hours in India.
2. 1.5 times pay: Though it is not a legal requirement, employees across the United States offer 1.5 times pay on certain holidays to reward employees for working on those days. By incentivizing the holidays, the morale of the employees is boosted.
3. Bonuses: As an employer, you can choose to offer rewards during the holiday season to your employees. In India, offering bonus gifts and paychecks to employees during the Diwali holidays is a general practice. You can decide on bonuses based on years of service, base salary, or performance of the employees.
The key takeaway here is that there are no special rules on laws that regulate holiday pay. The state and federal employment laws only decide the date that should be off. Calculating holiday pay for hourly or salaried employees is at the discretion of the employers.
The calculation of holiday pay for hourly employees
The calculation of the holiday pay is simple, depending on what things you offer to employees or casual workers to work on holidays. For instance, if you provide employees 1 ½ of the regular hourly rate, an employee working for $ 10 an hour would be paid $15 an hour for working on holidays.
Similarly, you can adjust bonuses or special incentives into the pay for regular and hourly employees to do the calculation. Here is a Google Sheet that you can use to calculate the holiday pay for your employees. How you calculate holiday pay for hourly employees is entirely at your discretion, but automation software like Truein can typically handle all the calculations for you and expedite holiday payroll.
Truein is an AI-powered facial recognition attendance system that also offers payroll reporting capabilities. It facilitates payroll calculation by allowing managers to account for overtime, work hours, weekly off, holidays, etc.
Furthermore, companies can maintain different payment policies for salaried employees and hourly workers. Besides helping with payroll, it offers employee time tracking, leaves management, shift scheduling, and more.
Retail stores can use Truein to track, monitor, and pay casual workers as it allows GPS-based attendance recording and geo-fencing. Stores can ensure that workers are paid for their hours when they work at the set schedule at the allotted store or venue by tracking their location in real-time.
Schedule a free demo today and see how Truein can help you to automate the attendance and payroll process.
How to calculate holiday pay for salaried employees?
As is the case for hourly employees, there is no specific law pertaining to holiday pay for salaried employees and is purely based on company policies. You should however make sure that employees aren’t working more than the total maximum hours mandated by your country/state.
Employers can calculate the holiday pay of salaried employees as follows. Divide the yearly salary by 52. For example, if the yearly salary is 52,000, dividing it by 52 would give a weekly salary of $1000. If the employee is working for 8 hours a day for 5 days in a week, then that equates to 40 hours or $25 per hour.
Discuss internally to determine a fair overtime hourly rate. In general, you can choose to pay 1.5 to 2 times the calculated hourly rate to incentivize employees working on holidays. Also it is a good practice to add this in the employment contract to avoid any potential complications.
4 Benefits of providing holiday pay to employees
Holiday pay is an instrument of trust building and morale boosting between the employees and employers. It is a voluntary act of the organizations to show workers that they care about their comfort and happiness.
Here are some of the most significant benefits of providing quality pay to workers.
1. Helps to increase productivity
Compensating employees appropriately with the holiday pay can make them feel appreciated and valued. It effectively engages the workers and encourages them to work more, boosting the business’s productivity.
Holiday pay offers one of the rare opportunities to incentivize employees to work more at the same time while building trust with them. It also benefits your employer’s brand and creates a good work environment.
2. Employees can work overtime
It is not new that employees are not eager to work on holidays. Offering them holiday pay for additional incentives such as a 1.5 times rate is a great way to encourage them to work overtime as the payment is worth their time. It is more relevant for retail businesses that have to be open or do most of their business on holidays.
The promise of extra pay is an excellent motivation for workers to work on holidays when most people choose not to work. Managers can fill in supervisors on calculating holiday pay for casual workers for the overtime on holidays.
3. Employees will get paid on a day off
Paid holidays off constitute a significant morale boost for employees when they know they will be given days to rest without worrying about losing their wages. Holiday pay as paid time off has proven to lower stress levels, boost productivity, and improve workers’ mental health.
It also benefits the business when workers are relaxed and happy about their employment. Paid time off during holidays shows goodwill and is a beneficial financial investment that employers can make to build the workers’ loyalty.
4. The reward for their work
Gratitude is a character trait of great employers. By offering holiday pay, you reward the workers for their work on days when most people prefer not to work. It also makes parts of a company’s benefits to the workers to attract top talent.
Often, employees look for the benefits offered before accepting an offer. Holiday pay is an additional motivator for employees to get your company’s job offerings. It shows that you care about your employees and their time, attracting strong job applicants.
When you create a policy on calculating holiday pay for hourly employees, you allow workers and managers to be clear about the company’s take on compensation for working on holidays. We hope this guide will help you avoid disgruntled employees or potential legal action and provide a reference for calculating holiday pay for salaried and hourly employees.