How to Manage Holiday Pay the Right Way

With Memorial Day coming up, we’ve noticed a lot of business owners and HR teams asking the same questions:

❓“Do we have to give employees the day off?”
❓“If someone works on a holiday, do we owe them extra pay?”
 ❓“What’s the difference between a floating holiday and an observed one?”

If you’re unsure how to handle holidays in your payroll or employee handbook, you’re not alone (and you’re in the right place). Keep reading to understand the rules and best practices for managing holidays to stay compliant and avoid any payroll surprises.

Are You Legally Required to Give Paid Holidays?

The truth is…  as a private employer, there is no federal law that requires you to give employees paid time off on federal holidays. None. Not even Christmas or the 4th of July 🇺🇸.

Federal holidays (like Memorial Day, Independence Day, and Thanksgiving) apply to federal government employees. For everyone else, it’s up to you as the employer. Paid holidays in the private sector are a voluntary benefit, not a legal obligation.

That said, most companies do offer paid time off for holidays as part of their benefits package, and for good reason! It reinforces a work culture of respect, helps with hiring and retention, and may just be that mental health day your employees need for some self care!

Who Gets Paid on a Holiday?

Let’s keep this simple.

➡️ Exempt Employees (typically salaried):
If your business closes for a holiday and the employee worked at least part of the week, you must still pay their full salary. You can’t deduct a day’s pay just because your office is closed for Memorial Day or Christmas. That’s part of the deal with exempt employees under the Fair Labor Standards Act (FLSA).

➡️ Non-Exempt Employees (typically hourly):
Hourly workers are paid for hours they have actually worked. That is, unless you offer paid holidays as a benefit. If they do work on a holiday, there is no law that requires you to pay extra. You only need to pay extra if the hours push them over 40 for the week, where overtime regulations will apply.

Even though there’s no law to pay extra on holidays, you can have that as a benefit too! Some companies choose to offer “holiday pay” (for example: time and a half) as their policy. It’s not mandatory, but definitely appreciated by employees!

Confused if your employees are exempt or non-exempt - learn more about the difference here!

Floating vs. Observed Holidays

From what we’ve heard, this is where things can get confusing. So let’s set the record straight.

Observed Holidays are the standard company-wide holidays you recognize every year. These might be your federal holidays, maybe you have a few more or less. Most businesses build their holiday calendar around these and they’re usually paid.

Floating Holidays are more personal because your employees can choose when to take them.

They can use floating holidays for their religious or cultural observations or even just a personal day. Because of different cultures and beliefs, floating holidays can help make sure everyone on your team feels seen and supported.

✨ Tips for managing floating holidays:

• Set clear rules around how many are offered per year (put this in your handbook!)
• Decide whether they carry over or expire each calendar year
• Require advance notice and manager approval - this should be in your attendance policy!

What About Religious Holidays?

Under Title VII of the Civil Rights Act, as an employer, you are expected to make reasonable accommodations when an employee needs time off for a religious holiday.

So, if an employee requests time off for a holiday like Yom Kippur or Passover, try your best to make it work. You can let them use PTO, a floating holiday, or see if you can find someone to cover their shift.

Avoiding Holiday Pay Mistakes 

Here’s a few mistakes we’ve seen and what you should look out for:

• Not clearly communicating your holiday policy. Post it in your handbook, MegaPay portal, and even your company calendar. Leave no room for confusion.
• Forgetting to adjust payroll deadlines around banking holidays. Don’t have the bandwidth, let MegaPay help you with payroll!
• Applying holiday pay inconsistently. Make sure your payroll software is set up properly for who gets paid what, when, and how much. After all, timely and accurate payroll builds trust with your employees!
  

Time Off. Done Right.

Holidays matter. They give your employees time to recharge, spend time with their family, and come back to work feeling refreshed!

So even though there's no federal requirement, by offering paid holidays you’re showing your team that you care. Plus, it can help you with recruiting and retaining your top talent. 

At MegaPay, we believe payroll shouldn’t be complicated — especially on holidays. From customizing paid holiday rules to tracking floating days and applying premium pay, we make it easy for your team to get it right (the first time).

Need help setting up your holiday pay policies in your payroll system? Let’s talk.