Holiday Pay: What It Is, How Much, and How to Calculate

The first Thanksgiving I ran payroll for a small team, I assumed holiday pay was some fixed legal formula I was supposed to know. I spent an evening searching for the federal rule that told me how much extra to pay the two people who worked that day. There is no such rule.

In the US, holiday pay is mostly a policy decision, not a legal requirement. Once I understood that, the actual math turned out to be simple. The confusion was all in not knowing which rules applied. This guide is the US employer's version I wish I had that evening.

Below you will find what holiday pay is, how much it costs, the rates employers use, and how to calculate every case: paying for a day off versus paying a premium to work, time and a half versus double time, how salaried and exempt people are treated, and the tricky part, how holiday pay meets overtime in the same week.

I wrote this guide for the owner or manager of a small US business and kept it deliberately focused on US law, because holiday pay works very differently in other countries and mixing the two is where mistakes happen. I build FirstHR, an HR platform that keeps employee records and your written policies in one place, and accurate holiday pay depends on knowing each person's rate and status. This article is general information, not legal advice, so confirm current rules for your state with counsel.

What Is Holiday Pay?

Holiday pay is compensation an employee receives in connection with a recognized holiday. In the US it takes one of two forms: their normal wages for a holiday they take off, or a premium rate for hours they actually work on the holiday. Neither is required by federal law for private employers.

That two-part definition is worth holding onto, because almost every question about holiday pay resolves once you know which of the two you are dealing with. An office that closes for Thanksgiving and still pays everyone is the first type. A retail worker earning extra to staff Christmas is the second. They are calculated completely differently, and confusing them leads straight to payroll mistakes in a holiday week.

Is Holiday Pay Required in the US?

No, holiday pay is not required for private employers under US federal law, and this is the foundation everything else builds on. The Fair Labor Standards Act (FLSA) does not require payment for time not worked, and it does not require extra pay for working a holiday. Holiday pay is generally a matter of agreement between employer and employee.

This surprises many people, because federal holidays feel official and paid time off (PTO) for them is common. But common is not the same as required. Employers that offer holiday pay do it for competitive reasons, not legal ones: paid holidays are a standard line in a small business benefits package and help attract and keep staff, while a holiday premium gives people a reason to work unpopular days.

Because holiday pay is voluntary, you decide the terms, and that reframes the whole calculation question. You are not looking for a legal formula to obey; you are deciding what to offer, writing it into a clear policy, and calculating it correctly and consistently. That freedom is why amounts vary so much between employers, and why the first real step is deciding which type of holiday pay you are offering.

How Much Is Holiday Pay?

Whatever your policy says it is. There is no legal amount, no standard rate you are obliged to match, and no federal minimum. That said, the options fall into a narrow set of conventions, and here is what each one pays.

For a paid day off, the amount is simply the employee's normal wages for the hours they would have worked. Someone earning $20 an hour on an 8-hour schedule receives $160 for a holiday they take off. Nothing is added; they are paid as though they worked a normal day. For a salaried employee, nothing changes at all: the salary continues.

For working a holiday, the amount depends on the multiplier your policy sets. The two standard choices are time and a half, meaning 1.5 times the regular rate, and double time, at 2 times the rate. Paying no premium at all is also an option: the employee simply earns their regular rate for the hours they work, which is entirely legal outside Rhode Island.

Read across that table and the range is wide: the same employee on the same day can earn anywhere from $160 to $480, depending purely on what you decided to write in your handbook. That spread is why nobody can hand you a single figure for how much holiday pay is. There is no clean answer, because it is your decision.

How Much Is Holiday Pay Per Hour?

Per hour, it is the employee's regular rate multiplied by whatever premium your policy sets. At time and a half, a $15 rate becomes $22.50 an hour and a $25 rate becomes $37.50. At double time those same two rates become $30 and $50. Nothing else moves the number.

For a paid holiday nobody works, the hourly figure does not change at all. The employee is paid their ordinary rate for the hours they were scheduled, so the per-hour number matches any other day and only the reason for the payment is different. The premium attaches to work, not to the calendar.

The Holiday Pay Rate

The holiday pay rate is the multiplier applied to an employee's regular hourly rate for hours worked on a holiday. Time and a half (1.5x) and double time (2x) are the two standard multipliers. But the right rate for your business depends more on your industry and your staffing problem than on what other people do.

Industry shapes the choice more than any rule does. Businesses that stay open on holidays, such as retail, hospitality, and healthcare, set whatever rate staffs the day, and a healthcare employer can stack a shift differential on top. Unionized workplaces follow the contract rate. For offices that simply close, the relevant benefit is the paid day off rather than a rate.

One thing the rate does not change: overtime is a separate obligation. A holiday premium is not overtime, and the FLSA still requires time and a half for hours worked past 40 in the same week. The two interact, and the overtime section below covers exactly how.

The practical question is not what rate is standard but what rate solves your problem. If nobody wants to work Christmas and you need the shift covered, the rate has to be high enough that somebody volunteers. Set the number that gets your holiday staffed, write it down, and apply it the same way every time.

The Two Types of Holiday Pay

US holiday pay comes in two distinct forms, and mixing them up gives you the wrong number. One is paying an employee for a day they do not work; the other is paying a premium for a day they do work, and each has its own formula.

The first type, a paid day off, is when the business closes or the employee takes the holiday and still gets paid for it. Here you are simply paying their normal wages for the day, as if they had worked their usual hours. This is the type most people think of as holiday pay, and it is why a closed office on July 4th still runs a normal payroll.

The second type, holiday premium pay, is extra pay for actually working on the holiday, typically time and a half or double time. This is the incentive employers offer so that someone will staff the holiday. In short, a paid day off pays normal wages for not working, while premium pay pays a higher rate for working. The formulas below handle each separately.

How to Calculate Holiday Pay

Calculating holiday pay comes down to three simple formulas, one for each situation you will face. Whether you are paying a premium for work, paying for a day off, or handling a salaried employee, the math is basic arithmetic once you know which case applies.

For premium pay when someone works the holiday, multiply the hourly rate by your chosen multiplier and then by the hours worked. A worker earning $20 an hour, working an 8-hour holiday shift at time and a half, earns $20 times 1.5 times 8, which is $240. If your policy is double time, it would be $20 times 2 times 8, or $320. The only variable you control is the multiplier, which your policy sets.

For a paid day off, you pay normal wages for the hours the person would have worked: average daily hours times the hourly rate. Someone who normally works 8 hours at $15 gets 8 times $15, or $120, for the paid holiday even though they did not work.

For salaried employees, the salary simply continues. If you need an hourly figure for a premium calculation, divide the annual salary by 2,080. These three cases cover almost every holiday pay situation a small business encounters.

How to Calculate Time and a Half for a Holiday

Take the regular hourly rate, multiply by 1.5, then multiply by the hours actually worked on the holiday. Only worked hours get the multiplier. Scheduled hours the employee did not work stay at the plain rate if your policy pays them, and at nothing if it does not.

For example, an employee earning $22 an hour who covers a 6-hour holiday shift earns $22 times 1.5 times 6, which is $198. If they work those 6 hours and take the remaining 2 scheduled hours as paid holiday time, add 2 hours at the plain $22 rate and the day comes to $242.

Two things go wrong here often enough to name. The multiplier never applies to a day nobody worked, so a paid holiday off is 1x rather than 1.5x. And a holiday premium is not the same obligation as overtime: if the week also crosses 40 worked hours, the overtime rules further down still apply on top of it.

Put the three formulas from the start of this section on one sheet and a holiday stops being a special payroll run: premium pay for a worked holiday, normal wages for a paid day off, and the salary-to-hourly conversion.

The workbook below does one holiday at a time: a row per employee on the first tab, the overtime question answered separately on the second tab, and your own multiplier and eligibility rules recorded on the third so next year's run starts from the same decisions.

Holiday Pay for Hourly Employees

For hourly employees, holiday pay depends entirely on whether they work the holiday or take it off, because their pay directly reflects hours and rates. Part-time status adds one wrinkle worth handling correctly.

If an hourly employee works the holiday and your policy provides a premium, apply the multiplier: an $18-an-hour employee working 8 holiday hours at time and a half earns $18 times 1.5 times 8, or $216. If they take the holiday as a paid day off instead, pay their normal wages for their usual hours, such as 8 times $18, or $144.

The part-time proration point matters for both fairness and cost. Paying every part-timer a full 8-hour holiday overpays them relative to their schedule, while excluding part-timers from paid holidays altogether can feel unfair, and the same question arises with PTO for part-time staff. Prorating by their normal hours is the middle path between those two extremes.

Holiday Pay for Salaried Employees

Salaried employees are simpler in most cases: their pay does not change because of a holiday. A salaried exempt employee receives their normal salary whether the business closes for the holiday or they work it, because their compensation is not tied to hours, which is the practical difference between salary and hourly pay. For a closed holiday, you do nothing special; the salary runs as usual.

The one time you need a calculation is when you want an hourly equivalent, usually to apply a premium for a salaried non-exempt employee who works a holiday, or to put a value on the day.

The standard way to get that hourly equivalent is to divide the annual salary by 2,080, which is 40 hours a week times 52 weeks, the typical full-time work year. A $62,400 salary divided by 2,080 gives a $30 hourly rate, which you could then apply a premium to if your policy offers one.

The important nuance is exempt versus non-exempt status. Exempt salaried employees are generally not owed overtime or premiums regardless of when they work, so a holiday changes nothing for them. Salaried non-exempt employees, by contrast, can be owed overtime and can receive holiday premiums under your policy, so for them the hourly conversion matters. Check each salaried person's classification before a holiday week's payroll runs.

Holiday Pay and Overtime in the Same Week

Whether a holiday affects overtime in the same week hinges on a single distinction: hours worked versus hours paid. This is the part that trips up even experienced payroll people, and getting it right protects you from both overpaying and underpaying.

Under the FLSA, overtime is owed for hours worked over 40 in a workweek, and only hours actually worked count toward that 40. Paid holiday hours the employee did not work stay out of the count. So if someone takes a paid 8-hour holiday and works 36 other hours, they have 44 paid hours but only 36 worked hours, and no overtime is triggered.

The two examples together capture the rule: a paid holiday off does not create overtime, but working the holiday can, if total worked hours exceed 40. Hours paid and hours worked are separate columns on your timesheet, and only the second one drives the 40-hour test.

One payroll subtlety involves the regular rate, the hourly figure that overtime pay is calculated from. Under 29 CFR 778.203, a federal overtime regulation, a holiday premium of at least one and a half times the regular rate can be excluded from the regular rate and credited toward the overtime you owe. A smaller premium, such as 1.25 or 1.3 times, goes into the regular rate instead and raises the overtime figure.

State Holiday Pay Rules

While federal law requires no holiday pay, a couple of states have their own rules, and for a multi-state employer these matter. The short version: only one state actually requires a holiday premium, and one other restricts holiday work without requiring premium pay.

Rhode Island is effectively the only US state that mandates holiday premium pay. Under Rhode Island General Laws section 25-3-3, work performed on Sundays and listed state holidays generally must be paid at least one and a half times the normal rate, and refusing to work those days is not grounds for discharge or any other penalty.

In Rhode Island, the overtime interaction depends on whether you run a retail business. A state regulation effective August 17, 2025 defined what counts as a retail business, and under Section 28-12-4.1 a retail employee's Sunday or holiday hours paid at time and a half are excluded from that week's overtime calculation. Non-retail employers pay the holiday premium and weekly overtime separately, which costs more in a busy holiday week.

Everywhere else, holiday pay is entirely a matter of employer policy. A small business operating in a single state outside Rhode Island has full discretion over what to offer. A multi-state employer has to check each state, since a policy that is optional in most places is a legal requirement in Rhode Island. State rules change, so treat this as a starting point and confirm the current requirements in each state where you have employees.

Building a Holiday Pay Policy

Because holiday pay is mostly a policy decision, a clear written company policy is the single most valuable thing you can create around it. It removes ambiguity, ensures consistent treatment, and protects you, since once a holiday pay policy is documented it can become binding, and inconsistent application can create legal exposure. A good policy answers a handful of specific questions.

The two most important lines in any holiday pay policy are the list of paid holidays and the premium for working, because those are what employees care about and what payroll needs to run correctly. Keep the policy specific and put it where people can find it, ideally in your employee handbook, so it is part of onboarding and easy to reference.

A clear policy plus accurate records is all it takes to calculate holiday pay correctly every time. The records that matter are each person's hourly rate or salary, their exempt or non-exempt status, and their actual hours worked on the holiday. Getting new hires set up with the right rate and classification from day one keeps the whole thing accurate.

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