Payroll seems easy, but it has to follow the law. How do you stay in compliance when it comes to holiday pay and overtime pay - especially when it looks like there’s overlap?
At CSI Accounting & Payroll, we’ve worked with small businesses for over 50 years. In all of that time, we’ve learned a lot about labor laws and how they affect payroll! In this article, we’ll go over what we tell small business owners who ask these questions:
- What is holiday pay? How does it work?
- What is overtime pay? How does it work?
- Do holiday pay and overtime pay ever overlap?
Holiday Pay & How It Works
What is Holiday Pay?
Holiday pay is the compensation for employees for designated holidays. This is usually when your business is closed, so they don’t have to or are unable to work. This is so they can still have a reliable paycheck.
What is Holiday Premium Pay?
Holiday premium pay is different from standard holiday pay. It’s often used when your business is open during a holiday, and you want to incentivize your employees to work.
How Do I Compensate My Employees for Holidays?
Both holiday pay and holiday premium pay can be paid out in the form of funds added to a paycheck, compensatory time, or additional PTO (Paid Time Off).
Holiday pay is typically equal to a normal day’s wages, and holiday premium pay is typically time and a half.
Do I Have to Pay Holiday Pay?
Currently, there are no federal laws that require private employers to pay employees holiday pay.
However, there are some jurisdictions, like Rhode Island, that require premium pay for hours worked on holidays and Sundays. There are exceptions to this, so it’s best to do research on your local area to ensure you’re in compliance. Otherwise, if you work with a payroll service, they can help you.
Regardless of what the law requires, you may choose to offer holiday pay as a benefit - a workplace perk - for your employees. Good employee benefits help attract and maintain good talent, and some employers put a probationary period in place before this benefit kicks in.
Overtime Pay & How It Works
What is Overtime Pay?
Overtime pay is the compensation for employees for working beyond a certain number of hours - typically 40 hours - in a week. This may vary, but it’s however many hours are worked over a standard full-time work week. Overtime pay applies only to actual hours worked.
How Do I Compensate My Employees for Overtime?
Overtime pay is usually paid out in the form of funds added to a paycheck.
It’s typically paid at a rate of time and a half for the hours worked above the weekly threshold (overtime) - not for every hour worked in that time period.
Do I Have to Pay Overtime Pay?
Under the Federal Labor Standards Act (FLSA), employers are required to pay employees premium pay for hours worked after 40 hours in a work week. However, the FLSA only covers non-exempt employees. Many states also have their own FLSA, which can supersede the federal FLSA, meaning there are different overtime laws in different jurisdictions.
Unless you have all exempt part-time employees, which is unlikely, you will likely be subject to pay overtime to your employees at some point. Be sure you’ve read up on exempt and non-exempt employees, or work with a payroll service if you’re not sure if you’re staying in compliance.
Holiday Pay & Overtime Pay Overlap
Let’s examine scenarios where holiday pay and overtime may appear to overlap - whether they actually do or not.
Scenario 1
Your business is open on Monday for a holiday. Your employee works that day and receives holiday premium pay. They then also work 10-hour days for the other four workdays of the week (Tuesday through Friday).
Because they actually worked 48 hours that week, you may want to consider paying overtime pay on top of holiday pay - or bumping it up to double-time pay for the eight hours of overtime. However, it’s up to you!
Scenario 2
Your business is closed on Monday for a holiday. Your employee works 10-hour days for the four days that you’re open (Tuesday through Friday).
They are paid holiday pay for the eight-hour Monday holiday, but they do not get overtime pay for the week. This is because they got paid for 48 hours but only worked for 40 hours. Overtime pay only applies to actual hours worked.
This scenario would not have overtime pay and holiday pay overlap. However, you can always elect to pay your workers more in certain scenarios. Just make sure that you are consistent - you can’t discriminate by paying some employees holiday pay or premium pay for holidays worked and then not do the same for others who fall under the same classification.
Stay in Compliance With Labor Laws
Holiday pay and overtime pay can get confusing, especially in scenarios when it looks like they might both apply! If you’re finding it difficult to run your business and stay in compliance with labor laws, a payroll service can help you for a surprisingly reasonable fee.
If you’re considering working with a payroll service, why not consider CSI Accounting & Payroll? After all, we’ve been in business for over 50 years, and if you select our timekeeping software as part of our payroll service, it’s much easier to manage special pay like holiday and overtime.
To see if we can be a good fit for your business, click the button below for a free consultation:
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