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by CalChamber’s Legal and Editorial Team
The holidays are a busy time of year. So, it’s important for HR to recognize some common holiday pay-related issues before a problem arises — such as paying nonexempt employees for time at a holiday party, deciding who works the holiday and how holiday pay affects overtime, to name a few. Here are some answers to employers’ frequently asked questions that can help.
No. Private employers are not required to provide employees with paid holidays, close their business for a holiday or pay a premium to employees for working on a holiday. They are free to set their own policy for paying employees for holidays and time off. Exceptions may apply if a collective bargaining agreement or certain government contracts require paid holidays.
Many employers choose to offer paid holidays, in which case courts treat holiday pay as a type of contract between the employer and employees. If employers offer paid holidays, they should notify employees of the observed holidays at the beginning of each year. Employees should also be informed about how holiday staffing needs will be handled and how employees who work on the holiday will be compensated.
If employers require a nonexempt employee to work on a designated paid holiday, the employee should be paid for the hours worked at the promised rate, including overtime premiums if applicable. Either pay holiday wages as separate “holiday pay,” or grant the employee another day off with pay. Be careful about offering the additional day off as a “floating holiday” for use whenever the employee chooses, as floating holidays are considered vacation or PTO. Unused floating holidays must carry over from year to year and be paid out when employment ends. A better practice is to specifically designate an alternate day off — such as the Friday following the holiday.
Overtime is based on the hours an employee actually works in a workday or a workweek, as defined by the employer in advance. Usually, the workday is from 12:01 am to midnight, and the workweek is from Sunday through Saturday.
When a nonexempt employee receives pay for hours they have not worked — such as holiday pay — those paid-but-not-worked hours do not count toward overtime thresholds. For example, Joe has Christmas off — a Thursday this year. He receives eight hours of holiday pay. Joe also works eight hours per day Monday through Wednesday and Friday through Saturday. Joe will have 48 hours of pay that workweek — eight hours of holiday pay and 40 hours of work. An overtime premium is not required because Joe did not work more than 40 hours or seven consecutive days in the workweek, or more than eight hours on any workday.
If a nonexempt employee does work overtime hours during a holiday week, overtime pay will be required. Overtime is paid at the employee’s “regular rate of pay” for the workweek. However, hours paid but not worked, such as paid holidays, are not included in the regular rate of pay. So, if Joe worked five hours of overtime in the holiday week by working nine hours a day on Monday through Saturday (excluding Thursday), the overtime rate for those five hours would not be affected by the Thursday holiday pay.
It depends. Nonexempt employees must be paid for all “hours worked.” Time at a holiday party may be “hours worked” if employees are required to attend, discuss company business or host clients — even if the party is after work hours and away from the office. One way to avoid confusion in this area is to have the holiday party during work hours when nonexempt employees are already being paid.
Holiday parties, especially holiday lunches, can also raise meal period problems. You must provide nonexempt employees with a 30-minute, uninterrupted meal break before the fifth hour of work. For workdays lasting more than 10 hours, a second meal break is required. Employees must be relieved of all duties during meal breaks and be free to come and go as they please.
If employers require employees to attend a mandatory holiday luncheon and then go straight back to work, the employees have missed their 30-minute meal break, even though they weren’t doing their typical work duties at the holiday party, and the employer provided food. In this situation, or if nonexempt employees take meal breaks late, the employees are entitled to an additional hour of pay at their regular rate of pay, which is the same calculation used for overtime pay and includes all compensation received during the workweek such as the base hourly wages, commissions and nondiscretionary bonuses. (If the employee is not relieved of all duty, employers must also pay for their time at the party.)
To avoid these issues, provide employees with meal breaks before the party starts.
Employers may set their own policies for staffing holidays so long as they do so in a non-discriminatory manner. They also may be required to allow employees to take certain holidays off as a religious accommodation.
Relying on volunteers to work a holiday may not be sufficient to cover staffing needs. Seniority-based holiday staffing is an option; however, this type of policy can create discontent among newly hired or newly promoted staff. A rotating schedule or random selection are other fair methods for handling holiday coverage.
If an employer’s holiday policy requires employees to work the day before and after the holiday, be cautious when denying holiday pay to someone who calls in sick. If the employee uses paid sick leave for the absence, denying holiday pay could be in violation of the anti-discrimination or anti-retaliation provisions of the California Healthy Families, Healthy Workplaces Act and/or local paid sick leave ordinances.
Employers must pay employees any stipulated holiday pay. For closures that are not covered by holiday pay, employers may require employees to use accrued, unused vacation if they give reasonable advanced notice — at least 90 days.
For closures that aren’t covered by holiday pay or vacation, the requirements are different for nonexempt and exempt employees. For nonexempt employees, employers do not have to pay for any days they do not work.
Exempt employees, on the other hand, must be paid for the full week if they have performed any work in that workweek. So, if employers shut down for less than a full workweek, exempt employees must receive their full salary.
If employers shut down for a full workweek, employers do not have to pay an exempt employee who performs no work in that workweek. However, it can be difficult to monitor when exempt employees perform work. Employers should clearly communicate that no work is to be performed. They should also avoid emailing exempt employees in such circumstances as they may feel obligated to respond, resulting in time worked during the workweek.
Employees who are underinformed — or misinformed — about holiday policies are often disappointed or upset when their holiday pay or schedule expectations are not met. Here are some tips to make sure everyone is in the know this holiday season: