Holiday pay, work and hiring: The key rules you must follow

November 2, 2012

The Fair Labor Standards Act (FLSA) and the IRS can also throw kinks into your holiday plans. Watch out for these lumps of coal.

Four rules on holiday pay

Although paid holidays are customary for many employers, there’s no requirement to pay holiday pay.

  • Rule #1: The FLSA doesn’t mandate that employees be paid for holidays. This gives you a lot of latitude. For example, you can pay nonexempts for eight holiday hours, even if they customarily work 10-hour days.
  • Rule #2: If you do pay for holidays, and employees work overtime that week, don’t factor the holiday pay into their regular rates as you figure their overtime rates.

Holiday pay for exempt employees is trickier, since exempts generally must be paid their full salary in any week they do any work.

  • Rule #3: If you close for a holiday, and you have a bona fide benefits plan, exempts can be required to take those days off, provided they continue to receive their guaranteed salary. Warning: Exempts who would run out of accrued time due to current debiting, or those who have negative time in their banks, must be paid their full salaries.
  • Rule #4: Exempts don’t need to be paid if they don’t work for a whole week. Thus, if you shut down for the entire week between Christmas and New Year’s, you needn’t pay exempts anything. They may use vacation or other accrued time, if they have it.

Two rules for holiday work

As we said, you don’t include holiday pay in nonexempts’ regular rates.

  • Rule #1: Under the FLSA, you also don’t have to include holiday pay in the regular rate calculation for nonexempts who work through the holiday if they receive their regular wages in addition to the holiday pay. Downside: You can’t credit the holiday pay against your obligation to pay overtime.
  • Rule #2: If, instead of paying employees their normal wages, plus the holiday pay, you ask them to exchange their holiday pay for at least time-and-a-half for holiday work, you can credit that time-and-a-half premium against your obligation to pay overtime. Employees don’t lose a penny and the company actually ends up saving money.

Example: Ben earns $10 an hour. He’s entitled to Christmas Day as a paid day off.

Plan A: He gives up his holiday and works nine hours. During the week he works 50 hours. Total pay: $630: $400 in straight-time pay, $150 in overtime and $80 in holiday pay.

Plan B: Ben gets double time for the holiday. Total pay for working nine holiday hours: $180. He still receives $400 in straight-time pay and $15 for one OT hour. Total pay: $595. Ben’s employer credits the nine hours of OT pay against the 10 hours of OT he’s owed.

Requirements for holiday hiring

Seasonal employees must complete W-4 forms and I-9 forms and be reported as new hires. Tips: Ask to see their Social Security cards and photocopy them for your records. Then, use the Social Security Adminis­tration’s Social Security Number Verification Service to ensure that their names and Social Security numbers match.

If you don’t want to enroll these employees in your direct deposit program, you can facilitate electronic pay with paycards. If you use paycards, be sure to provide employees with all appropriate explanatory material.