Pay for Holiday Closures?

When a company decides to close on Thanksgiving Day or for the entire week between Christmas and New Year’s Day, is the employer required to compensate any of its employees? Well, that depends.

For non-exempt (overtime eligible employees), the company is generally not required to pay employees on days in which they do not perform work. As long as all non-exempt employees are notified of the closure prior to reporting to work on the holiday, no pay is required. If the non-exempt employee has accrued vacation or PTO time, the employee may request or the employer may require that the employee use accrued vacation or PTO to cover the days of the holiday closure.

For exempt employees who are paid on a salaried or fee basis, federal law requires the company to pay the employee his or her regular salary without interruption for business closures that extend less than one full week. Failure to provide this continued compensation is likely to jeopardize the employee’s exempt status. A workweek is the predefined seven-day period that the employer uses for payroll purposes. Unless the closure extends for a full workweek, the exempt employee should experience no interruption in salary for the purpose of a holiday closure. The employer may require the exempt employee to use accrued vacation time or PTO time to cover the closure. However, if the exempt employee does not have sufficient accrued time to cover the holiday closure, the employer is required to ensure the exempt employee experiences no interruption in salary.

As a benefit to workers, many companies opt to pay non-exempt employees for certain holiday closures. In fact, according to a Society for Human Resource Management (SHRM) Benefits Survey (2011), 97% of responding employers provide some type of paid holidays to their employees. The company may set its policy in this regard, and it has a good deal of discretion regarding the payment and calculation of the holiday pay. This may also include “shifting” the days of the recognized holiday as to reduce the amount of vacation, PTO or unpaid time employees may experience during the holiday closure. We simply recommend creating a written policy regarding holiday pay and applying to consistently among employees.

It is also important to note that the law only requires the employer to consider actual hours worked versus hours paid when calculating overtime pay. If the employer provides paid holidays, it is not required to count the unworked paid holiday towards the overtime calculation for a non-exempt employee.