Holiday pay calculations in the United States
Reviewed by Mellow Editorial Team, HR & payroll content team
Holiday pay in the United States is not required by federal law. There is no statute that compels employers to pay a premium rate — or any pay at all — for work performed on a public holiday, nor to provide paid days off on those days. What you offer is governed almost entirely by your own company policy.
What federal law actually says
The Fair Labor Standards Act (FLSA) does not require holiday pay for hourly or salaried workers. If a non-exempt employee works on a federal holiday, you owe them their regular rate for those hours — nothing more, unless your policy promises otherwise. If a salaried exempt employee works a holiday, you generally pay their normal salary. If your business closes for the holiday and a non-exempt employee simply doesn't work, you have no federal obligation to pay them for that day.
Federal holidays (such as Independence Day, Thanksgiving and Christmas) are relevant mainly to federal employees and to businesses that contract with the federal government. Private-sector employers are not bound by the federal calendar.
What "holiday pay" typically looks like in practice
Even though it is not required, most US employers do offer some form of holiday benefit — because it is expected, it aids retention and it is written into offer letters and employee handbooks. The most common approaches are:
Paid days off. The employer designates a set number of paid holidays per year (commonly eight to twelve) and closes, or lets employees take those days off with full regular pay. Hourly employees are paid their standard rate for the hours they would otherwise have worked. Salaried employees receive their normal weekly salary unaffected.
Premium pay for working a holiday. Many employers — particularly in retail, healthcare and manufacturing where closing is not an option — pay a premium (often 1.5× or 2× regular rate) when an employee works on a designated holiday. This is a voluntary policy, not a legal requirement.
Floating holidays. Some companies add one or two "floating" holidays that employees can take on a date of their choosing. These work like a personal day and are governed by whatever PTO rules you already have.
How to calculate the actual dollar amount
The math is straightforward once your policy is defined.
Paid day off (not worked): Hourly employee × their normal hourly rate × hours they would have worked (typically 8). A salaried employee's pay is unchanged — you do not deduct from their salary for an employer-designated holiday.
Premium pay for a day worked: If your policy is 1.5×, multiply the employee's regular hourly rate by 1.5, then by hours worked. For example, an employee earning $20/hr who works 8 hours on a paid holiday at 1.5× receives $240 for that day.
Overtime interaction: Holiday pay can complicate FLSA overtime calculations. Hours actually worked on a holiday count toward the 40-hour weekly threshold for overtime purposes. Holiday hours paid but not worked generally do not count as "hours worked" for overtime — so a paid day off does not push an employee into overtime eligibility on its own. Always confirm how your payroll system handles this, because errors here are a common audit finding.
Taxes: Holiday pay is ordinary compensation. Withhold federal income tax (progressive brackets, reported via Form W-4), Social Security at 6.2% up to the annual wage base, and Medicare at 1.45% with no cap. The 0.9% Additional Medicare surcharge applies to high earners above the applicable threshold. State income tax applies in most states — though workers in states such as Texas, Florida and Washington face no state income tax. Holiday pay appears on the employee's Form W-2, due to employees and the SSA by January 31.
What your policy document needs to cover
If you offer holiday pay, spell out the terms in writing. Ambiguity is where disputes start. Your policy should address:
- Which holidays are covered — list them by date or name, and state whether floating holidays are included.
- Eligibility — full-time only, or part-time too? What about employees on leave?
- Part-time proration — a common approach is to pay part-time employees a proportional amount based on their scheduled hours.
- What happens when a holiday falls on a weekend — do you observe the preceding Friday or following Monday?
- Premium pay triggers — if you pay extra for working a holiday, define exactly which holidays qualify.
State and local rules to watch
A handful of states and localities add requirements that go beyond federal law. Rhode Island, for instance, historically required time-and-a-half for retail workers on certain holidays, though these rules have evolved. Some cities and counties have fair workweek or predictive scheduling laws that interact with holiday scheduling. California, which prohibits most non-compete clauses and has generally more prescriptive employment law, does not independently mandate private-sector holiday pay — but it does have strict rules around PTO accrual that affect how unused floating holidays must be treated at termination.
Always check the rules in the state and locality where each employee actually works, since the obligation follows the worksite, not your headquarters.
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