By Sally Weldin, Sr. Human Resource Specialist
Published November 27, 2018
To pay or not to pay? That’s the question in many Human Resource departments around the holidays. Classification under the Fair Labor Standards Act (FLSA) and organization policy should help guide pay practices in weeks where holidays occur.
It’s important to know whether your employees are exempt or non-exempt under the FLSA. Non-exempt positions must be compensated based on hours worked, so non-exempt employees do not necessarily have to be paid for holidays that your organization observes when they are not required to work. However, pay for observed holidays is a benefit that most employers offer.
Employees that hold positions that have been classified as exempt are paid an annual salary. The salary is administered by pay period and does not vary based on hours worked. Thus, it should remain the same regardless of the holiday. A deduction for a non-worked holiday for an exempt position may call the position’s exempt classification into question.
As always, make sure your positions have been classified correctly. HR Source members can utilize our Exempt, Non Exempt Flow Chart of FLSA exemption tests.
We recommend that you have a policy covering employer-observed holidays and conditions that must be met for compensating non-exempt employees. Some organizations do not close on observed holidays but schedule employees for alternative days off. Paying non-exempt employees premium rates for working on a holiday is at the discretion of the employer. If the non-exempt employee does not take another day off in the workweek in which the holiday falls, all hours worked must count towards the calculation of overtime. Both Illinois and federal law recognize the overtime threshold for non-exempt employees as time over 40 worked hours in a workweek.
Employers should clearly delineate if non-exempt employees will be paid for observed holidays. The holiday time off would not count towards the calculation of overtime as it considered non-work time unless your policy contains a more generous provision. Exempt employees would receive the same amount of pay per pay-period regardless if they work on the holiday or not.
Some employers have eligibility requirements contained in their holiday policies such as non-exempt employees being required to work the scheduled days before and after the holiday in order to receive holiday pay, so that employees don’t try to take extended time off with unauthorized leave. There are always exceptions, and the key is consistency with past practice. Employers will also usually pay for the holiday if the employee has scheduled authorized vacation or personal time off before or after a holiday.
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