Understanding Holiday Pay for Your Small Business

At Global Resources, we utilize our experience to help small and medium – size businesses grow and thrive in the rapidly evolving marketplace. 

Our consultants have seen firsthand that the holiday season can bring about confusing payroll administration situations. Handling holiday pay can actually raise some tricky questions. To help eliminate any potential payroll questions you may have at the end of year, we have included information below:

1. In most cases, you are not legally required to provide holiday pay. You are not required to compensate employees for the time they are out of the office on the holidays. As described on the United States Department of Labor website covering holiday pay, the Fair Labor Standards Act stipulates that neither vacation nor holiday pay is federally required; it’s a matter of agreement between the employer and employee. However, employees like receiving holiday pay. In fact, a study by the Society for Human Resource Management (SHRM) indicated that “paid time off” was listed as the 2nd most desirable employer-provided benefit—ahead of 401k and pension contributions and behind only health and medical coverage. Another SHRM study found that the vast majority of employers are making good on employee wishes, as 97% of studied organizations reported providing holiday leave pay to full-time employees.
2. There are some edge cases where employers must provide holiday pay. While companies at large are not legally required to pay holiday wages as a standard practice, there are some situations where it is required of government contractors. For bid work where the McNamara O’Hara Service Contract Act (SCA) or Davis-Bacon and Related Acts (DBRA) apply, one of the stipulations is that employees must receive holiday pay.
3. Many states have said no to holiday pay “takebacks.” It’s wise to check your state payroll laws, as many states have made “use-it-or-lose-it” rules illegal, banning businesses from reneging on previous holiday or vacation pay commitments. In fact, printer manufacturer, LexMark International, recently lost a $13.6 million class action lawsuit after a California appeals court upheld the finding of a lower court that employees were due holiday and vacation back pay. An alternative for employers who no longer wish to pay out on holidays is to cap the ability to accrue holiday or vacation pay moving forward.

To learn more about us and / or to schedule your appointment with the business consultants at Global Resources LLC, call us at 855-338-0266.