What are paid holidays?

What do you imagine when you think of Independence Day, Thanksgiving, and New Year’s Day? Probably family time, good food, and fun. We’d bet work didn’t come to mind. 

Holidays are a time to celebrate, recharge, and connect with loved ones. Although many organizations close for business, in the United States no federal laws guarantee paid holidays or extra payment for clocking in on Christmas Day. 

However, minimal regulation around federal paid holidays doesn’t let employers off the hook. A paid holiday policy is an investment in your workers’ happiness and well-being, encouraging more productive and loyal employees. This article will explore the importance of paid holidays and how a thoughtful PTO policy can pay for itself.  

What are paid holidays?

Paid holidays are specific days when employees are granted time off from work while still receiving their regular pay, regardless of whether they would usually be scheduled to work. Typically, these holidays are recognized at the state or national level, allowing employees to take time off to relax, recharge, or observe religious celebrations without their paychecks taking a hit.

Paid holidays serve two purposes. For workers, they’re an opportunity to rest and participate in culturally relevant celebrations, nurturing a healthy work-life balance. However, employers shouldn’t view paid holidays as just another expense in their payroll budget. 

By offering paid holidays, employers show appreciation for their employees’ time and foster a positive work culture built around community, belonging, and mutual respect. Simply put, paid holidays are a way to encourage a happier workforce. When your workers are happy, they show up with stronger morale, are less likely to burn out, and are more likely to work productively. 

Why are paid holidays important for employers and employees?

Organizations strive to create a culture where employees feel valued, energized, and connected. Paid holidays are one way to build a supportive work environment. Here’s how:

1. Support work-life balance: Holidays like Thanksgiving Day and Christmas Day in the U.S. and Canada, Holy Week in Spain and Latin America, and Eid al-Fitr, marking the end of Ramadan in Muslim countries, play an important role in fostering community and belonging. When employees can take time off to celebrate with friends and family, they experience a healthier balance between work and personal life, which can help reduce stress and improve job satisfaction.
2. Foster inclusivity: Recognizing diverse paid holidays helps create an inclusive workplace where employees feel respected for their cultural and religious backgrounds. In the U.S., for example, observing Indigenous Peoples Day, Native American Day, and Juneteenth, among others, encourages a sense of belonging and team cohesion. 
3. Promote employee well-being: We all need to rest and relax. Paid holidays support employee well-being by carving out time for personal pursuits, whether barbecuing on Labor Day or relaxing on Veterans Day. Time off improves mental health and decreases burnout, resulting in a more engaged workforce. 

The benefits of paid holidays

Giving your workers an opportunity to relax by the pool on Independence Day isn’t the only perk of paid holidays—employers enjoy numerous advantages. By investing in PTO, organizations stimulate a more productive and loyal workforce.

Here are four ways paid holidays pay back:

• Increased employee productivity: Everyone is prone to burnout. Time off allows employees to relax and recharge their batteries, helping them return to work focused and ready to take on their responsibilities. 
• Enhanced engagement: Employees who feel undervalued and overworked may become less productive over time. Paid holidays show that workers are valued even when they’re off the clock, encouraging a happier and more engaged workforce. 
• Stronger employer brand: Regardless of the job market, it never hurts to boost your reputation as an employer. Today’s workforce wants to feel like more than a cog in the machine. Generous PTO is one way to reflect a positive work environment, making your organization a more desirable place to work. 
• Reduces turnover: Burnout doesn’t just disengage workers. It leads them to look for greener pastures (and paid holidays) elsewhere. Paid holidays can increase employee satisfaction and loyalty, minimizing turnover rates and hiring costs.

Most common paid holidays in the U.S.

In the U.S., federal holidays observed by the government are the most typical paid holidays. On these days, government offices, banks, and schools close, and federal employees receive paid time off. Many private companies follow suit. 

So, how many federal holidays are there in the U.S.? Here’s the list: 

• New Year’s Day (January 1)
• Martin Luther King Jr. Day (third Monday in January)
• Presidents’ Day (third Monday in February)
• Memorial Day (last Monday in May)
• Juneteenth (June 19)
• Independence Day (July 4)
• Labor Day (first Monday in September)
• Columbus Day (second Monday in October)
• Veterans Day (November 11)
• Thanksgiving Day (fourth Thursday in November)
• Christmas Day (December 25)

Federal holidays aren’t the only days employees might expect off. Your paid time off policy may include a mixture of religious observances and cultural celebrations, as well as days to prepare for a holiday (e.g., Christmas Eve) or rest afterward (e.g., the Friday after Thanksgiving Day). These might include: 

• An employee’s birthday
• Good Friday
• Easter
• Friday after Thanksgiving Day
• Christmas Eve
• The day after Christmas Day
• New Year’s Eve
• Presidents’ Day
• César Chávez Day
• Native American Day
• Indigenous Peoples Day
• Election Day

How do paid holidays impact salaried vs. hourly employees?

Paid holidays have different implications for salaried and hourly workers. Let’s break down how they differ by pay structure, legal requirements, and company policies:

Salaried employees

Salaried employees receive a fixed annual or monthly wage that isn’t affected by their hours worked. Here are the implications for paid holidays: 

• Holiday pay: When regular workers take an approved holiday, they continue to receive a regular paycheck without a deduction. Employers determine what holidays they’re closed for business and how employees can request time off. 
• Legal requirements: Under the Fair Labor Standards Act (FLSA) in the U.S., exempt salaried employees are not entitled to overtime pay. If they work on a holiday, they might not receive additional compensation unless specified by the company policy. 
• Company policies: Many organizations offer paid holidays as a basic perk for salaried workers. A paid holiday policy might include additional benefits like holiday bonuses or extra vacation accrual for working on holidays. 

Hourly workers 

Hourly workers’ compensation is tied directly to their hours. Here’s how that impacts paid holiday policies:

• Holiday pay: In the U.S., the FLSA doesn’t require paid holidays by law. Organizations must decide if hourly employees are compensated for holidays off or only receive pay for hours worked. 
• Overtime considerations: If hourly employees work on a holiday, they might be entitled to overtime pay, often calculated at time-and-a-half or double time, depending on the company policy. Again, the FLSA doesn’t require premium holiday pay, so organizations must set their own policies.
• Company policies: Some employers might offer paid holidays as part of their benefits package. Companies might require a certain seniority level or bar part-time employees from holiday pay. 

Give your team the paid holidays they deserve

Holiday policies can quickly become a not-so-festive frenzy for distributed teams with full-time employees, hourly workers, and independent contractors. However, navigating the complexities of PTO in your payroll system doesn’t have to ruin Christmas vacation. With Oyster, you can automate your holiday pay policy based on country-specific paid vacation rules and local expectations for holiday benefits. 

And with Oyster Total Rewards, offering competitive salaries, equity, and benefits tailored to each location is seamless. Discover how Oyster can streamline benefits management, boost employee satisfaction, and support your team worldwide by booking a demo today. 

FAQs

Let’s address a few common questions regarding holiday pay: 

How much is holiday pay?

Federal law in the U.S. doesn’t require premium pay for holidays. Typically, businesses pay workers one-and-a-half times or double their regular wage.

Is Labor Day a paid holiday in the U.S.? 

If you’re a federal worker, yes. For everyone else, it depends on individual company policies. 

Do employers have to allow time off for religious holidays? 

Title VII of the Civil Rights Act of 1964 requires U.S. employers with 15 or more workers to accommodate requests for religious holidays. However, the law doesn’t require PTO, so employees may not be paid for time off during religious observances. 

Do I have to provide independent contractors with paid holidays? 

Similar to salaried workers and hourly employees, you aren’t required to provide paid holidays to independent contractors. However, providing them to contractors you work with regularly can foster loyalty and strengthen professional relationships. By valuing their time off, you create a respectful working dynamic.