Holiday pay policies for U.S. small businesses
Whether you have to pay for federal holidays (mostly no, but with major exceptions), and how the eleven federal holidays interact with your biweekly schedule.
The Fair Labor Standards Act does not require employers to pay non-exempt employees for federal holidays they don't work, and does not require any premium ("holiday pay") for hours worked on federal holidays. Holiday pay is a benefit you choose to offer, not a federal mandate. This guide walks through how small employers typically structure holiday pay and how the eleven federal holidays interact with biweekly and semi-monthly schedules.
The federal floor: nothing
Federal law requires no paid holidays for private-sector employees. An employer can require employees to work every federal holiday at the regular rate of pay and not pay anything additional. In practice, almost no small business does this — but the federal floor is a useful reminder that any holiday pay policy you adopt is voluntary and therefore needs to be documented in your employee handbook.
Common small-business policies
Most U.S. small businesses pay non-exempt employees for the eleven federal holidays at the regular rate of pay if the holiday falls on a day they would otherwise have worked. Salaried exempt employees receive their normal salary regardless of whether the holiday closes the office. A subset of small employers (retail, hospitality, healthcare) require employees to work some or all federal holidays and pay a premium ("time and a half" or "double time") for hours worked on the holiday — this is a benefit, not a legal requirement, but it's standard in industries that don't close.
The eleven federal holidays
The federal holiday list codified at 5 U.S.C. §6103 is: New Year's Day (Jan 1), Martin Luther King Jr. Day (3rd Monday in January), Presidents' Day (3rd Monday in February), Memorial Day (last Monday in May), Juneteenth National Independence Day (June 19, since 2021), Independence Day (July 4), Labor Day (1st Monday in September), Columbus Day (2nd Monday in October), Veterans Day (Nov 11), Thanksgiving Day (4th Thursday in November), and Christmas Day (Dec 25). The four "Monday holidays" plus Thanksgiving never shift; the six fixed-date holidays shift to the prior Friday or following Monday when they fall on a weekend.
How holidays interact with the pay date
Federal holidays close the Federal Reserve and most U.S. banks. Any pay date that lands on a federal holiday cannot be funded that day; the actual deposit shows up the next banking day unless you fund earlier. Standard small-business practice — and the convention used in every schedule on this site — is to shift the pay date earlier (to the prior business day) so employees never wait for their paycheck. Same-day ACH funding can rescue you if you discover the conflict on the morning of the original pay date.
State holiday variations
Some states observe additional state holidays — Patriots' Day in Massachusetts and Maine, Cesar Chavez Day in California, Mardi Gras in Louisiana parishes — but these don't generally close the Federal Reserve and therefore don't shift pay dates. Your business may choose to observe state holidays as paid days off; if so, document the policy explicitly in the employee handbook and don't assume employees know which holidays are federal vs. state.
Holiday pay and overtime calculation
Hours not worked but paid as holiday pay don't count toward the 40-hour FLSA overtime threshold. An employee who works 32 hours during a workweek that contains a paid federal holiday has 40 hours of pay (32 worked + 8 holiday) but only 32 hours of "hours worked" for overtime purposes. If the employee then works on a Saturday for additional hours, those Saturday hours don't trigger overtime until the running total of worked hours exceeds 40. This is one of the most common holiday-pay mistakes — paying overtime on holiday pay that should have been paid at the regular rate.
Documenting the policy
Your employee handbook should explicitly list which holidays are paid, what employees are eligible (most employers require completion of a probationary period and full-time status), what happens when a paid holiday falls on a non-working day (most employers shift the holiday to the closest working day), and what premium (if any) applies to hours worked on the holiday. A clear written policy prevents most disputes; an ambiguous policy guarantees them. Get an employee-handbook template if you don't already have one.