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How to prevent costly FLSA mistakes with holiday pay & scheduling

by on
in Centerpiece,Compensation and Benefits,Human Resources

The time between Thanksgiving and New Year’s is a busy time for many HR departments. Questions regarding overtime, holiday pay and seasonal hires often arise.

Don’t let the IRS play Scrooge this holiday season. As long as you know the Fair Labor Standards Act (FLSA) rules on holiday pay and holiday scheduling, you’ll skate through the season in good cheer.

Holiday pay rules

If your organization closes on Thanksgiving, Christmas or New Year’s Day, it may—but is not required to—pay employees for that time.

Rule: The FLSA doesn’t mandate that any employee—exempt or nonexempt—be paid for holidays. If you wanted to offer a day’s pay, you could, for example, pay nonexempts for eight holiday hours, even though they normally work 10-hour days.

If you do pay holiday pay to non­exempts and they work overtime during that week, don’t factor the holiday pay into their regular rate calculation when you calculate their overtime rates. That’s because holiday pay is idle time pay, which is excluded from the regular rate calculation.

What about exempts? If you close for a holiday, and you have a bona fide benefits plan, you can require exempts to take accrued time off, provided they receive payments equal to their guaranteed salary.

Caution: Exempts who run out of accrued time due to current debiting, and those who have already run out of time, must still be paid their full salaries. If you shut down for an entire week, you needn’t pay exempts anything.

Rule: Exempts don’t need to be paid if they don’t work for a week. They may use vacation or other accrued time, if they have it.

Holiday work rules

Depending on your company policy, nonexempts can make a substantial dent in their holiday bills by picking up overtime work. Consider these two FLSA rules:

1. You don’t have to include holiday pay in the regular rate calculation for nonexempts who work through a holiday if they receive their regular wages in addition to the holiday pay. But you can’t credit this holiday pay against your obligation to pay overtime.

2. If, instead of paying employees their normal wages plus holiday pay, they exchange the holiday pay for at least time-and-a-half for holiday work, you can credit that time-and-a-half premium against your obligation to pay overtime. Upshot: Employees don’t lose a dime in overtime and the company saves money.

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