FEDERAL OVERTIME LAWS: HOLIDAY & VACATION PAY

The Fair Labor Standards Act provides that the term "regular rate" shall not include "payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause …."

This provision deals with the type of absences which are infrequent, sporadic or unpredictable. It has no relation to "regular absences" such as lunch periods nor to regularly scheduled days of rest. Sundays may not be workdays in a particular plant, but this does not make them either "holidays" or "vacations," or days on which the employee is absent because of failure to provide sufficient work. The term refers to those days customarily observed in the community in celebration of some historical or religious occasion; it does not refer to days of rest given to employees in lieu of or as an addition to compensation for working on other days.

The term "other similar cause" refers to payments made for periods of absence due to factors like holidays, vacations, sickness and failure of the employer to provide work. Examples of "similar causes" are absences due to jury duty, attending the funeral of a family member or inability to reach the workplace because of weather conditions. Only absences of a nonroutine character which are infrequent or sporadic or unpredictable are included in the "other similar cause" category.

The computation of overtime pay in holiday workweeks is governed by these rules:

(1) So-called "idle" holiday and vacation pay—money an employee receives whether he works or not—need not be included in figuring the regular rate. It may not, however, be offset against overtime pay due under the Act;

(2) Straight time pay which an employee receives for working on the holiday or vacation must be included in figuring the regular rate and it may not be offset against overtime pay due under the Act.

(3) Premium payments of at least an extra half-time which an employee receives for time worked on the holiday may be excluded in figuring the regular rate and may be offset against overtime pay due under the Act;

(4) A total payment of time and a half or more of the regular rate which an employee receives when he or she works on a holiday or vacation will be regarded as pay for time worked, even though the employee would have received straight time if the employee had not worked on the holiday. Thus, the straight time would have to be included in the regular rate. The extra half-time, however, may be excluded in figuring the regular rate and may be offset against overtime pay due under the Act.

However, care should be taken on how the pay plan is structured. If an employee is entitled to holiday or vacation pay even if the employee works that period, that pay cannot be used to meet the requirement that the premium pay equals or exceeds one and one-half times the regular rate.Thus, if an employee is entitled to vacation pay regardless of whether the employee works or not and the employee receives straight time pay, the employer must pay overtime when the employee works on the straight time pay.

EXAMPLES OF CALCULATING VACATION PAY

Example (1): An employee whose rate of pay is $5 per hour and who usually works a 6-day, 48-hour week is entitled, under an employment contract, to a week's paid vacation in the amount of the usual straight time earnings ($5 × 48 = $240). The employee foregoes a vacation and works 50 hours during that week. The statutory workweek is 40 hours.

$240.00 = Vacation pay

$250.00 = Regular pay ($5 regular rate × 50 hours worked)

$ 25.00 = Overtime pay ((½ × $5) × 10 overtime hours)

$515.00 = Total Compensation Due


The regular rate of $5 per hour is not increased by adding the $240 vacation pay into its computation, and no part of the $240 may be used to offset the statutory overtime compensation which is due. There is no statutory right to the $240 vacation pay or any other sum as vacation pay. This is a matter of private contract.

Example (2): The same employee in Example (1) above is entitled under a contract to 8 hours of pay at a regular rate of $5 per hour for the Christmas holiday. The employee foregoes the holiday and works 9 hours on that day. During the entire week the employee works 50 hours.

$ 40.00 = Idle holiday pay ($5 × 8 hours)

$250.00 = Regular pay ($5 × 50 hours worked)

$ 25.00 = Overtime pay ((½ × $5) × 10 overtime hours)

$315.00 = Total compensation due

The regular rate of $5 was not increased by adding the $40 holiday pay to the computation. No part of the $40 may be used to offset the statutory overtime compensation due.

[If the employment lawyers are not entitled to holiday or vacation pay when they work on those days, then the premium pay received for work on those days is excludable from the regular rate and credited towards overtime pay

Example (3): Same employee in the above examples except that, under the contract, the employee is only entitled to holiday pay when no work is performed. If the employee is required to work on the holiday, instead of receiving the holiday pay he or she receives a premium rate of $7.50 (time and a half) for each hour worked on the holiday. The employee works 9 hours on the holiday and 50 hours during the week.
$250.00 = Regular pay (50 hours × $5) 

$ 25.00 = Overtime pay (10 hours × (½ × $5))

$ 22.50 = Holiday premium (9 hours × ($7.50−$5))

The employer is able to take credit for the holiday premium against the overtime premium and the employee is only due $2.50 for overtime ($25 overtime − $22.50 holiday premium). The straight time vacation pay ($9 hours × $5 = $45) is not included in the regular rate or credited against the overtime premium. Thus, the employee is paid as follows:

$250.00 = Regular pay

$ 22.50 = Holiday premium

$ 2.50 = Overtime pay due ($25 overtime − $ 22.50 premium)

$ 45.00 = Holiday straight time

$320.00 = Total Compensation Due

The statute does not require premium pay for a holiday. Since the holiday premium is one and one-half times the established rate for nonholiday work, it does not increase the regular rate because it qualifies as an overtime premium under Section 7(e)(6), and the employer may credit it toward the statutory overtime compensation due.

Example (4): Same employee as in the above examples, except that the contract calls for $10 (double time) for each hour worked on the holiday.

$250.00 = Regular pay ($5 × 50 hours worked)

$ 25.00 = Overtime pay (10 hours × (½ × $5)) 

$45.00 = Holiday premium (9 hours × ($10−$5)) 

The employer is able to take credit for the holiday premium against the overtime pay, so no additional overtime is due ($45 premium > $25 overtime). Thus, the employee is paid as follows:

$205.00 = Regular pay ($5 × 41 nonholiday hours)


$ 90.00 = Holiday pay (9 hours × $10)

$295.00 = Total Compensation Due

Since this holiday premium qualifies under Section 7(e)(6), it is excludable from the computation of the regular rate and may offset against overtime compensation due.

In distinguishing Examples (3) and (4) from Examples (1) and (2), it should be noted that the correct provisions in Examples (1) and (2) called for holiday pay whether the employee worked or not. In Examples (1) and (2), the employee received some pay attributable to the holiday, whether he or she worked or not, and some pay at a nonholiday rate for hours worked on the holiday. In Examples (3) and (4), all the premium pay the employee received for working on the holiday (even though it is double time) was directly attributable to work performed on the holiday.The payment of an additional hour's pay to employees who work a seven-hour shift at the beginning of the change to daylight savings time is treated as a holiday hour and need not be counted as part of the regular rate of pay for overtime purposes. This amount, however, cannot be credited toward any overtime compensation due for the week. But at the end of the daylight savings period, employees working the nine-hour shift are entitled to overtime on the basis of all hours worked in the workweek, including the extra hour worked during the time change