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  • Writer's pictureAdam C. Nicolai Esq.

DO I HAVE TO OFFER A PAID HOLIDAY ON LABOR DAY?



Family and Friends Gathered Outside Their Home on Warm Summer Day

With Labor Day approaching, employers may have questions about providing time off to employees and the pay requirements for employees who do work on Labor Day. To help you understand the rules, here are answers to frequently asked questions about the holiday.


Q: Do I have to offer Labor Day as a paid holiday to employees?

A: Unless you are required by contract or agreement, private employers are generally not required to provide Labor Day as a paid holiday to nonexempt employees (those entitled to minimum wage and overtime). However, if your company closes for Labor Day, employees classified as exempt from overtime (those who meet specific salary and duties requirements) must generally still receive their full pay, as long as they work any part of the workweek.


Q: If my company offers paid holidays to nonexempt employees, must I observe Labor Day as one of them?

A: No, employers may generally choose whether to observe Labor Day as a paid holiday. While some states have laws that restrict certain types of businesses from opening on Labor Day, these laws don't require employees to be paid for this time off. That said, Labor Day is one of the most common paid holidays and an important one to many applicants and employees.


Q: Can I require employees to work on Labor Day?

A: Check your state law, which may have restrictions. For example, Massachusetts and Rhode Island prohibit certain employers from requiring employees to work on Labor Day and other covered holidays.


Q: To reduce absenteeism, can I require employees to work the day before and after Labor Day to be eligible for a paid holiday?

A: Employers are generally permitted to require nonexempt employees to work the day before and after Labor Day in order to receive holiday pay. Typically, employers don't apply this policy to employees who scheduled the time off in advance.


Note: Employers shouldn't apply this type of policy to employees classified as exempt from overtime. That's because exempt employees must generally receive their full salary in any workweek in which they perform any work.


Q: What if Labor Day is also our payday?

A: The Federal Reserve and banks are closed on federal holidays, including Labor Day, so direct deposits generally won't be posted to employees' accounts on that day. Keep in mind that some states require payment on the preceding business day, if a scheduled payday falls on a holiday. Absent such a requirement, employers generally have the option of paying employees on the business day before or after the holiday.


When your check date falls on a bank holiday and you wish to pay employees the day before, adjust your check date to avoid delaying payroll delivery.


Q: If we are open on Labor Day, am I required to pay nonexempt employees a premium for working?

A: Under federal law, there's generally no requirement to pay nonexempt employees a premium for working on Labor Day, unless it results in the employee working more than 40 hours in the workweek.


However, there are exceptions in some states where employers may be required to provide premium pay regardless of how many hours the employee worked. For example, in Rhode Island, unless the employer is exempt, nonexempt employees must be paid 1.5 times their regular rate of pay for any work performed on Labor Day or another covered holiday (or Sundays).


Q: I have a nonexempt employee who receives a paid holiday on Labor Day and will then work 40 hours in the same workweek. Would this employee be entitled to overtime for the workweek?

A: Paid time off doesn't count toward hours worked when determining whether overtime is due. Therefore, unless you promised otherwise, the employee wouldn't be entitled to overtime under federal law. Keep in mind that some states, including California, require daily overtime for hours worked over eight hours in a workday. In these states, the employee may be entitled to overtime under state law. Check your state law to ensure compliance.


Q: We offer employees two times their normal pay rate to work on Labor Day. Do I have to include holiday premium pay when determining an employee's regular rate of pay for calculating overtime?

A: Under federal law, the overtime rate is 1.5 times the employee's "regular rate of pay." An employee's regular rate of pay includes their hourly rate plus the value of nondiscretionary bonuses, shift differentials, and certain other forms of compensation. However, premium pay for work on a holiday may be excluded from the regular rate of pay determination if it is at least 1.5 times what the employee receives for work performed in non-overtime hours on other days.


For example, let’s say an employee’s normal base wage is $12 per hour, but the employee is paid double that for work performed on Labor Day. If they work 9 hours on Labor Day and a total of 49 hours for the workweek as a whole, they would be owed, $216 (9 hours × $24) for the holiday work and $480 for the other 40 hours worked in the week, a total of $696.


Since the holiday-work premium is at least 1.5 times the established rate for non-holiday work, it doesn’t increase the regular rate, and the employer may credit the amount toward statutory overtime compensation due.


Keep in mind that your state law may have different rules.


Conclusion

Make sure you understand the rules that apply to your business and clearly communicate, and consistently apply, your policies on holidays.


Source: ADP


*** Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney. It is likely considered advertising. ***

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