Holidays present confusion around paying for hours worked, overtime

November, December, and January are host to the majority of employers' paid holidays. Changes in working hours and pay this time of year can lead to confusion about compensation, specifically regarding when overtime pay is required.

The basics

At the federal level, overtime needs to be paid only for hours worked in excess of 40 in a workweek. This means that an employee may be paid for 48 hours, but if eight of those were holiday pay, all hours can be paid as straight time, since only 40 hours were actually worked.

But paid time off is not the only way employers acknowledge the holidays. Some employers pay a premium rate (often time and a half) to reward employees who work on holidays. This can be confusing in terms of overtime.

Do the math

Here's a simple example: Your workweek runs from Sunday to Saturday and your employees work Monday through Friday the week of Thanksgiving. They are required to work on Thanksgiving Day, but are paid time and a half for these hours. Employees who work eight hours each day this week would receive 32 hours of pay at their regular rate, and eight hours at time and a half, per your designation. With no overtime hours involved, this is simple enough.

So what happens when an employee works nine hours per day, for a total of 45 hours? Is additional overtime owed? In this example, the answer is no. The law requires employers to pay employees at an overtime rate for hours worked over 40 in a workweek. So at a minimum, this employee would be owed 40 hours of straight time and five hours of overtime pay.

However, under your agreement, the employee is already paid at an overtime rate for the nine hours worked on Thanksgiving Day, so you're actually paying more than is required by law. To be owed additional overtime pay, an employee would need to have more hours in excess of 40 than he or she worked on the time-and-a-half holiday.

Lesser premium rates

It's a different story, however, if the premium you pay employees for working on designated holidays is less than time and a half. Using the same workweek, let's say you pay employees an extra dollar per hour for working Thanksgiving Day. If the employees work 40 hours that week, no overtime pay is owed, and you'd simply pay them the extra $8 for their work on Thursday.

However, if an employee works nine hours per day for a weekly total of 45 hours, and gets an extra dollar per hour on Thanksgiving, the employee is now owed overtime pay. Since the premium paid is less than the overtime rate, you have to calculate the employee's “regular rate” and use it to determine the required overtime rate. To do so, divide the employee's total (pre-overtime) earnings by the number of hours he or she worked.

So, if an employee usually makes $10 per hour, and made $11 per hour for working Thanksgiving, that person would have worked 36 hours at $10 an hour and nine hours at $11 an hour, for a total of $459. Divide $459 by 45 (the total number of hours worked) and you get $10.20, or the employee's regular rate. You would need to pay the employee an additional one-half times the regular rate (or $5.10) for all hours worked over 40 in the workweek. In this case, the employee would be owed $459 + $5.10 x 5, or $484.50 for the week.

Wage and hour litigation has grown considerably over the past few years, at both the state and federal level, and such suits come with the possibility of a class action. While providing premium rates for work performed on holidays is a nice benefit, if you're not calculating wages correctly, that benefit could quickly become a costly one in the courtroom.

For more information about wage and hour topics, visit our Fair Labor Standards Act (FLSA) compliance topic page.

J. J. Keller's Wage and Hour Compliance manual helps you comply with the Fair Labor Standards Act (FLSA) and state wage & hour laws.