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Holiday Pay and Bonuses: What's Legally Required for Small Businesses

By George Khoury, Esq. | Last updated on

It's that time of year when the world falls in love ... with spending money and shopping! While you may be relying on this time of year to make your business profits soar, your employees may be relying on extra holiday pay and maybe even year-end bonuses.

Some small business owners, especially new small business owners, might be wondering whether they are legally required to provide holiday pay and/or bonuses. Unless your small business is part of a state or local government, then the answer, like most legal business questions, is the standard lawyer mantra of: it depends.

What's Legally Required?

When it comes to bonuses and holiday pay, there are no specific federal or state laws that require you to provide either to hourly or exempt employees. The one caveat is for non-exempt employees and office closures. If the office closes for even one day for a holiday, the employee will still be entitled to their full week of pay if they worked one day in that week.

Regarding holiday pay, while it may be customary for employers to pay time-and-a-half on holidays, there is no requirement for overtime rates to be paid on holiday hours worked. Unless the employee actually works overtime, however, in which case the normal federal and state overtime laws apply. When it comes to bonuses, there is absolutely nothing in state or federal law requiring bonuses be paid to employees.

If You Promised, You Need to Follow Through

While the law may not require it, if you promised, or plan to promise, your employees extra wages during the holiday season, or bonuses, you need to follow through as you may have created a contractual obligation. However, you can feel free to craft a bonus and/or holiday pay policy that is mutually beneficial, i.e. making the bonus contingent on meeting individual or company wide performance goals. Additionally, you can exclude categories of employees, such as part-time, probationary, or seasonal employees from the policy.

Time-Off for Holidays

Although the whole world or country may be celebrating the holiday, you can require your employees to be at work. The exception to this is for religious holidays where your employee has asked for the day off to celebrate. Generally, employers should make every effort to provide a reasonable accommodation by providing the time off, as not doing so can run afoul of federal and state anti-discrimination laws. While you are not required to provide the time off if it cannot be reasonably accommodated, that may be a difficult position to defend unless you have clear policies governing time off for employees.

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