Holiday Pay
Holiday Pay Explained: What Every Employee Should Know in 2025
Holiday pay varies dramatically worldwide, from Luxembourg where employees receive triple their standard salary for working on public holidays to the United States where it remains entirely voluntary for employers. Surprising, isn’t it?
Despite being a common workplace benefit, holiday pay lacks universal standards across countries and companies. What is holiday pay exactly? At its core, holiday compensation represents additional wages provided during holidays, typically taking the form of fully or partially paid time off or premium rates for working holiday shifts. In the U.S., many companies offer 150% of regular hourly wages (time-and-a-half) for holiday work, although the Fair Labor Standards Act (FLSA) doesn’t actually require this practice. Holiday pay rules differ significantly by location – for instance, Australian employees are entitled to at least their base pay rate for all hours worked on public holidays, while holiday pay in Norway amounts to 10.2% of the holiday pay basis.
Understanding how holiday pay works is particularly important for employees in global companies where managing these benefits becomes complex due to varying local regulations. Throughout this guide, we’ll explore everything you should know about holiday pay entitlements, calculation methods, and how to ensure you’re receiving fair compensation during holiday periods in 2025.
What is holiday pay and why it matters
Holiday pay represents compensation provided to employees during recognized holidays, serving as a critical component of employment benefits packages across various industries. Understanding this concept is essential for both employers creating policies and employees navigating their rights to fair compensation.
Definition of holiday pay
Holiday pay fundamentally refers to compensation employees receive from their employer for designated holidays. This compensation ensures workers are still paid even when they don’t work on holidays or receive enhanced pay when they do. Essentially, holiday pay functions as any form of alternative compensation offered during holidays, which may appear as fully paid time off, partially paid time off, or additional hourly pay for work performed during recognized holidays.
In some jurisdictions, holiday pay operates as an allowance earned through work completed in the calendar year prior to the holiday year. Furthermore, specific countries like Norway, Sweden, Denmark, Belgium, Netherlands, Germany, and Austria have established legal terminology for holiday pay, demonstrating its significance in employment law worldwide.
Types of holiday compensation
Holiday compensation varies significantly across organizations and countries, taking several distinct forms:
- Paid Time Off – Many employers offer fully or partially paid days off during recognized holidays, allowing employees to celebrate without financial penalty.
- Premium Pay Rates – Companies that must remain operational during holidays often provide enhanced compensation, typically:
- Time-and-a-half (150% of regular wages)
- Double-time pay
- Holiday bonuses or other incentives
- Percentage-Based Systems – Certain European countries implement percentage supplements to salaries. For instance, in Norway, holiday pay amounts to 10.2% of the holiday pay basis, with employees turning 59 years receiving 12.5%. Similarly, Netherlands calculates holiday pay as a minimum of 8% of an employee’s gross taxable wage.
- Average Weekly Earnings – In the UK, holiday pay calculations for variable-hour employees recently shifted from a 12-week to a 52-week reference period, ensuring fairer representation of average earnings.
Voluntary vs. mandatory holiday pay
The distinction between voluntary and legally mandated holiday pay creates significant differences in employee experiences worldwide:
In the United States, holiday pay remains entirely voluntary for employers. The Fair Labor Standards Act (FLSA) does not require employers to provide holiday pay or compensation for any time employees don’t work. The only legal requirement is that hours worked must be paid at employees’ regular rates, with employers having discretion to pay more for holiday work.
Conversely, many international employment laws establish mandatory holiday pay provisions:
- In the UK, employees are legally entitled to 5.6 weeks of paid holiday annually
- Norwegian employees have established holiday pay rights under the Holiday Act of 1988
- The Netherlands first instituted mandatory holiday pay in 1969
Understanding this voluntary-mandatory distinction explains why holiday benefits vary dramatically between companies and countries. For employees, recognizing whether holiday pay is guaranteed by law or offered as a discretionary benefit helps set appropriate expectations about compensation during holiday periods.
Holiday pay holds significant importance beyond simple compensation, additionally serving as a tool for boosting employee morale, attracting talent, and encouraging coverage for holiday shifts. Given its value to both employers and workers, clarifying holiday pay policies remains crucial for transparent employment relationships.
Key benefits of holiday pay for employees and employers
“Tacking on a single PTO day to most public holidays in 2025 will create four day weekends – perfect for mini getaways.” — Insight Vacations, Premium travel company
Offering holiday pay delivers measurable advantages for both employees and organizations, creating a win-win scenario that extends far beyond the immediate financial transaction. Let’s explore the concrete benefits that make holiday pay such a valuable workplace policy.
Boosting employee morale
Holiday pay directly contributes to employees’ mental well-being and workplace satisfaction in several meaningful ways. Most importantly, it provides dedicated time for employees to recharge without financial worry. This rejuvenation period helps reduce employee burnout—a growing workplace concern that directly impacts productivity and organizational performance.
A properly implemented holiday pay system builds trust throughout the organization as employees feel their need for rest is genuinely valued. This sense of appreciation translates into tangible benefits: research shows that receiving rewards or recognition would increase productivity and loyalty among 83% of employees.
Employee morale also benefits from the work-life balance holiday pay enables. When staff can maintain healthier boundaries between professional and personal responsibilities, they return to work more focused and energized. Consequently, many companies find that temporary closures during major holidays have minimal negative impact on productivity—in fact, the morale boost often leads to increased efficiency and profitability afterward.
Attracting and retaining talent
In today’s competitive job market, holiday pay has become a powerful talent management tool. Studies reveal that many employees prioritize comprehensive benefits packages over higher salaries, making holiday pay policies a significant factor in recruitment decisions. This preference is notably stronger among younger workers; research indicates they’re twice as likely as older employees to consider leaving their position for an employer offering holiday gift rewards.
As a retention strategy, holiday pay demonstrates remarkable effectiveness. According to research conducted in Vietnam, employee retention rates improved significantly based on several holiday bonus factors: total value, in-kind rewards, and transparent calculation formulas. Moreover, four in ten employed respondents reported they would consider leaving their current role if a new employer were to provide holiday gift cards.
The organizational theory supporting these findings is straightforward: employees tend to stay with employers as long as the inducements offered (including compensation and benefits like holiday pay) equal or exceed their contributions of time and effort. Therefore, establishing competitive holiday pay policies represents not merely an expense but a strategic investment in workforce stability.
Encouraging holiday shift coverage
For businesses that must remain operational during holidays, adequate coverage poses a perennial challenge. Holiday pay—particularly premium rates like time-and-a-half—provides compelling incentives for employees to volunteer for these shifts. This additional compensation acknowledges the sacrifice employees make by working when most are celebrating with family.
Well-designed holiday pay policies ensure continuity of operations while reducing last-minute call-offs, which create tremendous strain on remaining staff. According to SHRM guidelines, nonexempt employees required to work on company holidays frequently receive one and one-half times their regular pay in addition to standard holiday pay. This dual compensation approach—providing both premium pay and holiday pay—effectively motivates employees to accept holiday shifts.
The immediate financial benefit for employees working holiday hours balances against the social cost of missing celebrations, creating a fair exchange that benefits both parties. This balanced approach to holiday staffing ultimately strengthens the employment relationship through mutual respect and appropriate compensation for extraordinary service.
How holiday pay works around the world
Global approaches to holiday pay differ dramatically, reflecting cultural values and labor rights developments that have evolved over decades in each region. From entirely voluntary systems to legally mandated entitlements, the contrasts are stark.
United States: Time-and-a-half and common practices
Unlike most industrialized nations, the United States has no federally mandated paid leave requirements. The Fair Labor Standards Act (FLSA) doesn’t require employers to provide holiday pay or any compensation for time not worked. Nonetheless, many American employers voluntarily offer premium pay—typically time-and-a-half—for holiday work to boost morale and ensure adequate staffing. Some states have implemented their own requirements; for instance, Rhode Island mandates premium pay for employees working on federal holidays.
United Kingdom: Bank holidays and employer discretion
British workers are legally entitled to 5.6 weeks (28 days) of paid annual leave. Yet, there’s a catch—bank holidays can either be included within or added to this entitlement, entirely at the employer’s discretion. The UK approach gives businesses flexibility while ensuring minimum standards. Workers need not take bank holidays as leave if their workplace closes; the employer must either specify this in their contract or provide proper notice.
Europe: Government-mandated entitlements
European Union legislation requires all 27 member states to grant employees a minimum of 4 weeks paid vacation. However, individual countries often exceed this baseline. Germany permits 20 days holiday plus 13 public holidays, Spain offers 25 holidays with 14 public holidays, and Italy provides 20 holidays with 10 public holidays. This government-mandated approach has created substantially more generous holiday entitlements than in the United States.
Australia: Public holiday pay rules
Australian employees receive their base pay rate for all hours worked on public holidays. The Fair Work Act guarantees ten national public holidays, with additional regional holidays depending on territory. Even casual employees are entitled to take public holidays off, though without payment. Employees can refuse to work public holidays on reasonable grounds, protecting work-life balance while ensuring business continuity.
Norway and Netherlands: Percentage-based systems
Rather than fixed days off, these countries implement unique percentage-based holiday pay systems. In Norway, holiday pay equals 10.2% of the previous year’s salary (for 4 weeks + 1 day vacation), increasing to 12.5% for workers over 60. Meanwhile, the Netherlands requires employers to pay at least 8% of employees’ gross salary as holiday allowance (vakantiegeld), typically disbursed as a lump sum in May or June.
How to calculate holiday pay in different scenarios
“The aim of the reform is to simplify holiday entitlement and holiday pay calculations for irregular hours and part-year workers.” — Samantha O’Sullivan, Chartered Institute of Payroll Professionals (CIPP) expert
Calculating holiday pay correctly requires understanding different employment scenarios and their unique formulas. The method varies considerably depending on employment status, working patterns, and location.
Standard full-time employees
For full-time employees with fixed hours, holiday pay calculation remains straightforward. These workers typically receive their regular weekly wage while on holiday. For example, if an employee earns $500 for a standard work week, they should receive $500 when taking a week of holiday. Since 2024, the “normal” rate of pay for the first four weeks must include commission payments, professional status compensation, seniority bonuses, and regularly paid overtime. Employers must include relevant payments in at least four weeks of holiday pay, though they can pay basic salary for the additional 1.6 weeks.
Zero-hour and part-time workers
Part-time and zero-hours workers deserve equal treatment proportionate to their hours. For these employees, holiday pay is typically calculated based on their average weekly earnings over the previous 52 weeks. Specifically, for zero-hours contracts, many employers use the 12.07% calculation method – representing the proportion of 5.6 weeks’ holiday relative to a working year. Beginning April 2024, rolled-up holiday pay became a lawful option for irregular hours workers, allowing employers to include 12.07% of a worker’s pay in each pay period.
Using average weekly earnings
The Average Weekly Earnings (AWE) calculation proves essential for variable-hour employees. To calculate AWE, divide gross earnings from the previous 52 worked weeks by 52. Remember that AWE includes wages, overtime, most allowances, holiday payments, and long service bonuses. Initially, identify the last full week worked before the holiday, then count back 52 weeks, excluding any weeks not worked.
Holiday pay and tax implications
Regarding taxation, holiday pay generally follows standard income tax rules. Nevertheless, pay arrears resulting from correction of holiday pay calculations can create confusion. Typically, if holiday pay arrears arise from employment law breaches, HMRC guidance confirms that tax is due in the year of entitlement rather than payment. This distinction proves important for both employers and employees when handling corrected holiday payments.
Creating a fair and clear holiday pay policy
Developing a comprehensive holiday pay policy serves as the foundation for transparent compensation practices within any organization. A well-crafted policy eliminates confusion and ensures fair treatment across all employment categories.
Eligibility criteria
Establishing clear eligibility guidelines forms the cornerstone of any holiday pay policy. HR professionals must explicitly state which employees qualify for holiday compensation. Organizations maintain complete discretion over eligibility requirements—some provide holiday pay immediately upon hiring, while others require completion of an introductory period. Many companies implement prerequisite conditions such as requiring employees to work both the day before and after a holiday to receive holiday pay.
Regular scheduling status typically determines eligibility as well. Employees must be “regularly scheduled” (with hours arranged in advance) to qualify for paid holidays. By comparison, intermittent workers or part-time staff without fixed schedules often remain ineligible for holiday premium pay.
Floating holidays and rollover rules
Floating holidays provide employees flexibility to observe personal, religious, or cultural celebrations not included in standard company calendars. Typically offered as 2-3 days annually, these differ from traditional PTO. Most organizations make floating holidays available at the calendar year’s beginning, with new employees receiving prorated amounts—two days if hired before July, one day if hired after.
Most critically, companies must clarify whether unused floating holidays:
- Expire at year-end (“use-it-or-lose-it” approach)
- Can be carried over to the following year
- Will be paid out upon termination
Exempt vs. non-exempt employees
The distinction between exempt and non-exempt status substantially affects holiday pay implementation. Exempt employees (salaried) typically receive their normal compensation for holidays without deductions. Conversely, non-exempt employees (hourly) generally earn their regular rate for holiday hours worked, with overtime applying after 40 weekly hours.
Communicating the policy to staff
Undoubtedly, transparency remains essential when implementing holiday policies. Include all holiday pay provisions within your employee handbook. Specifically outline calculation methods, eligibility requirements, and request procedures. Given that holiday pay policies affect both employee finances and scheduling, clear communication prevents disputes while fostering an environment of mutual respect.
Conclusion
Understanding your holiday pay rights in 2025 and beyond
Undoubtedly, holiday pay represents a significant aspect of employee compensation packages worldwide. Throughout this article, we’ve examined how holiday pay works across different regions, from the voluntary time-and-a-half practices common in the United States to the legally mandated entitlements prevalent throughout Europe. The stark contrast between these approaches demonstrates why employees must understand their specific rights based on location and employment status.
Above all, knowing how your holiday pay should be calculated proves essential whether you work full-time, part-time, or on a zero-hours contract. The calculation methods vary considerably, with some employers using percentage-based formulas while others rely on average weekly earnings over 52 weeks. Therefore, regularly reviewing your pay stubs during holiday periods helps ensure you receive fair compensation aligned with local regulations.
The benefits of holiday pay extend beyond immediate financial gain. Proper holiday compensation boosts morale, aids in talent retention, and encourages coverage for essential holiday shifts. These advantages create a win-win scenario for both employees and employers when implemented correctly.
Ultimately, your awareness of holiday pay entitlements serves as the first line of defense against potential underpayment. Though holiday pay policies differ dramatically worldwide, one universal truth remains: employees deserve transparent communication about how their time off and holiday work will be compensated. Armed with the knowledge from this guide, you can confidently navigate holiday pay discussions with current or prospective employers as we move through 2025 and beyond.
FAQs
Q1. How is holiday pay calculated for full-time employees? For full-time employees with fixed hours, holiday pay is typically calculated based on their regular weekly wage. This means if an employee normally earns $500 for a standard work week, they should receive $500 when taking a week of holiday.
Q2. Are employers required to provide holiday pay? The requirement for holiday pay varies by country. In the United States, it’s voluntary for employers. However, in many European countries, it’s legally mandated. For example, UK workers are entitled to 5.6 weeks of paid annual leave.
Q3. How does holiday pay work for part-time or zero-hour contract workers? For part-time and zero-hours workers, holiday pay is usually calculated based on their average weekly earnings over the previous 52 weeks. Some employers use the 12.07% calculation method for zero-hours contracts, representing the proportion of 5.6 weeks’ holiday relative to a working year.
Q4. What are the benefits of offering holiday pay for employers? Offering holiday pay can boost employee morale, help attract and retain talent, and encourage coverage for holiday shifts. It demonstrates that the company values work-life balance and can lead to increased productivity and loyalty among employees.
Q5. How do floating holidays work? Floating holidays are typically 2-3 additional days off that employees can use for personal, religious, or cultural celebrations not included in standard company calendars. They’re usually available at the beginning of the calendar year, with policies varying on whether unused days can be carried over or paid out upon termination.
