How do I calculate overtime pay when employees take off time for vacation or holidays?
In commemoration of summer and holiday breaks everywhere I thought this question timely. Under federal law employees not exempt from overtime pay requirements (i.e. “non-exempt employees”) are entitled to 1.5x their regular rate of pay for all time worked over forty (40) hours in the workweek. There are several elements to this formula, but for purposes of answering this question we need to understand the concept of “hours worked.”
“Hours worked” are hours actually worked. They are not paid time off of any type, whether it is paid holidays, vacation time, sick leave, wages for workers compensation related time off, or any other leave of absence for which the employee is paid but does not work. As such, any hours, whether paid or unpaid, that the employee does not actually work do not count toward the calculation for overtime wages.
For example, a company provides a holiday break for July 4th and pays the employee an equivalent of an eight (8) hour day. After the holiday, the employee works forty (40) hours the remainder of the week, July 5-8. The company then would only be obligated to pay the employee for forty-eight (48) hours at straight time. Why? Because the eight (8) hours of holiday pay were not actually “hours worked” so they do not factor into the obligation to pay the non-exempt employee an overtime premium. Could the company choose to pay the overtime premium? Yes, but federal law does not require such dispensation.
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