Should Holiday Pay be Included in Overtime Premiums?
October 29, 2024
By: Colin A. Walker
A recent Colorado Supreme Court case HAS clarified when holiday pay should be included in the calculation of overtime pay. Under federal law and the law of most states, employees must be paid 1.5 times their regular rate (“time-and-a-half”) for all hours an employee works over 40 in a workweek. Under Colorado law, and the laws of some other states, employees are also entitled to time-and-a-half for all hours worked over 12 hours in a workday. The additional pay is known as the “overtime premium.”
Many employers provide paid holidays, for which employees are paid their normal compensation even though they do not work. This is known as “holiday pay.” However, sometimes, due to business necessity, employees may work on a holiday. In such cases, the employees who work the holiday are paid extra in consideration for working the holiday. For example, employees who work on holidays may be paid double time. This additional pay is known as a “holiday incentive pay.”
The question that has arisen is whether an employer must include holiday incentive pay when calculating the overtime premium for employees who work overtime on a holiday. For example, if an employee in Colorado WHO normally makes $20 per hour is paid double time for working on a holiday, and works more than 12 hours on that day, would the overtime calculation be: $20/hour X 2 for holiday incentive pay X 1.5 for overtime = $60/hour for each overtime hour worked on the holiday?
In Hamilton v. Amazon.com Services, the Colorado Supreme Court held that employers must include holiday incentive pay in the regular rate when calculating overtime. The Court explained that Colorado law defines the “regular rate of pay,” upon which the overtime premium is based, as “the hourly rate actually paid to employees for a standard, non-overtime workweek.” The regular rate includes such things as shift differentials, extra pay because of the character of the work done or the time at which the employee is required to work. However, the regular rate does not include business expenses, gifts, discretionary bonuses, vacation pay, holiday pay, sick leave, or “other pay for non-work hours.” The Court reasoned that holiday incentive pay is akin to a shift differential which must be included in the regular rate because it is additional pay provided because of the undesirable timing of the work (i.e., on a holiday). It is not pay for non-working hours, such as vacation, or holiday pay. Therefore, the Court held that holiday incentive pay must be included in the regular rate for calculating overtime premiums.
Employers with non-exempt workers who receive incentive pay for working on holidays should review their payroll practices and procedures to ensure that all employees who work overtime on holidays receive time-and-a-half of the regular rate, including holiday incentive pay.