Exempt vs. Non-Exempt Holiday Pay

Document created by 1002070 on Dec 9, 2014Last modified by 1002070 on Mar 10, 2017
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Although holiday pay and vacation pay or other paid benefits are not required by law, employers must follow federal and state wage and hour laws if they choose to offer such benefits.  One area that causes some confusion is the difference in the application of the law for exempt employees vs. non-exempt when considering a waiting period for eligibility for holiday pay.


North Carolina law says that if you offer benefits, you must follow your policy as far as eligibility, accrual and forfeiture.  There can be a waiting period before eligibility. Many employers condition eligibility on the completion of the introductory period, and often require employees to work the day before and the day after the holiday to be eligible for holiday pay. This can only apply to non-exempt employees.


Under the Fair Labor Standards Act (FLSA), exempt employees must generally be paid on a salary basis. Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period on a weekly basis.  The salary cannot be reduced based on fluctuations in quality or quantity of the work.  Deductions from the salary are limited to those specified in the regulations. (See http://www.dol.gov/whd/regs/compliance/fairpay/fs17g_salary.htm.


The regulations allow deductions from the exempt salary for vacation/sick time before the employee is eligible and after the benefit has been exhausted.  The regulations do not specify or permit this option for holidays.  Also, the regulations state that deductions may not be made from the exempt employee’s salary because of the operating requirements of the business.  To state another way, if the employee is willing and able to work but cannot because of operating requirements (the business chooses to close for the holiday or for other reasons), the employer may not make a deduction from the exempt employee’s salary because the employee is not working. Policies that state an employee must work the day before and after a holiday to receive holiday pay also do not apply to exempt employees unless the employee does not work for the entire week.


If you have questions about this or other wage and hour laws, please contact our Advice and Resolution team at 919-878-9222 or 336-668-7746.