Question: Our handbook states you must work your first scheduled day before AND after the holiday to receive holiday pay. However, what if the employee is scheduled to work the holiday and then calls out on the holiday? Do we still need to pay them holiday pay even though they called out?
Answer: There is nothing in the wage and hour laws (federal or state) that even requires employers to pay holiday pay. The employer’s policy and past practice govern the payment of holiday pay completely in the case of nonexempt employees. With exempt employees, employers need to consider the salary basis issue for the exemption that requires that exempt employees are paid full salary for the week in which they work.
So for your nonexempt/hourly employees, if your handbook states that you must work your first scheduled day before and after the holiday to receive holiday pay and the employee does not work those days, then no holiday pay is owed them, as long as you consistently apply this practice to all employees in the same classification (so as to avoid discrimination complaints).
In the case of exempt employees, the salary basis test applies. As a general rule, if the exempt employee performs any work during the workweek, s/he must be paid the full salary amount (regardless of the number of days or hours worked). Deductions from pay are allowed in only a few situations. In your case, you would be allowed to NOT pay the exempt employee for the holiday if the employee was absent for one or more full days for personal reasons other than sickness or disability (you can substitute accrued vacation pay for that time off to keep the paycheck “whole” or just deduct the full days missed). If the exempt employee called in sick, then you cannot deduct the salary for the week, but you can substitute accrued sick leave hours for that time off.