Holiday Pay and Overtime in Same Week? Here’s How to Handle Pay Right

Trying to figure out if you need to pay overtime when an employee takes a holiday in the same week? You’re not the only one. Between holiday hours, overtime rules, and what federal law actually says, it can get confusing fast. But getting it wrong can cost your business; in both money and employee trust. In this blog, we’ll break down how holiday pay and overtime in same week situations really work, what the law requires, and how to keep your pay policies compliant and fair.

Why this matters for employers

When holiday pay and overtime in same week collide, it’s not just a payroll issue; it’s a legal and people problem waiting to happen.

Financial & compliance risks

Under the Fair Labor Standards Act, employers are required to pay eligible employees one half times their regular pay rate for all hours worked beyond 40 hours in a workweek.

In the UK, case law and employment contracts add extra layers; especially if holiday pay doesn’t reflect regular overtime work.

Here’s what’s at stake:

• Back-pay liabilities for underpaid overtime hours

• Employment tribunals or wage audits

• Breach of contract claims if the company policy isn’t followed

• Fines for not aligning with state laws, blue laws, or misclassifying holiday hours

Boosting employee satisfaction & retention

When employees feel short-changed (especially around paid holidays like Christmas Eve, Boxing Day, or Independence Day) trust erodes quickly. People notice when their total pay looks smaller than expected, especially during a week where they’re also doing overtime work.

Accurate holiday pay policies and fair overtime pay reinforce that you value your team. That can help you:

• Reduce employee turnover

• Avoid burnout from working overtime without fair pay

• Retain trust during busy periods (hello, New Year’s Eve shifts!)

So can holiday pay and overtime pay overlap in the same week?

Yes, but it depends on where your business operates, how your employees work, and how you calculate their regular pay.

US – FLSA stance

Under the Fair Labor Standards Act, holiday hours (like Christmas Eve or Indigenous Peoples Day) do not count toward the 40 hours needed to trigger overtime pay. So, if an employee works 32 hours and also takes 8 hours of paid leave, they’ve logged 40 hours total, but not 40 hours worked.

Example:

So, even if your company policy offers paid holidays, it won’t impact whether you’re required to pay overtime under federal rules.

UK – overlap implications

In the UK, things work differently. Let’s say an employee takes annual leave on Monday, works overtime from Tuesday to Friday, and ends up working extra hours beyond their usual regular workdays.

This is allowed; and the holiday pay and overtime pay will land in the same week.

But here’s the catch: if that overtime work is regular, it needs to be factored into their holiday pay. You can’t pay regular pay for time off if their usual week includes a half shift of overtime.

Why it matters:

• Failing to include regular overtime pay in holiday pay could breach the employment contract

• Could lead to claims for unpaid time, especially around federal holidays like Boxing Day or New Year’s Eve

What “regular” overtime means

Just because someone works late once doesn’t mean it becomes part of their holiday pay. But if it happens often enough? That’s where overtime rules kick in.

Types of overtime (voluntary vs mandatory vs non-guaranteed)

• Voluntary overtime: The employee chooses to work it. Might be regular (e.g. every Friday), or occasional.

• Mandatory overtime: The employer requires it; often written into the employment contract.

• Non-guaranteed overtime: Not required, but expected when offered (e.g. busy seasons).

Only regular voluntary or mandatory overtime work affects holiday pay calculations. Occasional or one-off extra hours usually don’t.

EAT Dudley v Willetts precedent

This case changed the game in the UK. The Employment Appeal Tribunal ruled that even voluntary overtime (if worked regularly) must be considered part of an employee’s normal remuneration. So if someone picks up overtime hours every week, their holiday pay should reflect that.

In practice, this means:

That’s why it’s crucial to review your holiday pay policies and overtime rules carefully, or speak to an employment lawyer if you're unsure.

Holiday‑pay calculation under uk law

Calculating holiday pay isn’t guesswork, especially when overtime pay and bonuses are involved.

52‑week reference rule

Since April 2020, the UK shifted from a 12-week to a 52-week reference period to calculate holiday pay for workers without fixed hours or pay. That means you now have to look at the previous 52 paid weeks to work out an employee’s regular rate.

Key things to know:

• Only include weeks where pay was received (skip weeks with no earnings)

• This ensures holiday pay reflects the employee’s regular rate, not just their base regular pay

• It covers things like commission, bonus, and overtime work if regular

Calculating average including overtime/commission

Let’s say an employee earns an average of £100 per week in overtime pay across the last 52 regular workweeks. Here’s how you calculate their holiday pay:

Formula: (Total OT in 52 paid weeks) ÷ 52 = Weekly OT to include in holiday pay

Example:

So when they take a week off, you’d pay their normal regular pay plus the £100; not just their base pay. This avoids short-changing them during holiday hours, especially if they usually do extra hours.

Irregular/part‑year workers & 12.07% accrual

For part-year workers, casual staff, or those with irregular hours (like term-time contracts), holiday pay is often calculated using the 12.07% method — which is based on the proportion of hours worked.

Here’s how it works:

• For every hour worked, they accrue 12.07% of an hour in holiday

• Employers can use rolled-up holiday pay (if clearly stated in the employment contract), meaning it’s paid as a percentage on top of each payslip

• You must clearly mark this on the payslip to remain compliant

This method makes it easier to manage holiday pay for flexible staff, but it’s still crucial to factor in overtime workwhen calculating their total pay.

Holiday & overtime treatment in us

In the US, federal law is clearer (but not always kinder) when it comes to holiday pay and overtime in same week scenarios.

FLSA doesn’t mandate holiday pay

The Fair Labor Standards Act (FLSA) does not require employers to offer paid holidays. So days like Christmas Day, Thanksgiving Day, or Martin Luther King Day? If your company policy offers pay, great. But the federal law doesn’t say you have to.

Also, most private employers don’t need to offer premium pay or double time pay unless it's part of your contract or union agreement.

Defining “hours worked” – holiday pay excluded

Here’s where many employers get tripped up: even if an employee gets holiday pay, those hours don’t count toward the 40 hours that trigger overtime pay under FLSA.

Example:

Result: You don’t have to pay overtime because the holiday hours don’t count as work performed.

Double dipping? Premium holiday vs overtime

Let’s say you do offer premium pay, maybe double time for Christmas Eve. Good on you! But under FLSA, that premium pay doesn’t get factored into the employee’s regular pay rate for overtime calculations.

In short: premium pay for holiday hours is separate from overtime pay.

Simplify holiday and overtime pay with Shiftbase

Managing holiday pay and overtime in same week scenarios doesn’t have to be a headache. With Shiftbase, you get clear visibility into hours worked, holiday hours, and overtime work, all in one place.

Our employee scheduling and time tracking tools help you accurately record every shift, while absence managementkeeps track of leave balances in real time. When it’s time to run payroll, our payroll integration ensures that data flows smoothly.

You can export everything to Excel or connect Shiftbase with your existing systems to simplify and automate pay calculations, even during complex weeks with holiday pay stack and overtime hours involved.

No more errors, no more back-pay surprises. Just peace of mind for you and fair, accurate pay for your team.

👉 Try Shiftbase free for 14 days and experience the difference.

Employee scheduling and Time-tracking software!

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