It seems early to discuss holiday issues in October, but the holiday displays are already up at the big box stores, and smart employers are already planning for the holiday season and the winter months. This month and next I will discuss some of the questions and issues that arise during the holiday season.

What is holiday pay and how does it relate to overtime pay?

Employers Council attorneys frequently field questions from members on how to pay employees properly when they receive various combinations of holiday pay, premium pay for hours worked on holidays and overtime hours.

A recent Colorado Supreme Court case, Hamilton v. Amazon.com Services LLC (Colo., Sept. 6, 2024), addressed the proper way to calculate overtime when employees receive both holiday pay (whether they work a holiday or not) and holiday incentive pay — a premium rate of pay for working on the holiday.

In this case, Amazon paid employees “holiday pay” for each holiday whether the employees worked on the holiday or not. Employees who worked on a paid holiday received “holiday incentive pay” at time-and-a half in addition to their holiday pay.

An employee at Amazon’s Aurora, Colo., warehouse asserted Amazon underpaid him because it did not include his “holiday incentive pay” in the regular rate used to calculate his overtime. The court agreed with the employee.

The Supreme Court first examined the basics. The calculation of the regular rate is not identical under federal and Colorado law. Colorado Minimum Wage Order No. 38, in effect at the time the employee brought this claim, required that all compensation paid to an employee for hours worked, including “set hourly rates, shift differentials, minimum wage tip credits, non-discretionary bonuses, production bonuses and commissions,” must be included in the regular rate used to calculate overtime pay. Colorado law does not require employers to include pay for non-work hours such as vacation, paid sick days, jury duty, discretionary bonuses and holiday pay in the regular rate.

Amazon agreed that Amazon properly excluded regular holiday pay from the regular rate because it was pay for hours not worked, and the Court agreed. But the Court held that the holiday incentive pay was a type of shift differential that Amazon should have included in the regular rate used to calculate overtime.

So what should employers take from this case? Colorado has replaced minimum wage orders with the new “COMPS” order, but the current COMPS Order is identical to the order at issue in the Amazon case. Therefore, employers who only pay holiday pay without an additional premium payment have it easy as holiday pay is not included in the regular rate. This will affect not only how overtime pay is calculated but also whether the employee earns overtime at all.

An employee who takes a sick day or is paid for an unworked holiday but works 40 hours in a workweek is paid for 48 hours but does not qualify for overtime unless a contract or policy requires it.

The eight hours paid for the holiday were not work hours. The employer who pays some type of incentive for working on the holiday must include all pay for all hours worked in the calculation of overtime.

What is the difference between discretionary and nondiscretionary bonuses?

As touched upon above, the employer must include nondiscretionary bonuses in the regular pay rate. Discretionary bonuses are not included in the regular pay rate used to calculate overtime.

What is the difference? A bonus is non discretionary when it is promised in advance and the amount or calculation method is known in advance. The employee expects the bonus and works to earn it. To the contrary, a bonus is discretionary if the employer does not promise the bonus in advance or even if the employer promises a generous year-end bonus with no promise of the amount or how the amount would be calculated.

Thus, the employer who promises a year-end bonus in a set amount or using a set formula for employees if revenue, sales, attendance or profit goals are met must include this bonus in the regular pay rate. But an employer who awakes one December morning and decides to reward employees with a holiday turkey, a gift card or cash does not need to include the payment in the regular pay rate used to determine overtime. Even if the employer tells employees at the beginning of the year that it will award a year-end bonus if the year goes well, the employer still has the discretion to award the bonus.

Wait, a gift card to a coffee shop is a wage payment?

Yes, it is. I am a wage attorney, not a tax attorney, and employers should consult IRS Publication 15-B or a tax attorney to determine which fringe benefits are taxable income. But “de minimis” (minimal) gifts such a holiday turkey or tickets to a holiday show are probably not taxable wages under federal tax law. But cash and cash equivalent fringe benefits such as gift certificates and gift cards are never excluded from taxable wages as de minimis benefits regardless of the amount of the benefit. Many employers are shocked to find out in a tax audit that they have failed to withhold proper payroll taxes due to these types of awards.

Prepare now to properly pay employees the various types of income that arise during the holiday season and at the end of the year.

The Employers Council makes available to its members resources on these questions and other seasonal employment issues. And Employers Council consulting and enterprise level members may speak directly with our human resources professionals and employment attorneys at any time.