How is overtime pay affected when employees are paid double for working on a holiday or are paid a premium to do so?

Both of these situations are addressed under the federal Fair Labor Standards Act (FLSA), and they have slightly different outcomes.

In the first scenario, an employer allows employees to receive both holiday pay and work on the holiday for regular wages. Under the FLSA, the holiday pay is not regarded as compensation for working (because the employee would also get it if he or she did not work); therefore it is excludable from the regular rate when calculating overtime. That also means that since holiday pay is not considered wages, it may not be used as a credit toward any overtime pay that may be owed to the employee.

See this example from Section 778.219:

(a)(2) An employee who is entitled under his employment contract to 8 hours' pay at his rate of $12 an hour for the Christmas holiday, forgoes his holiday and works 9 hours on that day. During the entire week, he works a total of 50 hours. He is paid under his contract $600 as straight-time compensation for 50 hours plus $96 as idle holiday pay. He is owed, under the statute, an additional $60 as overtime premium (additional half-time) for the 10 hours in excess of 40. His regular rate of $12 per hour has not been increased by virtue of the holiday pay but no part of the $96 holiday pay may be credited toward statutory overtime compensation due.

In the second scenario, an employer pays employees a premium rate for working on a holiday of at least time and a half, but the employee must forgo the regular holiday pay. Under the FLSA, this premium qualifies as an overtime premium under Section 7(e)(6) and is excludable from the regular rate. Here, however, the employer may credit the premium pay toward any statutory overtime requirement.

See this example from Section 778.219:

(b)(1) The typical situation is one in which an employee is entitled by contract to 8 hours' pay at his rate of $12 an hour for certain named holidays when no work is performed. If, however, he is required to work on such days, he does not receive his idle holiday pay. Instead, he receives a premium rate of $18 (time and one-half) for each hour worked on the holiday. If he worked 9 hours on the holiday and a total of 50 hours for the week, he would be owed, under his contract, $162 (9 × $18) for the holiday work and $492 for the other 41 hours worked in the week, a total of $654. Under the statute (which does not require premium pay for a holiday) he is owed $660 for a workweek of 50 hours at a rate of $12 an hour. Since the holiday premium is one and one-half times the established rate for nonholiday work, it does not increase the regular rate because it qualifies as an overtime premium under section 7(e)(6), and the employer may credit it toward statutory overtime compensation due and need pay the employee only the additional sum of $6 to meet the statutory requirements. (For a discussion of holiday premiums see § 778.203.)

State wage and hour laws may differ from federal law, so employers will want to review those requirements to ensure compliance.