One area of the Fair Labor Standards Act that I get asked about often is “compensatory time.” This is the desire to pay an employee for overtime by giving them time off the following week, or month or quarter. The person asking the question says that the “employee preferred to have the extra time off.” That sounds like a good deal for all concerned doesn’t it? Less cash the company has to pay out and the more time for the employee. The problem is it does not work that way.
According to the U.S. Department of Labor “The use of comp time instead of overtime is limited by Section 7(o) of the FLSA to a public agency that is a state, a political subdivision of a state, or an interstate governmental agency.” Thus a private sector company CANNOT compensate a non-exempt employee by the use of comp time.
The Fair Labor Standards Act (FLSA) requires that covered, nonexempt employees in the United States be paid at least the federal minimum wage for each hour worked and receive overtime pay at one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a workweek. FLSA overtime pay is due on the regular pay day for the period in which the overtime was worked. The overtime pay requirement may not be waived by agreement between the employer and the employee. The overtime pay requirement cannot be met through the use of compensatory time off (comp time) except under special circumstances applicable only to state and local government employees.
I highlighted three areas that are important to understand. First is “covered, non-exempt” employees. If you have employees who perform work for which they are compensated on an hourly basis they are “covered, non-exempt” employees. However, you may also have people that you pay a salary to. If they are non-exempt, as defined by their job description, then they to are “covered, non-exempt” employees. So they have to be paid overtime for hours worked that exceed 40 in a week. Additionally “Averaging of hours over two or more weeks is not permitted. Normally, overtime pay earned in a particular workweek must be paid on the regular pay day for the pay period in which the wages were earned.”
“Due on the regular payday” means you cannot delay the overtime earned in a single workweek. “May not be waived by agreement between the employer and the employee.” This means you cannot get the employee to waive their rights to overtime, even if they asked for it. So scratch that option.
After I have delivered this news, the next question I get is “What about supervisors?” Supervisors do not meet the standard of being “covered, non-exempt” employees (assuming they do meet the standards of the executive exemption). You can give the comp time all day long. Assume you have a period of time that everyone is working hard and long hours. Non-exempt employees get extra money for that. Supervisors don’t. Although you could pay the supervisors a bonus, you could also give them time-off as “compensation” for working so hard. There is no prohibition against that. Just remember just because you do it for supervisors does not mean you can do it for other employees.
So, let’s sum this up:
- You cannot average work weeks to level out hours worked
- You have to pay for hours worked that exceed 40 in a week
- This is based on status as a “covered, non-exempt” employee
- You CANNOT SUBSTITUTE time-off for earned overtime, even if the employee asks you to.
Of course, this does not apply if you are in the public sector or in a state that has regulations that are more friendly to the employee, such as California, which requires that overtime be paid for hours exceeding 8 in a day. But even there you cannot use comp time.
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