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Giving Employees Compensatory Time Off in Lieu of Overtime? Read This First!

written by: N Nayab•edited by: Jean Scheid•updated: 10/17/2011

The Fair Labor Standards Act, also known as the Wages and Hours Bill is a Federal law that establishes minimum requirements for hours worked by employees, wages, premium overtime and payroll records. What the FLSA says about compensatory time has serious implications for businesses.

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    Overtime Pay

    What the FLSA Says About Compensatory Time The Fair Labor Standards Act (FLSA) does not limit employees working overtime but requires employers to pay covered employees one and a half time for all hours worked in excess of 40 hours in a workweek, regardless of whether such work is outside normal working hours or contractually agreed to by the employee. The act requires extra wages only for the additional hours works, and does not distinguish whether the additional hours worked were on Saturdays, Sundays, holidays, or regular days of rest. Again, the workweek may begin at any day of the week and at any time, but cannot exceed 168 hours.

    To lend clarity, assume an employee was hired to work 50 hours a week for $500. The regular hourly wage is $500 / 50 = $10.00, but the employee still becomes eligible for overtime, and receives $15 per hour for five hours overtime ( $10 x 1 ½ times wages = $15). The total weekly wages thus become $525 by default even though the contract specifies only $500 for 50 hours.

    It is pertinent to note here that Department of Labor guidelines require excluding lunch or other breaks with no work responsibilities exceeding 30 minutes from hours worked.

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    Rules for Public Sector Employees

    The FLSA allows employers the option to provide compensatory time in lieu of overtime payment at the same rate: that is one and a half hour off for every hour of overtime put in, provided they inform the concerned employee in advance or include it in the employment contract. This, however, applies only to government entity employees such as fire and police and not employees in the private sector.

    A public employer may provide compensatory time to a non-exempt employee in lieu of cash for overtime worked on a time-and-a-half basis, subject to a maximum of 240 compensatory hours for non-public safety personnel and 480 compensatory hours for public safety personnel. Cash payments for overtime worked is mandatory after this limit.

    The employer can compel the employee to use up the accrue 240 or 480 hours before starting overtime pay. In Christensen v. Harris County [ 529 U.S. 576, 120 S.Ct. 1655, 1656 (2000)], a landmark U.S. Supreme Court case, the court stated the FLSA or its implementing regulations does not prohibit a public employer from compelling employees to use accrued compensatory time.

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    Rules for Private Sector Employees

    What the FLSA Says About Compensatory Time Private sector employees may adjust daily working hours so that total work hours in the week remains 40. For instance, an employer may arrange work schedules so that an employee works three 10-hour days and two five-hour days a week, or four ten-hour days and three weekly off days, without making any overtime payment. However, once the total hours of work exceeds 40 a week, overtime provisions apply. It is not possible to take the average of two or more weeks to determine whether overtime applies.

    The employer may, however, allow or insist the employee take the time-off within the same pay period as the overtime worked, taking advantage of the “time-off plans" allowed by the US Department of Labor. Such time-off plans allow employees to take one-and-an-half hour off for every hour of work above 40 hours, but require the employee to avail the compensatory off during the same pay period in which they put in extra hours. Carry-over or accumulation of compensatory hours is not possible, and the employer has to pay overtime wages for overtime worked at the same pay period.

    The courts have confirmed that the employer may not credit an employee with compensatory time even at a time and one-half rate if taken at a different pay period than when the overtime accrued, and that overtime payment at the prescribed rate is a must in such cases. For instance, an employee who works fifty hours in the first week of a monthly pay period may avail fifteen hours of compensatory time off anytime during the rest of the month, and the employer has the option of providing the employee with such compensatory time off in lieu of overtime pay. However, an employee who works fifty hours in the last week of the month cannot take the accrued fifteen hours, as it would spill over to the next pay period, and the only option for the employer is to pay overtime wages due.

    The U.S. Department of Labor,however, restricts applying such time off plans to a salaried employee paid "fixed salary for a fluctuating workweek," rendering these provisions inapplicable in most cases. The applicability of various states laws may further complicate the situation. For instance, the Texas Payday Law requires paying non-exempt employees at least twice per month, effectively limiting the time-off plan to a two-week cycle.

    Employers need to have a serious look at what the FLSA says about compensatory time, for violation of FLSA provisions place the employer on the wrong side of the law, and attract huge penalties. Any aggrieved employee may file a FLSA claim that can go back as far as three years.

References

  • Image Credit 1: Wikimedia Commons/Vraagteken.svg
  • "Under the FLSA, May An Employer Give Compensatory Time To Employees Instead of Overtime?" http://wagehourlaw.foxrothschild.com/2009/12/overtime-issues/under-the-flsa-may-an-employer-give-compensatory-time-to-employees-instead-of-overtime/. Retrived October 10, 2011
  • Image Credit 2: Wikimedia Commons/Crossed Gravels
  • US Department of Labor. Wage and Hour Division. "Fact Sheet #23: Overtime Pay Requirements of the FLSA." http://www.dol.gov/whd/regs/compliance/whdfs23.pdf. Retrieved October 10, 2011.
  • US Department of Labor. "What does the Fair Labor Standards Act require?." http://www.dol.gov/elaws/esa/flsa/screen5.asp. retrieved October 10, 2011.
  • "Advanced FLSA Issues." http://www.twc.state.tx.us/news/efte/advanced_flsa_issues.html. Retrieved October 10, 2011.