Labor Law Information Resource Center
Overtime Compensation: Reimburse by Cash or as Paid Time Off?
When an employee earns overtime (OT) pay the Fair Labor Standards Act (FLSA) requires that employees be reimbursed for this OT at one and one-half times their regular hourly rate, paid out at the time the hours are worked. Only Non-Exempt employees are eligible for overtime.
Generally, employees of enterprises that have an annual gross volume of sales made or business done of $500,000 or more are covered by the FLSA. In addition, employees of certain entities are covered by the FLSA regardless of the amount of gross volume of sales or business done. These entities include: hospitals; businesses providing medical or nursing care for residents; schools (whether operated for profit or not for profit); and public agencies.
A number of factors can impact how employers compensate employees for OT. Is this a government or private sector employee? Full time, part-time, temporary? Exempt or Non-Exempt*? Law enforcement or firefighter, nurse or other healthcare worker? In each of these employee situations, different rules can apply for OT compensation. So, along with being conversant with FLSA, you should also check the laws for your state.
To see who is covered under the FLSA, click here.
✓ The Act applies on a workweek basis. An employee's workweek is defined as a fixed and regularly recurring period of 168 hours — seven consecutive 24-hour periods.
✓ Ordinarily, hours worked in excess of 40 hours in a week are considered OT, although certain exemptions apply to specific types of businesses or specific types of work.
✓ An employer may adjust work schedules to preclude employees from working more than 40 hours per week and thereby earning OT.
✓ Hours cannot be averaged between two separate work weeks. For example, if an employee works 44 hours in one week and 36 in the next, they are entitled to be paid for a total of 80 hours of work with 4 of those hours as OT.
✓ Where an employee is subject to both state and federal overtime laws, the employee is entitled to overtime according to the higher standard (i.e., the standard that will provide the higher rate of pay).
✓ The FLSA has no provision for double time pay. This is a matter of agreement between an employer and employee (or the employee's representative)
✓ The FLSA does not require severance pay, sick leave, vacations or holidays.
✓ Only actual time worked counts towards OT in a given week (40 hours). Reimbursed vacation, holiday, or sick time does not count towards OT calculations.
As always, Shift2Work recommends that you consult competent legal authority on all issues affecting your business. While we try to be as accurate as possible, state and federal laws are constantly changing. Therefore, Shift2work makes no warranty about this or any material published on this site, nor should any of it be construed as legal advice. All material on www.Shift2Work.com is offered for educational purposes only.
Comp (compensation) time is defined as paid time off from work instead of paying for the OT earned as wages in their next paycheck. Even in situations where both the employer and employee might agree to such an arrangement, doing so is prohibited under federal law. Wages earned as OT must be reimbursed as cash.2
In the opinion of overtime pay specialist attorney Michael Lore, in the private sector, comp time may be given as a reward in addition to overtime wages.3
What is the interaction between overtime and compensatory time?
Section 29 CFR Ch. V (7–1–05 Edition), § 553.20 29 7(o) of the Act (FLSA) provides an element of flexibility to State and local government employers and an element of choice to their employees or the representatives of their employees regarding compensation for statutory overtime hours. The exemption provided by this subsection authorizes a public agency which is a State, a political subdivision of a State, or an interstate governmental agency, to provide compensatory time off (with certain limitations, as provided in §553.21) in lieu of monetary overtime compensation that would otherwise be required under section 7. Compensatory time received by an employee in lieu of cash must be at the rate of not less than one and one-half hours of compensatory time for each hour of overtime work, just as the monetary rate for overtime is calculated at the rate of not less than one and one-half times the regular rate of pay.
State and local government employers consist of those entities that are defined as public agencies by the FLSA. “Public Agency” is defined to mean the Government of the United States; the government of a State or political subdivision thereof; any agency of the United States, a State, or a political subdivision of a State; or any interstate governmental agency. The public agency definition does not extend to private companies that are engaged in work activities normally performed by public employees.
Fire and police small-agency exemption: The FLSA also provides an exemption from overtime protection for fire protection or law enforcement employees, if they are employed by an agency that employs fewer than five fire protection or law enforcement employees, respectively.
Department of Labor Overtime Pay
Department of Labor Compensatory Time
Who Qualifies for Compensation Time
*Click here for more information on Exempt & Non-Exempt employees.