By Mark F. Kluger and William H. Healey
Roughly thirteen million employees may become newly eligible for overtime compensation (time and one half their regular hourly rate of pay) on December 1, 2016, the start date for the new overtime rules. As that date rapidly approaches, some employers are scrambling to find ways to avoid or at least minimize the cash flow impact caused by the anticipated changes.
Among the ways that we have heard that some employers are considering to avoid the cash flow crunch, is to implement a “comp time” policy. The idea of a compensatory time off policy is that it allows an employer to provide Non-exempt employees who work more than forty (40) hours in a work week additional paid time off instead of additional wages at time and one half their regular hourly rate. Such a policy would reduce the pressure on employers that may be caused by the new rules and allow employees who work significant overtime to make up for lost time away from home without losing out on a day’s pay. So problem solved, right?
Not so fast. As usual, if it sounds too good to be true….you know the rest. Only federal, state and local government employers can legally substitute compensatory time off for overtime compensation. That’s right, under the Fair Labor Standards Act (“FLSA”), Congress has reserved this great idea for their own kind and prohibited the private sector from using it in any way. In fact, it is illegal for private sector employers to even offer comp time to their Non-exempt employees as an alternative to cash compensation for overtime. There is no wiggle room. Case closed.
Private sector employers can, however, provide additional paid time off to their Exempt employees as a “bonus” for extra work or as a reward for going above and beyond expectations. In fact, the FLSA regulations make it clear that such use of comp time for Exempt employees does not jeopardize the employee’s Exempt status.
If you have questions about ways that employers can potentially ease the burden of the new overtime rules, just reach out to us.