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Comp time plans (in which overtime hours are converted to paid time off for use in a future pay period) are permitted only for public (government) employers. However, private employers may use comp time for nonexempt employees in two limited situations, neither of which allows carrying the time to a future pay period.
Under the first option, comp time would be used within the same workweek. For example, an employee works 10 hours on Monday through Wednesday, eight hours on Thursday, and only two hours on Friday. The six hours off on Friday can be considered comp time, but the employee still worked only 40 hours that week. This is more of a “flexible time” arrangement, since no overtime occurred. Even though employees must be paid overtime after 40 hours, an employer may adjust the working hours to prevent overtime from occurring.
The second option is available if employees have a two-week pay period (or longer, such as twice per month), and the overtime occurred during the first week of the pay period. The comp time may be taken any time within that two-week period, even during the second week. However, each workweek stands alone for purposes of overtime. Therefore, each overtime hour from the first workweek must result in 1.5 hours of comp time during the second week to account for the overtime rate (at least 1.5 times the regular rate). The Fair Labor Standards Act does not allow averaging time over two weeks.
For example, suppose an employee normally works 40 hours each week. If the employee works 45 hours during the first week of the pay period, the 5 hours of overtime may be granted as 7.5 hours off — comp time — during the second week of the pay period (the employee would work only 32.5 hours in the second week). To illustrate:
Assume that an employee is paid $10 per hour. For 80 hours worked, the employee would be paid $800.
From the above example, if the employee worked 45 hours in the first week of the pay period, he would earn $475 that week (40 hours at $10 plus the 5 overtime hours at $15). Then, if he works only 32.5 hours in the second week and is paid $325, his total earnings for the two-week period remains at $800, although he worked only 77.5 hours during those two weeks.
Note that if an employer has a two-week pay period, and the overtime occurs during the second week, the employer would either have to adjust the hours worked during the second week (as in the first option above) or would have to pay for any overtime hours on the paycheck for that earnings period. The employee cannot save the comp time for a future pay period.