Q: We have a team of nonexempt hourly employees who will soon be putting in significant overtime for an important project. May we compensate them for their overtime work with additional paid vacation time equal to the total accrued overtime?
A: No. Under the federal Fair Labor Standards Act, private sector employers are not permitted to provide nonexempt employees with compensatory time also known as comp time in place of overtime wages.
Note that the full amount of regular and overtime pay must ordinarily be paid at the regular payday for the period in which the work was performed.
That leaves some wiggle room if an employee has to work overtime irregularly over the pay period. For example, where an employees pay period is weekly, an employer may adjust the number of hours the employee works during the pay period in order to avoid incurring overtime. So if an employee works 40 hours by quitting time on Thursday, the employee may be given the following day off. The employee then collects his or her wages for a 40-hour workweek with no overtime. Again, this assumes a one-week pay period.
There is a very limited extension of the above principle to pay periods of no longer than two weeks. Under this so-called time off plan, an employee who works overtime during the first week of a two-week pay period may be laid off during the second week to balance out the overtime. But several other important restrictions and conditions make the time off plan nearly useless in most cases.
Note: Government employees may receive comp time in lieu of overtime pay.