Is It Legal for a Company to Not Pay Overtime and Instead Add Overtime Worked to Available PTO?

In the United States, federal law is crystal clear regarding overtime pay. It is not legal for a company to bypass paying employees overtime by merely offering the equivalent amount in paid time off (PTO).

Understanding Overtime and Exempt/Non-Exempt Status

Whether an employee is eligible for overtime pay primarily hinges on their exempt or non-exempt status. Under the Fair Labor Standards Act (FLSA), non-exempt employees must receive overtime pay for every hour worked beyond 40 hours in a workweek at a rate of time and a half.

Non-Exempt Employees and Overtime Pay

For non-exempt employees, the FLSA explicitly mandates that any work hours exceeding the standard 40-hour workweek must be compensated with time-and-a-half pay. Therefore, it is not permissible for a company to simply add overtime hours to the employee's available PTO without properly compensating them with overtime pay. If a non-exempt employee is denied overtime pay, they may file a complaint with the Department of Labor's Wage and Hour Division (WHD).

Exempt Employees and Their Conditions

In contrast, exempt employees fall under a different set of rules. Exempt employees who are correctly classified and properly exempt from overtime pay may negotiate different work arrangements. However, it is crucial for companies to ensure that the exempt classification is accurate. Misclassifying an employee as exempt when they should be non-exempt can lead to significant legal consequences, including back pay and potential lawsuits.

Challenges and Legal Repercussions

If an exempt employee disputes their classification, it can lead to a challenge with the state labor board. If the challenge is upheld, the company can be held liable for back pay and other penalties. Consequently, it is vital for companies to scrutinize their classification systems to avoid such issues.

Examples of Salary and Overtime Arrangements

One organization provided an interesting example of how they structured an exempt employee's salary. The company designated 60 hours as a standard workweek, covering travel time. Even though the employee was technically hourly, their salary appeared to cover 60 hours. If the employee worked additional hours, they would receive overtime pay.

Initially, the organization offered the same salary they were already making, but as a salary overtime option. The contract allowed them to manage their hours more flexibly, essentially matching the overtime pay structure with a flat salary. This arrangement was designed to maintain the employee's income level while operating within legal requirements.

Total Compensation and Holiday Policies

Additionally, it is important to understand different types of holidays that employers may provide. Companies can define holidays in two categories: hard holidays and soft holidays.

Hard Holidays vs. Soft Holidays

Hard holidays are specific dates that are defined in the company calendar and are always paid. For example, New Year's Day, Christmas, etc. Soft holidays, on the other hand, may be taken on any day rather than the actual holiday date. This is more common in workplaces that operate on a 24/7 basis, allowing employees to take time off on weekdays that align with public holidays.

The exact calculation of overtime in a compensatory time off system is often left to the HR department. It is advisable for employees to inquire about the specific policies and procedures to ensure they are fully informed.

Conclusion

Whether it is legal to compensate employees for overtime hours with PTO rather than actual overtime pay depends on their employment status and the laws governing that status. Non-exempt employees have the right to receive overtime pay, whereas exempt employees can negotiate different arrangements but must be correctly classified.

Employers should ensure their pay practices comply with federal and state laws to maintain legal and ethical standards. Understanding the differences between hard and soft holidays and the specifics of the compensated time off system is crucial for both employees and employers.