Only public employers can provide compensatory time-off instead of overtime pay to employees – private employers may not.
The Fair Labor Standards Act (FLSA) requires that employers must pay overtime to non-exempt employees who work more than 40 hours in a workweek at a rate not less than one and one-half times their regular rate of pay. 29 U.S.C. § 207(a)(1). The FLSA only authorizes “a public agency which is a State, a political subdivision of a State, or an interstate governmental agency” to provide compensatory time-off to employees at a rate not less than one and one-half hours for each hour of employment for which overtime compensation is required in lieu of paying overtime pay to the employee. 29 U.S.C. § 207(o)(1).
A public agency may provide compensatory time-off instead of paying overtime to employees only pursuant to either: (i) a collective bargaining agreement; or (ii) an agreement or understanding arrived at between the employer and employee before the performance of the work. Public employees who are engaged in a public safety activity, an emergency response activity, or a seasonal activity, may not accrue more than 480 hours of compensatory time-off. All other public employees may not accrue more than 240 hours of compensatory time-off. See 29 U.S.C. § 207(o)(2–3).
Takeaways: Private employers generally may not provide compensatory time-off to employees instead of paying overtime, but public employers can. Public employers who wish to provide compensatory time-off to employees should ensure that they have either a collective bargaining agreement or an agreement or understanding with the employee before performance of the work regarding the use of compensatory time-off.