Employees and employers alike share questions and frustrations relating to how overtime works, when it must be paid, and whether time off can be substituted for overtime pay. Seemingly simple questions get complicated when intricate rules come in to play. Recently, a group of attorneys addressed some common questions surrounding compensatory time and overtime. Here are some answers for employers dealing with those often complicated issues. 
Comp time: Legal or not?
When work demands that a private-sector employee work more than 40 hours in one week but less than 40 hours the next week, can the employer just even out the time to avoid having to pay the time-and-a-half overtime premium? If conditions allow, why not just let the employee take a little time off one week in a pay period to make up for extra work during another week?
That’s not a good idea for private-sector employees who aren’t exempt from the federal Fair Labor Standards Act (FLSA), which requires that private-sector employers pay one and a half times the employee’s regular rate of pay for all hours worked in excess of 40 during a week.
As Emily Hobbs-Wright, an attorney with the Holland & Hart LLP law firm in Denver, Colorado, explains only governmental employers – those in the public sector – can give employees compensatory time off instead of overtime pay. But the law doesn’t prevent a private-sector employer from adjusting a nonexempt employee’s work hours during each week to keep the worker from exceeding 40 hours per week.
“For example, if an employee works two hours of overtime on Monday, the employer can reduce her schedule by two hours on another day during the same workweek,” Hobbs-Wright says. “It’s crucial that any adjustments be made during the same workweek, though.”
State laws also need to be considered. Hobbs-Wright explains that “some states require overtime pay for nonexempt employees who work more than a certain number of hours in a day regardless of the total number of hours they worked in the week.” In those states, employers can’t avoid paying overtime by adjusting a worker’s schedule on the other days of the week.
Of course the situation is different for employees who are properly classified as exempt under the FLSA. Jonathan C. Sterling, a partner with the Jorden Burt LLP firm in Simsbury, Connecticut, reminds employers that exempt employees don’t have to be paid for working more than 40 hours in a workweek. “Rewarding them with compensatory time off as a job benefit would be a discretionary decision,” he says.
FLSA coverage and overtime
Some small employers may think that because they have just a few employees they’re not covered under the FLSA and therefore don’t have to pay overtime to their hourly employees. While many laws dealing with employment don’t require compliance unless the employer has a certain number of employees, the FLSA and its minimum wage and overtime pay requirements applies to virtually all employers.
Reggie Gay, a shareholder at McNair Law Firm, P.A., in Anderson, South Carolina, explains that it’s the nature of the employer’s work and the employer’s gross income that determine whether it’s covered under the FLSA. “Basically, there are two types of coverage: enterprise coverage and individual coverage,” he says. “Essentially, for the FLSA to apply, those types of coverage require that the employer or its employees be involved in interstate commerce.”
Enterprise coverage means that all an employer’s employees are covered by the FLSA. “Enterprise coverage applies if an employer (1) is a school, health care facility, or public agency or (2) has annual gross sales or business of at least $500,000 and has two or more employees engaged in interstate commerce or the production of goods for interstate commerce,” Gay says. Interstate commerce is broadly interpreted, meaning that employers are covered if employees travel to other states; use mail, e-mail, or phones for interstate communication; or ship or receive goods to and from other states.
Even if an employer isn’t subject to enterprise coverage, individual coverage applies if an employee is engaged in interstate commerce on a regular basis or in the production of goods for interstate commerce.
“So in today’s world, most, if not all, employees typically will be individually covered, even if their employer isn’t covered by the FLSA,” Gay says.