Is overtime pay required during peak work times?

Q: I am a small business owner, and my business is cyclical. Usually, we make our money over several months of the year, but at other times of the year, business is terribly slow. It is unpredictable. We are not a retailer, but we supply goods to retailers, so we try to track retail activity. I have about twelve employees, some part-time and some full-time. Some of our work weeks are hard to predict. Our business may be dependent on weather, local construction, or even when a holiday falls during the week. Recently at a professional association meeting, I attended a workshop where the workshop leader said that we could not offer compensation time to our employees. What I think I heard was that if I asked someone to work four extra hours on a Thursday, and then gave them 4 hours off instead of paying them overtime pay, that would be illegal. If I cannot do this, it would severely limit my ability to employ full-time staff. Can you help me understand better if I can or cannot offer comp time to my full-time employees?

A: Providing compensatory time (or “comp” time) is a widespread practice in some industries. This practice, giving an employee time off instead of paying the employee, can be used lawfully in some instances.

Generally, state, and federal law require employers to provide most non-exempt employees overtime pay, at one and one-half times their regular rate, when they work more than 40 hours in a work week. Some employees (e.g., outside sales representatives or managers) are “exempt” from this overtime requirement.

The use of compensatory time (or “comp time”) should be carefully reviewed. One of the factors is the state in which the employee works. If you have an employee working in California, the employment laws differ than those in Massachusetts. If an employee is a non-exempt worker, meaning an employee who is due overtime, the employer may not award compensatory time in lieu of paying overtime compensation.

However, one piece of additional information may help you when deciding on how to schedule your employees yet still meet fluctuating business needs. An employee who works extra hours may receive compensatory time off within the same work week because it does not affect the calculation of hours worked or the overtime due. As an example, if an employee works an additional three hours on Wednesday, December 13^th, and you can reduce his workday by three hours on Friday December 15th, you would not be required to pay time and one-half for these three hours of worktime. In Massachusetts, overtime must be paid when a non-exempt employee works beyond 40 hours in a single workweek. State laws very though. In California, as an example, an employer must pay overtime for any hours worked over eight hours in a single workday.

Most employers are watchful of employment costs. However, even unintentional violations of wage and hour laws present significant problems for businesses because, under Massachusetts law, employees can recover automatic triple damages, and their attorneys’ fees from their employer. Employer, even very small ones, have been facing expensive class action wage-hour lawsuits brought by attorneys on behalf of affected employees.

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