Can I Bank Overtime Pay or “Time In Lieu” for My Employees?

Many employers will allow or even force their employees to bank overtime hours to avoid paying out 1.5 times their normal hourly rate. However, under the provisions of the Fair Labor Standards Act, banking excess hours worked for non-exempt employees as comp time or paying them at the regular rate on future paychecks isn’t allowed. They must always be paid one-and-a-half times their regular rate for any hours worked over 40 in a workweek.

In certain sectors, such as in state and local government, employees may be eligible to earn comp time, as long as it’s agreed upon in advance. This cannot just be a verbal agreement either. The agreement must be in writing and made between the employer and the employee, or authorized employee representative, before any of the work is done.

Wisconsin law states whether an employer chooses to pay the overtime premium directly in wages or offers the employee compensatory time, the employer is obligated to pay the person 1.5 times their regular rate of pay for the overtime hours. If the employer pays the overtime premium by allowing the employee to use compensatory time, the employee is entitled to use 1.5 hours of comp time for each overtime hour worked. Nongovernment employers must also ensure the employee uses the compensatory time within 31 days of when the time is earned.

Illinois law states compensatory time off in place of payment for overtime is not legal.

If you failed to pay overtime and were required to do so, this could be a devastating mistake. There are hefty fines and other penalties when it comes to following overtime laws, so be sure you have a clear understanding of the overtime laws in your local sector. The burden of proof lies with the employer, so keeping accurate and contemporaneous time tracking records is a must and we can help you. If you are concerned you may be handling overtime incorrectly, you might want to contact a labor attorney. If you would like to know more about accurate time tracking tools, click the "Let's Chat" button below to get started!

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Tax or professional advice contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained herein. Any advice provided shall not be deemed to be formal tax advice and no one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Although we endeavor to provide accurate and timely information, there can be no guarantee that information is accurate as of the date it is received or that it will continue to be accurate in the future. We highly recommend you consult with a labor attorney regarding overtime laws.