You’ve seen the shell game: someone puts a small object (a walnut, perhaps) under one of three identical shells or cups and quickly rearranges them. The challenge is to watch carefully enough that you can identify which shell is hiding the object. Unless the person performing the trick cheats, nothing disappears—it may just appear to.
Paying employees is sometimes like that shell game. Employers start with a basic 40-hour work week and they shuffle the hours (using alternate schedules, comp time, and other tactics) to avoid paying overtime. But as in the shell game, the hours beyond 40 are still there and although employees or the law may be temporarily confused, the truth is that employees must be paid for that time. Anything less, no matter what euphemism you use, is cheating and ultimately results in penalties. To avoid those penalties:
• Understand overtime law. Federal law and the laws of most states base overtime requirements on individual workweeks. The rule is quite simple: nonexempt employees must be paid overtime (1.5 times the regular rate under federal law and most state laws) if they work more than 40 hours in a single week. Some states also stipulate a daily overtime rule. In such cases, employees must be paid overtime for working more than eight hours in a single 24-hour period.
• Don’t take overtime lightly. In a tough economy many companies watch overtime carefully. But the rest of the time (and sometimes even when times are tough) companies treat overtime as the norm. If you are truly asking employees to work overtime most of the time, then you don’t have enough staff. And although there are some employees who welcome overtime because of the extra pay (a trap in itself if they become accustomed to that extra and protest if you cut back), most employees resent the intrusion into their personal lives. Some overtime is inevitable, but don’t let it become a crutch.
• Forget about comp time. Although the concept of comp time (in which employees are given time off in exchange for, or as a reward for, working overtime) is popular, in reality, there’s no such thing. The law doesn’t allow this exchange unless it’s done in the same week as the overtime was worked. If that happens, there’s no reason to call it “comp time” because the employees’ time cards will show they didn’t work overtime that week. If the requirement isn’t met, and employees are given the time off in another week, you may think, erroneously, that you don’t have to pay for the overtime actually worked.
The situation is further complicated in states with daily overtime requirements. In California, for example, to even the hours in the workweek, employees must be given 1.5 hours off in the same workweek for every daily overtime hour worked. (In addition, in California, if the time off will be taken in a different week, employers and employees must agree to it in writing. Even that could run afoul of Federal law if the employee worked more than 40 hours in the work week.)
Comp time also exposes you to the risk that how you classify employees will be challenged. Remember that exempt employees aren’t eligible for overtime, but if you give them time off and call it comp time you may imply that they should be eligible for overtime and therefore they are not really exempt.
Finally, managing comp time can be a nightmare. How much time and money will you spend tracking time that’s only being moved from one column to another?
• Use time off as a reward. You can still grant time off to reward effort or time worked. Using your discretion lets you reward exempt employees and you may improve productivity and morale.