Paid time off in lieu of wages is a compensation option available to operating locations only when:
According to the Fair Labor Standards Act (FLSA), if an operating location has a standard workweek that is 37.5 hours long, and a nonexempt employee works more than 37.5 hours in a week, the employee will earn overtime only if he or she works more than 40 hours in the week, and only for the time that is in excess of 40 hours.
That is, up to 2.5 hours — the difference between the length of the standard workweek at the location and the 40-hour per week threshold for overtime — of the time worked in excess of 37.5 hours in a given week is not considered overtime under FLSA.
Operating locations that have a standard workweek of 37.5 hours have two options for compensating nonexempt employees for the nonovertime portion of any time worked in excess of the standard workweek:
In order to ensure that prompt payment laws are satisfied and to avoid the complications that may be caused by the requirements that accompany the provision of paid time off in lieu of wages (discussed below), the RF recommends that operating locations that have a standard workweek of 37.5 hours compensate nonexempt employees at their regular rate for the nonovertime portion of any time worked in excess of 37.5 hours for a given week.
Because paid time off in lieu of wages is compensation due the employee, it must be paid if it is not used and an employee's right to this compensation cannot be waived. Furthermore, this time is an unfunded liability against the account on which the work was performed.
Therefore, operating locations with a standard workweek of 37.5 hours that elect to provide paid time off in lieu of wages to nonexempt employees for the nonovertime portion of any time worked in excess of 37.5 hours for a given week must satisfy the following conditions:
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