(a) Overtime
compensation due under section 7 may be paid in cash at the employer's
option, in lieu of providing compensatory time off under section 7(o) of
the Act in any workweek or work period. The FLSA does not prohibit an
employer from freely substituting cash, in whole or part, for
compensatory time off; and overtime payment in cash would not affect
subsequent granting of compensatory time off in future workweeks or work
periods. (See Sec. 553.23(a)(2).)
(b) The
principles for computing cash overtime pay are contained in 29 CFR part
778. Cash overtime compensation must be paid at a rate not less than one
and one-half times the regular rate at which the employee is actually
paid. (See 29 CFR 778.107.)
(c) In a
workweek or work period during which an employee works hours which are
overtime hours under FLSA and for which cash overtime payment will be
made, and the employee also takes compensatory time off, the payment for
such time off may be excluded from the regular rate of pay under section
7(e)(2) of the Act. Section 7(e)(2) provides that the regular rate shall
not be deemed to include payments made for occasional periods when no
work is performed due to vacation, holiday, . . . or other similar
cause.
As explained in 29
CFR 778.218(d), the term ``other similar cause'' refers to payments made
for periods of absence due to factors like holidays, vacations, illness,
and so forth. Payments made to an employee for periods of absence due to
the use of accrued compensatory time are considered to be the type of
payments in this ``other similar cause'' category.
