(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.
