The overtime rules under FLSA affect all forms of compensation.

One area where many employers unknowingly risk violating FLSA is when they offer employees a paid time off (PTO) buy-back program. Two compliance keys:

• Your total hourly wage calculations for overtime purposes must include all bought-back hours.
• OT hours must be counted toward the employee’s accrued PTO banks and buy-back eligibility.

Typical scenario

Here are two real-life example of how problems can spring up. A group of non-exempt city employees in Missouri won a class action overtime suit tied the city’s buy-back benefits.

What happened: Employees with a lot of accrued PTO took advantage of a program that let them sell back some of their unused time to the city.

These employees then claimed the money they made through the program should be added to their total-wage calculations – thereby raising their overtime pay.

Meanwhile, employees at a company in New York claimed benefits discrimination and sued because their OT hours weren’t counted toward their PTO, reducing the hours they could sell back.

In both cases, the employers lost. The city was forced to pay additional back wages with interest to cover the bought-back hours. And the company had to credit all OT hours toward the buy-back banks, greatly increasing the cost.

Another cause for pause

In addition to higher OT costs, there’s another reason you may want think twice about a buy-back plan: Employees who never take time off often have lower productivity.