Some payment methods prohibited by the FLSA
Does overtime have to be paid in cash?
When must overtime be paid?

What are some commonly used payment methods which are prohibited by the FLSA?

Fixed sum for varying amounts of overtime: Some employers pay a fixed sum that they attempt to use as overtime compensation. A lump sum payment for work performed during overtime hours without regard to the number of hours worked does not qualify as overtime compensation. This is true even if the lump sum exceeds the amount to which the employee would be paid on a per hour basis. To properly compute the employee's overtime pay, the lump sum payment must be added to the employee's other overtime compensation and then the employee's regular rate of pay determined. The employee is entitled to overtime pay equal to 1.5 times this regular rate of pay.

Salary includes regularly scheduled overtime hours: Another similar method occurs where an employer asserts that a portion of an employee's salary constitutes overtime pay. This is not allowed except under very specific circumstances called Belo contracts. Overtime pay must be in addition to and can not be a part of an employee's salary.

Bonus as part of overtime pay: Some employers pay bonuses to employees and tell them that the bonus includes the employee's overtime pay for working on a particular project or job. Unless the "bonus" is tied to each hour worked, it does not constitute overtime compensation.

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Does overtime have to be paid in cash?

With the exception of government employees, overtime compensation must be paid in cash. Compensatory time off is not permitted as payment for hours worked in excess of forty hours a week.

Under certain limited circumstances, employers are permitted to meet their minimum wage obligations by including the reasonable value of meals and housing. If this is done, the value of meals and housing should increase the overtime rate.

When must overtime be paid?

Overtime compensation must be paid on the regular payday for the pay period covered and, with one exception, overtime compensation must be paid in cash. Compensatory time or payment of overtime with "chits" or "IOUs" is prohibited. The only exception to this rule is that employers may deduct the reasonable value of lodging or meals in certain circumstances.

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