Company policies can be complex. But as an employee, you need to know what you’re entitled to make sure you’re getting the right wages and the benefits you deserve.
35% of US employees don’t fully understand the benefits they’re enrolled in. If you fall into this category, the only solution is to take the time to better understand policies and procedures.
When you understand how overtime and paid time off (PTO) work, it’s possible to optimize your work schedule and therefore maximize your wages.
So here, I’ll explain in detail how PTO impacts overtime when it comes to wages, PTO accrual, and different job categories. But first, let’s have a quick reminder of what overtime and PTO are all about.
What Is Overtime?
Overtime may be described as any time you spend working outside of your regular hours. But according to federal law, overtime is classed as any hours worked above 40 hours in a week.
Some states, however, have their own overtime laws. In Alaska, California, Nevada, Puerto Rico, and the Virgin Islands, state law says any hours worked above 8 hours in a day is classed as overtime. In Oregon, hours worked by employees in the manufacturing and canneries above 10 hours in a day and in Colorado, hours worked by employees above 12 hours in a day are classed as overtime.
Legally, employees must be paid at least one and a half times their hourly wage for overtime hours. Some companies offer double pay for overtime.
Overtime and overtime pay is a legal requirement for the majority of hourly workers. Whether salaried workers receive overtime pay depends on the company they work for and whether they meet the requirements for nonexempt status within the Fair Labor Standards Act (FLSA).
It’s worth noting that employers aren’t required to give overtime pay when you work a Saturday, Sunday, or a public holiday.
What Is PTO?
PTO is any time you take off from your regularly scheduled work hours but that you’re still paid for. You may take it for different reasons such as vacation, sickness, and parental leave.
PTO is part of your employee benefits package and is used by employers to increase employee well-being, job satisfaction, and retention.
Different companies do PTO differently. Some, for example, have specific policies for each type of PTO, e.g., you may be allotted a certain number of paid sick days and a certain number of vacation days separately. Other companies bring all PTO together in a PTO bank.
Some companies provide lump sum PTO, in which you get a set number of paid days off per year. Other companies use PTO accrual, in which you earn PTO over time based on the number of hours you work and the time you’ve spent at a company.
Unlike overtime, there’s no federal law that requires or regulates PTO.
What Does PTO Mean for Overtime?
Paid time off or PTO hours do not count toward overtime. This is because overtime pay only applies to the hours you actually work. PTO hours aren’t classed as hours worked.
According to the FLSA guidance on hours worked,
“If your employer allows you to take time off for a holiday, a vacation, or because you are sick, the time off, even though you are paid for the time, is not hours worked and need not be included in the total hours worked for overtime purposes.”
Federal law states that overtime pay starts when an employee works beyond 40 hours.
So let’s say you usually work 8 scheduled hours plus 1 hour of overtime per day Monday to Friday. Usually, you’d get 40 hours at your basic wage then 5 hours at time and a half for the overtime.
If you decide to take Friday as paid time off, you’ll only work 36 hours. That is 8 scheduled hours plus 1 extra hour per day. So even though you go beyond the 8-hour days Monday to Thursday, you’ll only receive your basic wage and no overtime pay as you haven’t totaled 40 hours overall.
To give you another scenario, perhaps you don’t usually do overtime, but you decide to do it one week to make up for some time off.
Let’s say you usually work 8 hours per day, Monday through Friday. On Tuesday, you take 4 PTO hours off to go to a hospital appointment.
But on Thursday, you work an extra 2 hours. In a normal week, those 2 hours would be counted as overtime and paid as such because you work 42 hours overall.
But this week it doesn’t count as overtime as you haven’t actually worked the minimum 40 hours due to your PTO. It’s calculated like this 40 hours – 4 PTO hours + 2 extra hours = 38 hours.
Bear in mind that some companies may offer overtime pay on PTO hours as part of their company policy or as a benefit. But companies aren’t legally obliged to do this.
What Does ‘Hours Worked’ Mean?
The FLSA says PTO hours don’t count towards overtime as they’re not “hours worked.” You need to be clear on what this actually means.
Hours worked refers to the time you spend completing your regular duties as well as any time spent on work premises for the purposes of work. Hours worked also comprises any remote work or work you take home to complete, as well as time spent on duty when working from home.
Time spent on-call, in meetings, and in training usually count as hours worked, too. Be aware that meetings and training may not count as hours worked in some scenarios, such as if the meeting or training session is voluntary or if it occurs outside of the hours you regularly work.
Furthermore, travel time counts if it’s something you need to do for work, for instance traveling to other offices or worksites or any other work-related travel you complete during regular work hours.
Does PTO Accrue During Overtime?
Whether you accrue PTO during overtime depends on the company you work for. Check your company PTO policy carefully or speak to an HR representative if the policy is unclear.
Generally speaking, PTO may be accrued by the hour or within a set time period such as every two weeks, month, quarter, or pay period. If you earn PTO periodically, e.g., each month, it’ll likely remain at a specific set amount whether you work overtime or not.
Amazon associates, for example, accrue PTO each pay period. The amount they earn is on a scale and is determined by job type i.e., part-time, reduced time, or full-time, as well as years of service.
At Amazon, full-time is simply classed as working 40+ hours per week. So it appears that no matter how much overtime you work beyond your regular hours you receive the same amount of accrued PTO per pay period.
If you accrue PTO hourly rather than incrementally, you may earn PTO for working overtime. But this depends on company policy.
Overtime vs. Comp Time
Employers may offer compensatory time off, or comp time, for employees who work overtime only occasionally or on an irregular basis. This means that instead of getting overtime pay for any extra hours you work, you bank the hours to use as paid time off.
It isn’t legal for companies in the private sector to give hourly employees and other nonexempt employees comp time in lieu of overtime pay. They must be paid at least time and a half in line with the FLSA.
As such, comp time is more commonly used for salaried workers or any workers in the public sector, for example, for workers at local government agencies.
Whether you’re entitled to comp time is at the discretion of your employer. Some employers use it merely in unexpected or unusual circumstances. Others have a regulated policy for comp time as part of a flexible working policy.
According to the US Office of Personnel Management, one hour of overtime is equal to one hour of compensatory time. Comp time must be agreed upon between the employee and employer prior to the overtime commencing.
Exempt employees in any sector and nonexempt employees in the public sector may be granted comp time. And both need to use this time within 26 pay periods.
If nonexempt employees don’t use their comp time within this period, they’re entitled to receive the balance they earned in overtime pay. For exempt employees, however, they may be paid at the overtime rate or simply forfeit the time, depending on the company they work for.
How Does PTO Impact Overtime for Salaried Employees?
Unlike hourly employees, most salaried employees don’t technically work overtime even when they work beyond their regularly scheduled hours. They earn a set wage each month and may be expected to work extra hours when required simply as part of the responsibilities assigned to their job.
This means that PTO doesn’t impact overtime for most salaried employees as, according to the FLSA, employers aren’t obliged to pay exempt salaried employees overtime anyway.
According to the FLSA, exempt employees earn above $23,600 per year, are paid a salary rather than an hourly wage, and perform certain types of duties comprising outside sales, “executive,” “professional,” or “administrative” work.
Executive duties include any managerial or supervisory duties. So, for example, if you plan and assign work to employees, then it’s classed as executive work. Similarly, if you’re involved in hiring employees, compliance monitoring, and planning the budget, you’ll fall into the executive category.
Professional work applies to those that have received an education or similar specialized training to be able to perform their jobs. This includes lawyers, teachers, architects, doctors, and further professionals.
Administrative duties are carried out by high-level employees and comprise non-manual work that has an impact on business operations and the company at large. For example, payroll, IT, PR, and HR executives are likely to fall into this category.
So, as a salaried employee, you may be entitled to overtime pay when you meet certain criteria, for example, you earn less than $23,600 per year and/or don’t perform any of the duties described above. If this is the case, the way in which PTO affects overtime will likely be the same as that for hourly employees at your company.
My Advice for Employees Concerning Overtime and PTO
As a general rule, you won’t receive overtime pay if you’re an hourly employee and work less than 40 hours in a week. So if you take paid time off and then work overtime in the same week, you won’t get your time and a half or double time pay if you’ve done fewer than 40 hours overall.
If you want to recoup the hours you lost to PTO, it makes sense to do the overtime in another week, when you do work 40+ hours as you’ll earn extra money in the form of overtime pay instead of just your basic wage for the extra hours you put in.
Another tip, know whether your job is classed as exempt or nonexempt from the FLSA, particularly if you’re a salaried employee. You may assume you aren’t entitled to overtime pay and other benefits that hourly employees receive. But this might not be the case if you don’t meet the criteria that make employees exempt. Know and protect your rights.
If you are classed as exempt or you’re an hourly employee in the public sector, you may be granted comp time in lieu of overtime pay. Remember that this comp time needs to be used within 26 pay periods, which could be just a year if you get paid bi-weekly. Use it within this time or you may lose it.
All in all, overtime and PTO policies may differ according to the company you work at, the type of job you have, and the state you live in. So be sure to examine your company policies carefully. These may be found in your online HR portal, work contract, or benefits package documents. Speak to HR if the policies remain unclear.