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Opinion No. 5249

December 23, 1977


Compensation for over-time

The minimum wage law permits use of compensatory time in lieu of payment for over-time by adoption of a time-off plan where (1) the employee is either an hourly rated or a salaried employee; (2) the wage agreement provides for a fixed number of working hours per week; and (3) the pay period is either bi-weekly; semi-monthly; or monthly. Over-time established pursuant to a time-off plan may not be carried over from one pay period to the next but must be off-set during the employee's regular pay period.

Honorable John C. Hertel

State Senator

The Capitol

Lansing, Michigan 48901

You have requested my opinion as to whether the Minimum Wage Law of 1964, 1964 PA 154; MCLA 408.381 et seq; MSA 17.255(1) et seq, hereafter referred to as the Minimum Wage Law, permits a local government employer to grant its employees compensatory time where the employee has worked in excess of 40 hours per week. (1)

In OAG, 1975-1976, No 5115, p ___ (December 16, 1976), it was noted that the Michigan legislature has incorporated by reference certain definitions, exclusions and exceptions of the Federal Fair Labor Standards Act, 29 USC 201 et seq, into the Michigan Act.

Therefore, the cases decided under the Federal Act involving the interpretation of language similar to that found in the Minimum Wage Law must be applied, not only in interpreting language found in the State Act, but also in interpreting provisions of the Federal Act incorporated by reference into the State law.

The Federal Fair Labor Standards Act overtime compensation provision is contained in 29 USC 207(a)(1). It provides:

'Except as otherwise provided in this section, no employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.'

The key words are 'employee receives compensation at a rate not less than one and one-half times the regular rate at which he is employed'. These words, as noted above, are found in both the Minimum Wage Law of 1964, supra, and in the Federal Fair Labor Standards Act, supra. In Dunlop v State of New Jersey, 522 F2d 504, 509 (CA 3, 1975), the Court, in interpreting these words, said:

'Neither this section nor the statutory definitions contained in FLSA, 29 U.S.C. Sec. 203, define or mandate the form which overtime compensation is to take. Simply stated, the FLSA leaves unresolved the question of whether overtime compensation must take the form of monetary payments or whether it may assume the form of other types of remuneration, such as time off. This statutory reticence does not, however, render us guideless. Indeed, the FLSA is continually supplemented by the administrative interpretations and regulations of the Administrator of the Wage and Hour Division of the Department of Labor. See 29 U.S.C. Sec. 204. While these administrative rulings do not have the binding effect of law, we may not only properly resort to them for guidance but should also accord them the weight, persuasiveness, and respect to which the expertise of their formulators entitles them. See e.g., Mabee v White Plains Publishing Co., 327 U.S. 178, 182 (1946); Irwin v. Clark, 400 F. 2d 882, 884 (9th Cir. 1968); cert. denied, 393 U.S. 1062 (1969); Goldberg v. Sorvas, 294 F. 2d 841, 847 (3rd Cir. 1961).

'The Wage-Hour Administrator has considered the question of compensatory time off as a form of overtime compensation. In Opinion Letter No. 913 (December 27, 1968), he explained:

"An employer may not credit an employee with compensatory time (even at a time and one-half rate) for overtime earned which is to be taken at some mutually agreed upon later date subsequent to the end of the pay period in which the overtime was earned, rather than pay cash for the overtime as it is earned. However, it is permissible for the employer employing one at a fixed salary for a fixed workweek to lay off the employee a sufficient number of hours during some week or weeks of the pay period to offset the amount of overtime worked (i.e. at the time and one-half rate) so that the desired wage or salary for the pay period covers the total amount of compensation including overtime.' [Emphasis added]'

At page 511, the Court held:

'For these reasons, we hold that a program of compensatory time off, subject to the restriction that the time off be afforded during the same pay period, is permissible under the Fair Labor Standards Act.'

See also to the same effect Hodgson v A. W. Crossley, Inc, 365 F Supp 1131, 1134 (SDNY, 1973), and United States v Klinghoffer Bros Realty Corp, 285 F2d 487 (CA 2, 1960). In Crossley the Court quoted with approval Opinion Letter No. 913, dated December 27, 1968, of the Wage Hour Administrator, which was set forth above in Dunlop.

The United States Supreme Court granted certiorari in Dunlop, sub nom, New Jersey v Usery, 427 US 909; 96 S Ct 3196; 49 L Ed 2d 1202 (1976), and vacated the judgment and remanded the case for further consideration in the light of National League of Cities v Usery, 426 US 833; 96 S Ct 2465; 49 L Ed 2d 245 (1976). In National League of Cities the Court held that the minimum wage and overtime provisions of the Fair Labor Standards Act may not constitutionally be applied to state and local government employees who are engaged in traditional governmental activities.

Thus, in Dunlop the Supreme Court, in effect, held that the lower court unconstitutionally applied the Fair Labor Standards Act to the defendant State of New Jersey. It did not deal with the lower court's interpretation of the provisions of the Fair Labor Standards Act. Consequently, the reasoning of the lower court in Dunlop, must continue to be used in interpreting the language found in the overtime provisions of the Michigan Act.

I, therefore, conclude as follows: The overtime pay to which employees are entitled under the Minimum Wage Law, and by virtue of Rule 1 of the Michigan Department of Labor's overtime compensation rules, (2) is figured on a time period basis which is called the 'workweek.' The 'workweek' means a regularly recurring period of 168 hours (7 consecutive days times 24 hours). They must be paid time and one-half their regular rates for all hours worked in excess of 40 hours. Since the 'workweek' is the time measure for computing overtime, overtime hours worked in one 'workweek' may not be offset against nonovertime work worked in another 'workweek'. In effect this means that hours worked overtime in a 'workweek' may not be included in an overage of a period longer than one 'workweek'. This is true regardless of whether they are paid daily, weekly, bi-weekly, monthly or on a piecework basis, or whether they work standard or swing shifts.

The Minimum Wage Law, interpreted constonantly with the Fair Labor Standards Act, permits payment of compensation for overtime hours by adoption of a time-off plan whereby overtime hours are offset by a proportionate number of time-off hours. A time-off plan may not be formulated unless the following wage hour conditions are met: (1) the employee must be either hourly rated or salaried; (2) the wage agreement must provide a fixed number of working hours per week; and (3) the pay period must be either bi-weekly, semi-monthly, or monthly.

Within this wage-hour framework and subject to its limitations, an employer may draft a time-off plan which permits his employees who work overtime in one workweek in a pay period to be given time off in another workweek in the same pay period. Overtime may not be carried over from one pay period to the next, but must be either offset during the employee's regular pay period or paid in cash when he receives his straight time compensation for that pay period. For this reason the plan is not applicable to employees paid on a weekly basis. For example, an individual who works for a city 50 hours in the first week of a two-week pay period is entitled to either cash or compensatory time-off of 15 hours in the second workweek of the pay period which is time and one-half for the ten hours overtime put in during the first workweek. If he worked only 25 hours in the second workweek, no overtime would be payable. If he worked in excess of 25 hours, he would be entitled to one and one-half times his hourly rate as overtime pay for hours worked in excess of 25 during the second workweek. These excess hours may not be carried over to the next pay period. If the employee worked 80 hours in the first workweek of a two-week pay period, and did not work at all in the second workweek, he would be entitled to overtime pay for 20 hours plus his pay at the regular rate for the pay period inasmuch as overtime may not be carried over to the next pay period.

Frank J. Kelley

Attorney General

(1) Section 4a(1)(d) of the Minimum Wage Law; MCLA 408.384a; MSA 17.255(4a), establishes a workweek of 40 hours beginning May 1, 1977, and requires that an employee receive compensation at not less than one and one-half times the regular rate for working in excess of 40 hours.

(2) 1975 AACS R 408.731, p 8052.